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Do Your Clients Have Money Madness?

A consumer finance book could be an asset for advisors.

David J. Drucker, 02/26/2009

I've known Spencer Sherman for a long time. Yet, when I heard he'd written a consumer personal finance book, I had to wonder: "Does the world really need another one of these? Haven't countless advisors and less-credentialed writers done these to death?"

I guess not, because Sherman offers something rarely found in other consumer finance tomes: common sense. "I focus on seven simple rules throughout book, such as, 'don't put all your eggs in one basket.' It's a rule everyone knows, but few follow."

Sherman, one owner and CEO of Abacus Wealth Partners, LLC, says his book, The Cure for Money Madness, began from his own painful experiences around money growing up. "I needed to find a cure for all the crazy, unproductive money behavior I have displayed throughout my life," says Sherman, and he says the behavior included crazy investment decisions earlier in life and, more recently, a difficulty communicating about money with his wife and sharing information about the family's assets, and pain around certain long-held money beliefs.

"When I was a kid, I once asked my father how much money he made and he gave me a look of terror and shame that really affected me. The lesson I learned from that was 'self worth equals net worth,'" says Sherman. "I was thinking this morning about how diseases like cholera are caused by polluted water. In much the same way, money madness is caused by polluted water in the form of beliefs we acquire early on and carry with us into our adult life that affect how we save, spend, invest, and think and talk about money. Now the disease is global and it spreads. I knew people who worked at Bear Stearns--the smartest people in the world--who failed not for lack of knowledge or intelligence, but for the disease that caused them to put all their eggs in one (mortgage) basket."

He says that the pollution that caused this irrational behavior was the brokers' fear of not being in first place.

"I've seen this with clients, too, of course. In 1990, a client asked me to double his money--which I did. He had said he'd be [financially] free if I could do that. Yet, in 1995 with his money still doubled, he said he needed twice as much."

All of these things led Sherman to realize that there was something else going on around money that's bigger than what a financial advisor can solve. "It's about unhooking the client from early childhood conditioning around money," he says.

Another example: "I come at investing asking, 'Why is it that there's a path to amazing success in investing and yet even though it's publicly known, relatively few people follow it? In other words, we know that if you just buy index funds, you'll do better than 70%-90% of all professional money managers, so why is it we don't use this strategy? Why is so much money thrown at professional money managers? People aren't stupid, but emotions drive them to make these poor decisions."

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