Advisors and the Emotional Burden

It will come as no surprise to you, but giving financial advice to real people can be emotionally trying. Real people aren't customers to be segmented. Real people aren't revenue sources. Real people have goals and dreams, and often money plays a huge role in achieving those dreams. Part of the advisor's predicament is that helping people make plans to realize these dreams is an act of faith and optimism. Planning for the future requires faith, because no matter how much data we have about the past, as far as I know, there's no reliable data set about the future.

I'm not talking about blind faith in a product or an investment philosophy. I'm simply talking about the faith that is required whenever we make plans for the future. Because we don't know exactly what the future will bring, it requires us to believe in something that we cannot yet see. Of course, any time you plan for a positive outcome in the future, you are committing an act of radical optimism as well.

Nowhere is this need for faith and optimism more apparent than in the investment plans that we design for clients. Although we have mountains of data about the past performance of the equity markets (100 years' worth), we all know that it doesn't represent a guarantee for the future. Ultimately, continuing to believe that stocks will outperform bonds and that bonds will continue to outperform cash is an act of faith. Because we just don't know.

And because we don't know for sure, it places a heavy, emotional burden on advisors. The reality of giving financial advice is that we're dealing with the most cherished dreams and aspirations of our clients, things that are driven far more by emotion than by spreadsheets. So, we have to be the barrier between our clients and pessimism. At the same time, we also have to help them avoid costly mistakes and remain optimistic about the future. So, even though we face huge economic challenges, promoting optimism doesn't require me to know exactly how we'll solve the problems--it just requires me to have the faith that we will. It's this faith that makes our jobs doable. Otherwise, we should just head to the hills with our shotguns and plant big gardens.

In 2008, I remember all the meetings I had with clients that required me to look them in the eyes and tell them things were going to work out. I also remember walking out of those meetings, closing the door, and hoping I was right. It was the first time in my career when the only thing between someone I cared about and a big mistake was my faith. While I would love to believe that it won't happen again, I am sure it will. There will be more times when our clients will look to us to help them feel that everything is going to be all right. The question I think we all need to consider is whether we're ready to continue carrying that burden.

Carl Richards runs BehaviorGap.com, a laboratory of sorts where he asks tough questions about financial planning and investor behavior. He puts his ideas to work in the real world through his firm, Prasada Capital Management.