FINANCIAL LIFE PLANNING

Ross Levin

Advisors must understand that demonstrating certainty doesn ’ t always work .

N CHRISTOPHER MOORE ’ S TONGUE-IN-CHEEK BOOK LAMB , THE GOSPEL

According to Biff , Christ ’ s Childhood Pal , the author describes the teachings of the Tao . “ The three jewels of the Tao : compassion , moderation , and humility .” The book alludes to Balthasar , one of the Three Wise Men , as having said that “ compassion leads to courage , moderation leads to generosity , and humility leads to leadership .”

I would like to spend this column on humility , because in our business , it is one of the rarest of traits and the most difficult to manage .

When it comes to many financial concepts , we know more than our clients . But this is a weakness as well as a strength . When you know something , you are no longer curious . And when you think you know something that you actually don ’ t , you are acting , to put it kindly , sub-optimally . Many of us came into this field with finance or math backgrounds . Or we crunched numbers as we took our securities licensing or parts of our CFP courses . Math is so comfortable . It is objective , black and white . It inspires confidence because it is emphatic . It is necessary as we produce tax returns or cash flow analyses or safe-spending models . It is always elegant . It massages our egos .

But almost all of what we do in giving financial advice is science , not math . Science is messy . Its purpose is to disprove what we posit . It is about experimenting . Trial and error . It always makes us vulnerable because it opens us up to our fallibility . In science , we are learning from our clients as well as teaching them .

While both math and science are a necessary part of financial planning , our humility comes from science .

With investments , I am wrong every day . I always own something that didn ’ t

While both math and science are a necessary part of financial planning , our humility comes from science . do as well as something else . While I believe in mean reversion , not everyone lives long enough to benefit from it . No single client represents the law of large numbers . When clients ask what happens to markets during presidential election years , we have had all of 25 elections since 1925 to make our case . So who really knows ?

One of our clients went all in on Tesla when it was trading at around 10 % of where it is today . It was almost their entire portfolio . We reasoned , cajoled , begged him to set aside enough money that we could manage so that if something bad happened to Tesla , he would be OK . He agreed . And then he watched his Tesla stock continue to grow exponentially as the portfolio we managed for him grew only normally . He loved our wealth management advice in general , but he felt that our investment advice in particular had cost him millions . It did .

Recently , he blew out of most of his Tesla and invested the rest in a bitcoin ETF and in the software and cloud company MicroStrategy . Impeccable timing . In fact , the timing was so good that we had to let him go as a client because of his self-confidence and his results . We were uncomfortable with what would happen if his hot hand went cold and he hadn ’ t set aside enough money to be safe . This may not turn out well for him , but in the short-term , neither did working with us .

While this is an extreme example , it still is humbling .

MAY 2024 | FINANCIAL ADVISOR MAGAZINE | 23