Improving Investor Behavior – Doubt, Sold with a Smile

Financial advice is usually broken into three steps. First, define your goals. Where do you want to go? Next comes a plan. This is the recipe for working toward your goals with actionable and measurable steps. Then comes implementation when you start your plan.

The first two steps lay out the “What” of your financial future; the last deals with the “How.” All too often investors make it through the first steps with optimism and progress, only to be led astray with the last. This is when experts, products, advertisements, advisors, and everyone else in the financial world tell you their way is best – and all the others? Well, they just don’t measure up.

Of course, this leaves investors with a problem. Who can you trust? The stakes aren’t small. This is a life’s savings for many. It’s the money investors will rely on for the next 30-40 years or more. But with so much doubt and confusion, how are they to choose in whom to trust?

It’s a hard question. Trust is built over time. Like exercise, it takes repetition. Do what you say you’re going to do when you say you’re going to do it, and always, always, act in the best interest of the client. But relationships take time to foster. If you’re looking for help, you may not already have a trustworthy relationship with someone in finance. So in blank-slate instances like this, I think it helps to examine the agendas of everyone involved. With a clear understanding of their “Whys,” it’s easier to make an informed decision.

Who are the players on the financial scene? I think there are four big ones: financial manufacturers, media, salesmen, and advisors.

Financial manufacturers are companies that offer mutual funds, bonds or other investments. They monitor demand and develop products that people think they want. Their sales are generated by uncertainty in the marketplace. Want to switch stocks? They will sell them to you and profit from the transaction. Want to add some bonds? Again, they will sell those to you too. When your doubt leads to an action, they generate revenue. As a business, their agenda is profit – not your financial future.

So, if manufacturers profit from doubt, doesn’t it benefit them to create more of it? In the media, a 24-hour news cycle has led to a focus on the here and now. In this fast-paced environment, “talking heads” share their opinions and financial forecasts with almost zero accountability. These differing viewpoints generate doubt, questioning, and in the end, change. Consider the number of sponsored talk radio shows, many of which are really 30-minute financial commercials. These shows help fund station’s operations. Again, as a business, their agenda is profit – not your financial future.

Next, we have financial salesmen and advisors. After 40 years in this industry, I’ve seen great salespeople and great advisors, but rarely are they the same person. How do you determine which is which? Ask yourself this: is this person helping me to transact or are they helping me to get where I want to go? Do they ask questions and listen? Do they really understand my goals, my fears and risks, my most significant opportunities, and my strengths? If so, do they help me along the way?

Investments in and of themselves don’t create peace of mind, income growth, generational wealth, or a lasting legacy. Products alone won’t do this. Does your advisor solve a problem or sell you a product? Are they a fiduciary who puts your interests first – before the company they work for and their own personal interests? Who writes their paycheck? If they work for a company, you might consider where their loyalty lies: to you or the company? This was one of the driving forces behind my choice to be independent. Without a company pushing products on me, I have the opportunity to provide clients with advice that works for them.

The goal is to find someone who’s agenda aligns with your own. Retirement planning isn’t a one-time project. It’s an ongoing partnership that works to ensure you have enough money, long enough, to find the freedoms you desire. It’s a large endeavor and one that usually requires a team of people to help tackle the complexities, paperwork, and strategies needed to make it happen. In choosing members of your team, examine their agendas to decide if the foundations of trust are there. Over time, let trust develop. If something doesn’t seem right, get a second opinion. This work may seem monotonous, but it can make all the difference in your financial future.