“Wildlife management is largely people management.” – Chris DePerno, an North Carolina State University biologist (WSJ)
The prior quote came from a story about cities, like Asheville, NC, increasingly having to deal with bears who like to dig through trash cans for food and scare the bejesus out of people. There is a lesson there in all of this for everyone in the financial advice business.
“Financial advice is largely people management.”
Management not in a do this/don’t do that kind of way, but in a let’s figure something out sort of way.That is not a particularly novel insight.
Vanguard made a big splash by trying to quantify the value that advisors bring to the table for their clients. There has been some backlash against the idea of ‘behavioral coaching‘ because it can be viewed as being paternalistic. That is however short-sighted.
The whole reason we need real financial advisors is because we ARE human beings and all that comes with it. Brendan Mullooly writing at Your Brain on Stocks:
But I want to dispel an implicit myth about behavioral coaching: it is not predicated upon its recipient being crazy, stupid, or reckless. Nor is it predicated upon its purveyor being a genius, stoic, or super-human. It is predicated upon both parties being human.
This is all the more important because the original value proposition for advisors, investment management, has largely been solved. Not in a Jim Simons/Renaissance Technology sort of way. But in a, we know the major elements involved way. Barry Ritholtz at the Big Picture writes:
“Investing,” as Dave Nadig of ETF.com likes to say, “is a problem that has been solved.” Keep it simple, watch your costs, be diversified, invest for the long run, let the magic of compounding work for you. For most portfolios, statistically speaking, it is a high probability solution.
That is not say there is not plenty that a financial advisor can do for a client above and beyond that of portfolio management. Andrew Miller on Twitter notes the many ways in which our (financial) lives are filled with crucial, non-reversible decisions. A financial advisor can be a vital resource at these times.
The value in financial planning is in helping people identify optionality they have in life and to help maximize the options value:
1) Social Security claiming
2) Pension claiming
3) Business sale structuring
4) Tax efficient withdrawals
5) Tax efficient savings
6) LT tax plan— Andrew Miller (@millerak42) November 13, 2019
And some more:
I’ll add some more examples:
7) Profit sharing plan design
8) Entity structure selection
9) Short-term tax planning
10) Health insurance selection
11) Retirement timing
12) Mortgage structure
13) Life insurance decisions & structure
14) Disability insurance structure
15) LTC ins— Andrew Miller (@millerak42) November 13, 2019
There is clearly a financial/legal/tax component to all these decisions. And some tech wizard will find a way to help automate some of the calculations involved. However nearly all the items on this list involve personal, human trade-offs:
- When can/should I retire?
- Should I sell my business?
- What is the best way to make sure my family is taken care of?
Human stuff. Stuff that can’t be automated. Stuff that often only makes sense after a conversation with another living, breathing human being.
Should we automate as much of this as we can? Absolutely. The more options we can give to consumers at no/low cost should be celebrated. But let’s not kid ourselves. Bears are going to keep looking for food in places that are inconvenient to us. And we humans are going to still need help navigating the crucial, non-reversible decisions in life.
