A study by Brinson, Hood and Beebower (BHB) in 1986 found a portfolio’s asset allocation had the greatest impact on the variability of returns.
Specifically, they found that “investment policy dominates investment strategy”. In other words, setting a strategic asset allocation for a portfolio was far more important than tactical asset allocation, trying to time the market or selecting out-performing securities. The finding was so controversial that BHB redid the study in 1991, only to come up with a similar finding.
In response to the BHB findings, behavioural economist Meir Statman provided a thought-provoking analogy for the role of a financial advisor, observing: “Good strategic asset allocation is like tailoring a well-fitting suit. Good tactical asset allocation and security selection is like weaving the suit’s fabric at a low cost. Both are important but they are distinct.” Statman argues that “financial advisors are tailors more than they are weavers; they are investor managers more than they are investment managers”.
If you have ever had a suit or an item of clothing made, you know the tailor’s focus is on the fit not just the fabric. They ask how it feels; they look at how it sits on you. A high-quality fabric provides zero comfort if it is cut for a size 40 body but draped over a size 46 client.
As George Bernard Shaw said, “The only man I know who behaves sensibly is my tailor; he takes my measurements anew each time he sees me. The rest go on with their old measurements and expect me to fit them.”
The analogy of a financial planner as a tailor seems apt. After all, surely sound financial planning can only happen if you take the client’s “measurements anew” each time you meet with them. Clients’ lives are never static. Things change from day to day, never mind meeting to meeting.
The planner’s job is to hold up the mirror and help the client determine how the “suit” feels. Arguably, this skillset is far more complex than that of the investment manager. Cutting and sewing fabric is technical; helping a human being navigate cognitive, emotional and social biases requires advanced human skills.
Statman points out a difficult reality: “Investors see more value in weaving than in tailoring.” Clients are often more willing to pay for the promise of beating the market than for the diagnosis of goals, help in making choices and the management of behaviour.
The challenge financial planners face is twofold: convincing the client of the value of the tailor, but first, believing it themselves. If planners continue to sell themselves as weavers – promising superior fabric and market-beating returns – they are fighting a losing battle against the data.
To unlock their true value, planners must embrace their role as investor managers. While asset allocation may provide the fabric, it is the investor manager who ensures the suit fits, allowing the client to wear it comfortably through all seasons of life.
In a recent essay, Meghaan Lurtz wrote about a lunch she had with George Kinder, a US financial planner who is widely regarded as the founder of life planning and an advocate for clients to consider what they want from their life before deciding what to do with their money. In helping clients work out what’s important to them, Kinder came up with three key questions for clients to consider:
- If you were financially secure, how would you live your life?
- If you were given five to 10 years to live, what would you change in your life?
- If you were given 24 hours to live, what would you regret about your life?
I have worked with financial planners who have embraced using these questions with clients, and other financial planners who have resisted using them, feeling they are almost too jarring. But anyone who reflects on the questions is likely to get closer to determining what’s important to them.
Lurtz asked Kinder, “What have you realised about life planning that you didn’t know in the beginning? When you reflect on all that has become important and how training has developed and focused, what’s the thing that you didn’t see coming?”
His answer: Listening. Kinder said the famous questions matter far less than the listening, because it’s in the listening and holding space for the client, where the magic happens. As Lurtz says, “When we listen, we avoid jumping to interpretation, being the one who connects the dots.” She points out that it’s not the financial planner’s job to write the client’s narrative. “It’s your job to listen until they do. They can, and they will – and when they do, it’s powerful.”
In a sense, it’s the listening that enables you to take the client’s “measurements anew” each time you see them. It’s through listening that you ensure that you don’t go on with your client’s “old measurements and expect them to fit”.
In her book, You’re Not Listening, Kate Murphy references qualitative research expert Naomi Henderson who has run thousands of focus groups and who says the hardest thing about listening is resisting the urge to insert your point of view instead of just taking in what people have to say. This urge is particularly challenging for financial planners because clients have come to see you because they want advice. And time is money. So, there is often a desire to “cut to the chase”.
The problem is, how do you know that the client has said all they need to say before you give advice? To what extent have you allowed the client to do their own thinking and shared that thinking with you, and more importantly with themselves. Have they come to insights for themselves before you share your insights?
I remember facilitating a listening exercise on a coaching programme for financial planners. Participants were in pairs practising their coaching and listening skills. In one instance, a financial planner was sharing a dilemma about their business in the hope of developing some insight for themselves about the way forward. Before he had even finished describing their dilemma, his partner interrupted him and said, “Don’t worry, you don’t need to say any more, I know exactly what you need to do.”
In this interruption, the planner believed that because they had faced a similar situation in their own business, they “knew” what needed to be done. This is an example of using your own measurements to tailor the client’s clothes. In giving advice too soon, before you have measured the client anew, you are effectively lending your clothes to the client. The fit is unlikely to be right.
If the tape measure is the most important tool of the tailor, listening must be the most important tool of the financial planner.
ReferencesBrinson, Gary, Hood, Randolph and Beebower, Gilbert; “The Determinants of Portfolio Performance”; Financial Analysts Journal, July-August 1986, pp. 39-44.
Brinson, Gary, Singer, Brian and Beebower, Gilbert; “The Determinants of Portfolio Performance II: An Update”; Financial Analysts Journal, 47, 3 (1991), pp. 40-48.
Lurtz, Meghaan; “Good Question. Wrong Time. The risks of going too deep, too soon in financial planning.” (Less) Lonely Money, Substack, 3 September 2025.
Statman, Meir; “The 93.6% Question of Financial Advisors”; The Journal of Investing, 2000 pp. 16-20.
