My father was a pilot in the Second World War. He flew Wellington bombers for the RAF. Their job was to fly at night and bomb strategic enemy positions. On one mission my father’s plane had mechanical difficulties over the Red Sea. They managed to crash-land into the sea. Although the plane broke apart on impact, three of the crew survived the crash and managed to hold onto pieces of the fuselage.
It became apparent that there were sharks in the water, circling them. I’m not sure how the conversation went at that stage, but their dilemma was whether to hang onto the pieces of wreckage and hope for the best or swim, hoping to get away from the sharks. My father was the only one who decided to stay put. The other two crewmen felt they had more chance of survival by swimming away from the danger lurking in the water. They were never seen again.
The next morning my father washed up onto the Arabian coast. He was not in a great state. But fortuitously some Arabian soldiers, who had been alerted to the crash, were searching the coastline for any survivors. Miraculously they found my father lying on the beach. Despite being a bit of wreck himself he had to endure a two-day journey on the back of a camel to get to the nearest hospital. For many people, such a journey is a bucket-list activity. I don’t think he enjoyed it much. But he survived. And after his recovery was able to return to action.
Many factors led to my father surviving what should have been a fatal crash. Floating wreckage; the direction of the current; soldiers remarkably finding him. But before any of those factors could come into play, he had to make a decision, amidst uncertainty, and in the face of immediate danger. His crew decided that to act and swim for safety was the right decision. My father, despite the obvious dangers, decided that to hang onto some wreckage and let the ocean take control was the best option for him. They were faced with a tough choice, in murky water, in the dark, with immediate danger present.
What relevance does this story have to financial planning? When a financial planner sits with a client, the context may be different but similar challenges are present. The future is uncertain. The waters are murky. There are often visible and invisible dangers or threats to consider. And invariably a financial planning meeting involves difficult decision-making. Whether it be a decision to do something or not, it is still a decision.
Often with life-changing implications. To save or not. To spend less or more. To take out life insurance. To prepare a will. As a financial planner, you help clients make and implement key decisions about their life and money. If one considers what goes into making a decision, there are usually three ingredients: thought, choice and action.
In the immediate aftermath of their crash, my father and his crew had to think about what to do. When clients come to you, they may not know it, but the first thing they need is help to think about their situation, their dilemmas. As human beings, we have the unique ability to think together. To share thoughts. To share how we see ourselves, others and the world. We do this through communicating, written and verbal. Conversation. Books. Media.
A Robo-advisor can prompt a client to answer questions which will follow a decision tree pattern that will lead to a solution for the client. But those questions are not necessarily the right questions for the client to answer. As Albert Einstein said (or is famously attributed to have said), “If I had one hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes trying to find the right question to ask, and the last five minutes determining the answer.” For the Robo-advisor the real risk is Garbage In, Garbage Out.
Your client’s actions start with how well they think and the quality of choices they make.
In working with a person directly, the human advisor should try to find the right questions to ask. Questions that help the client to think through their circumstances, situation, dilemmas, plans, goals and dreams. A conversation is a fluid process where people think together. The Robo-advisor may think up to a point with a client. But it will need to be pre-programmed with multitudes of options to help each client think through their own life before coming up with appropriate answers for whatever aspect of their life is being examined.
People in general don’t always have the privilege of insight into their own lives. We don’t know what we don’t know. We have blind spots. We have hidden undiscovered talents. We may even have hidden or repressed goals, desires, dreams. The Robo-advisor assumes your client knows what they want. You as a human advisor cannot assume that. As a thinking partner, you help your clients think about their lives. To understand their context, their relationships with themselves, their relationships with others and the world. Having developed that understanding, you can help clients explore their potential choices to deal with the murky water in which they find themselves.
My father could’ve instructed his crew to stay with the wreckage. It was what he believed was the best course of action. But in that case of life or death, he had to allow each man to make their own decision and live or die with it. If your clients don’t own their decisions, you rather than they become accountable for those decisions. The waters of the future are always murky.
In helping clients make choices, financial planners play the role of the choice architect. But anyone who has worked with an architect will know, it is not simply a matter of the architect telling you what to do. The client always has opinions, wishes, desires and wants. Often there is much emotion that underpins a choice – whether it be fear, desire or even excitement. And unfortunately, it seems that when it comes to working with clients’ money, very often choices are made in fearful response to the obvious or perceived dangers or threats.
Most often the story we focus on is the story of the threat. It is the way we are wired. Our brains are continually looking for threats. That’s how we have survived as a species. Identify threats and avoid them. It is no surprise that the most commonly used tool to help with client investment decision-making is called a risk profile. It’s not called an opportunity profile or a return profile, it’s called a risk profile. And we use such a profile when making investment decisions because we as human beings struggle to make rational decisions. We are not always rational.
Would my father’s crew have swum off into the dark, supposedly to get away from the sharks if they were rational? No. They made a decision based on fear. Probably more like terror. Rationally, the chances of swimming off into the open ocean with sharks around and surviving are very low. In this case, it was zero. The rational decision would have been to stay with the floating wreckage. Despite trying to think through their situation and consider the options that faced them, my father’s crew did not act rationally. They made a decision based on their emotions. You face the same challenge with your clients, all the time.
After his two crew members had swum off, I’m sure my father considered whether or not he had made the right choice. He was alone. His mind must have wandered and wondered. Perhaps he was tempted at some point to swim off. But he stuck to his original decision, and it saved his life. Your clients face similar challenges when making choices. They may second guess themselves. Or be swayed by friends and family. Or by news headlines or market sentiment. Enter the role of the behavioural coach.
A decision is a form of behaviour. An action. Not only does your client need your help to make a decision, but to stick to it, and only change it for the right reasons. Clients who own their decisions are more likely to do this. But they will still need your help as a behavioural coach.
Vanguard defines behavioural coaching as a process that, “… facilitates thinking such that the client succeeds in changing a behaviour which would otherwise prevent him or her from achieving their goals”. You facilitate your client’s thinking as a thinking partner. But as we have seen this is not enough. They need your guidance as a choice architect to make the most appropriate choices for themselves. And they need your gentle but firm challenging as a behavioural coach when they begin to wonder or wander.
Your client’s actions start with how well they think and the quality of choices they make. Attending to your client’s thoughts, choices and actions consistently and systematically will give them the best chance of dealing with the challenges of an uncertain future.
References: The Vanguard Advisor Alpha guide to proactive behavioural coaching; Donald G. Bennyhoff, CFA; November 2018
WW2 Image Source: Desborough Airfield – Wellington Bomber Air Command Filmed in 4K