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Why Great Advisors Don’t Reinforce a Client’s Natural Tendencies · Root Ready

• 0:00
  SPEAKER_00: Hi everybody, welcome back to another episode of the Root Ready Podcast.
• 0:03
  SPEAKER_00: I'm your host, James Cannoll.
• 0:04
  SPEAKER_00: Today we are going to be addressing a listener question.
• 0:07
  SPEAKER_00: This question comes from Zeke, but before I read it, as a reminder for anybody listening, if you have a question that you want me to answer on a future episode, go to RootreadyPodcast.com and there is a tab that says submit your question.
• 0:19
  SPEAKER_00: Submit that there, it gets added to a queue, and I will address it on a future episode.
• 0:23
  SPEAKER_00: With that, let's take a look at Zeke's question.
• 0:25
  SPEAKER_00: Zeke says the following: Hi James, you often talk about guarding against regret, and I love that framing.
• 0:30
  SPEAKER_00: How do you balance that mindset while still making sure clients are prepared for worst-case scenarios?
• 0:36
  SPEAKER_00: Long-term care, for example, is top of mind for many retirees.
• 0:39
  SPEAKER_00: I've had several situations where results look great under base assumptions, giving me room to encourage increased spending, but when I layer in a long-term care event, the projection gets tight.
• 0:49
  SPEAKER_00: And it looks like the client may deplete assets if that scenario occurs.
• 0:53
  SPEAKER_00: I hate the idea of someone not taking the trip, not gifting to loved ones, or not living their life out of fear of something that might happen, but I'm curious how you approach that tension and communicate it to clients.
• 1:03
  SPEAKER_00: Thanks in advance, Zeke.
• 1:05
  SPEAKER_00: So, Zeke, thank you very much for your question.
• 1:08
  SPEAKER_00: And yes, the question is how do you strike a balance here?
• 1:11
  SPEAKER_00: How do you make sure that clients are fully prepared for their future?
• 1:14
  SPEAKER_00: And not just the base case future where everything looks good and rosy, but a bad case future, a worst case future where things aren't so good.
• 1:23
  SPEAKER_00: There's more expenses or higher expenses.
• 1:25
  SPEAKER_00: Maybe markets are poor, maybe inflation's high.
• 1:28
  SPEAKER_00: How do you prepare for that on the one hand, but also make sure clients are living a balanced life today?
• 1:34
  SPEAKER_00: Make sure they're spending what they want to spend money on, making sure they're not working too long, making sure they're able to do what they want to do today and also in the future.
• 1:44
  SPEAKER_00: So that's a topic that we'll discuss today.
• 1:46
  SPEAKER_00: And the first thing that I would say to this is absolutely stress test anything.
• 1:50
  SPEAKER_00: When I give the guidance that we want to minimize regret, sometimes that can come across as hey, ditch future plans and just start going wild today.
• 1:59
  SPEAKER_00: Have a blast today.
• 2:00
  SPEAKER_00: Tomorrow's not promised.
• 2:02
  SPEAKER_00: That's absolutely not the message.
• 2:04
  SPEAKER_00: And in fact, the message of guard against regret, that can go both ways.
• 2:08
  SPEAKER_00: Yes, guard against the regret of what if you worked too long or spent too little or didn't do the things that you enjoyed doing today.
• 2:15
  SPEAKER_00: But also guard against the regret of what if you didn't plan for those long-term care events?
• 2:20
  SPEAKER_00: What if you didn't plan for what would happen if inflation was higher or returns were lower or other things that happened to your plan?
• 2:27
  SPEAKER_00: So guarding against regret can have an application today, but it still has an application in the future.
• 2:32
  SPEAKER_00: So that's point one.
• 2:33
  SPEAKER_00: But point number two, and where I want to spend the majority of today's episode, is this everybody, you, me, your client, everybody has a natural bias.
• 2:44
  SPEAKER_00: It is our job to help understand what that bias is for our client, and then in many ways, take the other side of the argument, take the other side of whatever that bias is.
• 2:54
  SPEAKER_00: Let me give you an example.
• 2:55
  SPEAKER_00: Many of you probably know Ari.
• 2:57
  SPEAKER_00: Ari is a chief growth officer here at Root Financial.
• 3:00
  SPEAKER_00: Ari has a million ideas a minute.
• 3:02
  SPEAKER_00: He is hyper optimistic, hyper-driven, all these new things that he wants to do, and I love it.
• 3:08
  SPEAKER_00: But here's my job with Ari.
• 3:10
  SPEAKER_00: My job is to understand that Ari's bias is to move, to go fast, to make new things happen.
• 3:16
  SPEAKER_00: If I said that's great, I also want to do that, well, we're gonna have some blind spots.
• 3:20
  SPEAKER_00: We're gonna have some blind spots if I'm taking that same exact attitude toward what Ari's doing.
• 3:26
  SPEAKER_00: So when Ari comes to me with all these amazing new ideas, it's actually my job to try not to get as excited about those things and take the other side of the argument, so to speak.
• 3:36
  SPEAKER_00: Take the other side of, hey, what would be the downside of doing this?
• 3:40
  SPEAKER_00: What might cause some friction if we did this?
• 3:43
  SPEAKER_00: What are some second level, third level, even fourth level impacts of doing this event, of doing this new project that we might not immediately recognize at face value?
• 3:53
  SPEAKER_00: Or in other words, what unexpected issues might arise if we do this?
• 3:58
  SPEAKER_00: So I do that with Ari because Ari's already got a bent towards being ultra optimistic, ultra move fast and do new things.
• 4:07
  SPEAKER_00: That is his mode of operating.
• 4:09
  SPEAKER_00: Now, if I was working with a different team member, that was very different.
• 4:12
  SPEAKER_00: Maybe this team member's hyper-conservative, don't rock the boat, keep the status quo.
• 4:17
  SPEAKER_00: We want to keep things as they are.
• 4:19
  SPEAKER_00: Well, if I jump right into it with that same mindset, well, we're gonna be missing opportunities.
• 4:24
  SPEAKER_00: So, in the same way, it was my job to take the other side of the argument when already comes to me with something, when someone who is very conservative and very much preserve the status quo comes to me with something, it's my job to take the other side of that.
• 4:36
  SPEAKER_00: I need to recognize their bias and say, because that's your bias, because that's already the lens through which you're seeing things, I need to take an outside perspective.
• 4:45
  SPEAKER_00: Why?
• 4:47
  SPEAKER_00: We need to do that, especially as advisors, because when you already have a bias, what that means by default is you almost have blinders on.
• 4:55
  SPEAKER_00: You have blinders on to see things the way you think they are.
• 4:59
  SPEAKER_00: All of us, though, have blind spots.
• 5:02
  SPEAKER_00: Our job as an advisor is to illuminate those blind spots simply by taking a different perspective than our clients come to us with.
• 5:10
  SPEAKER_00: So I'm not gonna take the same perspective.
• 5:12
  SPEAKER_00: I'm not gonna go into a conversation with Ari the same way I'd go into a same conversation or a similar conversation with someone who had a completely different bias from Ari.
• 5:20
  SPEAKER_00: So I say that because this is setting up how I'm gonna respond to Zeke's question, is that it's almost our job to play devil's advocate.
• 5:27
  SPEAKER_00: When we get excited about something, whether it's an opportunity Ari's talking about, or it's that client who we know has a natural tendency to oversave for the future, or maybe they have a tendency to overspend today.
• 5:38
  SPEAKER_00: Step one is understanding what is their natural tendency.
• 5:42
  SPEAKER_00: If you didn't give them any advice, what are they already going to default to?
• 5:47
  SPEAKER_00: Because when they default to that, chances are good they're super hyper focused on that and they might have some blind spots that they're not fully appreciating.
• 5:54
  SPEAKER_00: This is incredibly important to understand.
• 5:56
  SPEAKER_00: And this is not just unique to financial advice, this is universal.
• 6:00
  SPEAKER_00: Look at our government.
• 6:01
  SPEAKER_00: This is why there's three different branches of government.
• 6:03
  SPEAKER_00: How do you create a checks and balances?
• 6:06
  SPEAKER_00: Because if all you had was one person just doing things the way they thought was right, or if all you had was one group of people who see things one way doing what they think is right, you're gonna have some blinders to other perspectives.
• 6:18
  SPEAKER_00: So that's what we need to do here is the way to address this is to create that healthy tension.
• 6:24
  SPEAKER_00: When you create that healthy tension, you're not going all in on your point of view.
• 6:29
  SPEAKER_00: You're not going all in on your client's point of view.
• 6:31
  SPEAKER_00: You're taking different sides to this because when you take different sides, you're gonna better see with more clarity what the right solution is.
• 6:39
  SPEAKER_00: So let's go back to Zeke's question.
• 6:41
  SPEAKER_00: What's the tension here that he's referencing?
• 6:43
  SPEAKER_00: Well, largely it's how do you balance the need to save for the future and prepare for the future versus spend today?
• 6:50
  SPEAKER_00: The mistake would be to believe this is simply a math problem and that you need to balance this out by running the numbers and doing all this.
• 6:57
  SPEAKER_00: Yes, that helps.
• 6:58
  SPEAKER_00: And that goes back to stress testing, which is step one that I talked about.
• 7:01
  SPEAKER_00: But it's bigger than that.
• 7:02
  SPEAKER_00: This is a human bias problem.
• 7:04
  SPEAKER_00: If you have a client who's coming to you and they've maxed out their accounts every year, they prioritize saving above all else, they're very, very frugal when it comes to spending, they're continuing to work well past the age that they need to.
• 7:17
  SPEAKER_00: Well, step back.
• 7:19
  SPEAKER_00: That client very clearly has a bias to prepare for the future.
• 7:23
  SPEAKER_00: It is my job to take the other side, not just to tell them, hey, you need to spend more.
• 7:27
  SPEAKER_00: We have other episodes that talk about how can you effectively communicate this, but it's my job to say, well, what about the alternative?
• 7:34
  SPEAKER_00: What about spending more?
• 7:35
  SPEAKER_00: What about enjoying more?
• 7:37
  SPEAKER_00: Versus if I have a client that I look at his plan or her plan and I say, wow, this person is spending way too much money.
• 7:44
  SPEAKER_00: They're not nearly prepared enough for the future.
• 7:46
  SPEAKER_00: Well, I'm gonna take the other side of what they're doing because their natural bias is already gonna allow them to prioritize enjoying today.
• 7:52
  SPEAKER_00: They don't need my help to do that.
• 7:54
  SPEAKER_00: They've already got that dialed.
• 7:55
  SPEAKER_00: Where they need my help is understanding how to prepare for the future.
• 7:59
  SPEAKER_00: So by taking the other side, we're creating that healthy tension.
• 8:02
  SPEAKER_00: Now here's the thing: neither the person who's saving for the future nor the person who's spending everything today, they're not necessarily wrong.
• 8:09
  SPEAKER_00: They're just over-indexing for one part of the equation.
• 8:13
  SPEAKER_00: The ideal scenario is can you have a balanced approach and do both?
• 8:17
  SPEAKER_00: Can you fully enjoy today and fully enjoy the future?
• 8:21
  SPEAKER_00: To do that, though, as an advisor, you need to understand your client's natural tendency and then help them by seeing the other perspectives that they might not be seeing on their own.
• 8:30
  SPEAKER_00: So don't just reinforce your client's natural instinct, unless their natural instinct is already correct.
• 8:35
  SPEAKER_00: But in many cases, you're not just reinforcing what they're already doing, you're showing them what a more well-rounded picture might look like.
• 8:41
  SPEAKER_00: So as we wrap this up, this is a fairly short episode.
• 8:44
  SPEAKER_00: I think this is a very important thing to try to keep in mind with us.
• 8:48
  SPEAKER_00: Your job, and by the way, do this in your life as well.
• 8:51
  SPEAKER_00: Understand what are your natural tendencies and your natural biases, and then how can you reflect on that and how can you try to broaden your horizon of what's possible by in some ways disconnecting from your current state and trying to look at your life from a high level of view, trying to fully detach from where you are and saying, what can I do?
• 9:08
  SPEAKER_00: What am I naturally leaning towards?
• 9:10
  SPEAKER_00: And should I be considering other perspectives?
• 9:12
  SPEAKER_00: The more you can do that, the better off you're going to be, or the more effective you're going to be when you have conversations with clients, with team members, with peers, helping them to see the other side of what they might not be seeing themselves.
• 9:25
  SPEAKER_00: So that is it.
• 9:26
  SPEAKER_00: Thank you for listening.
• 9:27
  SPEAKER_00: If you're enjoying this podcast, please be sure to leave a review.
• 9:30
  SPEAKER_00: If we're not already connected online, connect with me on LinkedIn, on Facebook, on Instagram, James Canole on those places.
• 9:36
  SPEAKER_00: On Instagram is James at Root.
• 9:38
  SPEAKER_00: But thank you very much for listening.
• 9:39
  SPEAKER_00: We'll see you next time.