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Skyline-Atlanta-GA

Who’s Currently Atlanta’s Greatest Business Leader?

There are not many business leaders out there who are truly great – leaders that inspire, you can look up to, and immediately trust.

It is not easy to discover your purpose in life, and then, at all times, live it. Today, I was fortunate to meet Dan Cathy, the CEO of Chick-fil-A, an iconic Georgia headquartered business. I fully admire Dan because for his defined life of meaning, and who lives it authentically, every day – a rarity in our age. Not just lip service; he lives it in a very real way.

Dan Cathy

When asked how Dan defines success, his response was, “being the best you can be as a person.” He continued by articulating how every aspect of what he does is measurable, whether it is from how Chick-fil-A is run, to community giving, his family and health. To lead others successfully not only do you emotionally engage them but you must be centered and balanced yourself. This is very important in order for others to trust you. So many leaders fail because they live in a falsehood and are not trustworthy.
A key dimension I see in Dan is his commitment to the development of Atlanta’s community, particularly the Westside area. While central to Atlanta, it is one of the poorest. And while there is a celebration of the great wealth being created in Atlanta, Dan is determined to use it to remove social inequity. The development of the Westside area will be a symbol of this change. Otherwise, Atlanta could become more like a Baltimore.

I have learned my leadership lessons from Lee Ellis, another great Atlanta leader in the same level of authenticity as Dan Cathy. The principles I look for in a leader I learned by reading Lee’s book “Leading with Honor“.

Lee Ellis

I would be interested in your views of great leaders anywhere in the world and why.

Do You Think About Your Investment Objectives Before Jumping in and out of Markets

Do You Think About Your Investment Objectives Before Jumping in and out of Markets?

Every so often I meet a personal investor who will tell me that now is the right time or the wrong time to invest, depending on whether the markets are going up or down as well as depending on that individual’s past experience.

Despite having 30 years of investment experience I never get into an argument with them because I know something they don’t. Namely, very, very experienced investment professionals rarely, if ever, out think the markets. Even the greats such as Warren Buffet and Anthony Bolton acknowledge that markets cannot be outguessed in the short term and their own success owes more to long term holdings rather than short term trading outlooks.

In any event, many people who are inexperienced in dealing with investment markets (and even some who are experienced) tend to look for signs that they are right in the perspective of what is happening at any point in time. They look for reassurance about what they are thinking, or more correctly hoping, can be confirmed by one or more public facts about the markets. In Behavioural Finance terms this is referred to as Confirmation Bias. Put simply, people favour information that confirms their beliefs or hypotheses even if such confirmations turn out later to be false indicators.

This behaviour is also closely linked with Herd Mentality. In essence, this is where people are influenced by their peers by adopting certain behaviours and follow trends as well as possibly purchasing items. Investment history is riddled with Herd Mentality events from Tulipmania in 1637 through to recent times when global property bubbles made many seem smart before looking extremely foolish.

Newness Bias is also a well documented behavioural trait and is the desire to give more weight to recent information and ideas usually to support a particular investment outlook. This helps to support the belief that one is right because the latest set of economic data says so. Does this sound familiar?

The use of these three outlooks on investing works both ways. If markets are going upwards, they are used to justify why one should invest. Similarly, if markets are going in the opposite direction they are likewise used as justification as to why one should not invest in particular assets. It just depends on your starting position.
So the question is, if one cannot outguess the markets what should you do?

Making Good Days out of Bad Market Days (2)

The starting point for all investing lies not in what markets are doing but rather in what you actually need in your own personal life. By defining what our own individual objectives are we can then set about expressing these in financial terms. Of course, such planning is not a simple process and requires a lot of thought but in my experience once this whole area is addressed properly investment decisions and their long-term effects become more realistic, as does the evaluation of competing investment options.

After that it comes down to long-term planning, and not short-term reactions to investment flavours of the month. The great thing about such an approach is it allows investors to exert control over their financial outlooks rather than being held hostage to them. In other words by controlling what we can control, namely our behaviour, we can have a disproportionate positive effect on our financial well-being. This isn’t just my view or any recent perspective. Considerable research has been done on this. As far back as 2000 Meir Statman, a distinguished economics professor based in Santa Clara University in California, produced research which showed that 93% of investor returns are influenced by their own personal decisions and not those of individual fund managers or indeed the performance of investment markets.

The bottom line? Before you make a decision to jump in and out of markets, think about what your investment objectives are and whether they are aligned to your, correct, asset allocation. If there is a mismatch then the issue isn’t markets but is more personal. And for that, you need to be aware of your own behavioural impulses as these influence your financial position more than anything else.

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Be-Fi for the DIYI (Behavioral Finance for the Do-It-Yourself Investor)

The oldest advice in the financial world: buy low, and sell high. And easy to follow too, right? Then how come we’re not all gazillionaires? That’s the Behavioral Finance $25,000 question.

First off, maybe a gazillion bucks isn’t everyone’s goal, but even moderate growth on savings over time in preparation for retirement shouldn’t mean we suffer losses over and over again along the way. So beyond market volatility, what are the factors for our repeated or short-sighted poor finance decisions?

Let me share a story.

Years ago I got a “hot stock tip” from a buddy, stop me if you’ve heard this one before. Between his recommendation and the historical value showing nothing but upward mobility, why not? Well, it hit. A solid 34% gain in just about a month. Amazing, right? I was so excited, I could barely wait to see what it would do next. And that’s the turning point. A couple of dips later, I still had a significant gain, but I was going to ride it all the way back up. It had to bounce back, right? That’s optimism bias. So to remove myself from further discouragement, I opted to not check it daily, even weekly. And in about the same amount of time of its rise to greatness, it dipped to pennies on the dollar below my initial buy-in. What happened? I got greedy? I didn’t set limits (gain or loss)? I got caught in the Herd-following bias. I was following the lead of the others instead of the hard facts, or following a set plan.

Well, I finally got around to telling my Financial Advisor. Even though she’s entrusted with my long-term savings plans, I’d not considered sharing my “fun experiment.” She took one look at the company’s performance and simply said “they’re awful, sell it while you still have something. And next time, check with me first”. Good advice, but not what I wanted to hear. So, I kept it anyway, even in light of overwhelming odds. That’s Overconfidence Bias.

It’s been almost 6 years of hanging onto to this one-time trading nightmare. At least, we weren’t “missing” the money, just sad to have seemingly blown the wad. On a positive note, I’m on the cusp of another big potential return. A rental house we bought at the bottom of the market and now, with a little elbow grease, is primed for resale. Bought, mind you, with our Financial Advisor’s full support. It’s our backup plan if we both lose our jobs and need to get out of our big, nice house quick. We could downsize finances in a hurry. Anyway, the silver lining, since I’ve held onto the dog of a stock, is to sell it when we sell the house and take the stock loss to offset the house profit. Not brain surgery, but in sync with our advisor’s input.

A nice story about Behavioral Bias and advisor communication, but let’s get back to the Financial Personality of a person who might seem to haphazardly buy high and sell low, when they meant to do otherwise, and how this affects long-term financial planning efforts.

Our Financial Personality covers both innate and learned behaviors in regards to our financial decisions. It also includes our behavioral biases, communication style, and Market Mood. So knowing one’s Financial Personality is the key to developing financial goals and then the plan to achieve them. This transparency in truly understanding ourselves helps us navigate volatile market events and stay on point for the greater good. Your Financial Advisor has assessment tools that can quantify your personality traits. There’s a self-guided version posted here (personal assessment) to try for yourself.

 

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Another integral part in working with your Financial Advisor, or any business colleague, friend neighbor or significant other, is communication. Recall that I included my advisor on the house purchase, but I only spoke with friends on the stock ordeal? Well, we all have our own communication style. And we tend to run in circles where our own style is fairly prevalent — learned from families and developed amongst friends. But in the business world, good communication is key to being understood, and understanding others. And we won’t always get to choose to (or from) whom we engage. So we have to learn to adapt (or be left behind). Wouldn’t you want a way to identify how you come across to others or how best for others to engage you? Well, there are assessment tools for this too. Again, here (communication style) is an assessment you can try, and even share with others.

It’s no coincidence that I included the interactions with my Financial Advisor as part of my financial thrill of victory and agony of defeat. She was and continues to be in my corner for staying on course and avoid making bad decisions when the terrain suddenly changes. And some mistakes have wholly been on my own. Now, this may not be the case for everyone, and that’s why we’re kicking off this discussion — to find the peaks and valleys of our financial journeys and help one another along the way. If you’re interested in seeking an advisor, or already have one, and want to share what’s being discussed here, please check out this advisor finder.

 

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Likewise, tune in for more Behavioral Finance for the DIY Investor over the next several weeks as we cover the many ways our Financial Personality, Behavioral Biases and Communication Styles affect, and are affected by, our relationships with our friends, family, Business and Financial Advisors.

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The Four Words You Never Want to Hear

I’m afraid of you.

According to a recent survey (McAdam LLC and Harris Poll 2015) of more than 2000 Americans, 71% said some aspect of meeting with a financial advisor scared them. The most common reasons cited were costs, trust and the inability of an advisor to help them with their financial situation.

However, a majority of CFP professionals feel having the CFP designation increases the trust and confidence levels for clients, according to a survey by the CFP Board of Standards Inc. and Aite Group.

What accounts for the disconnect? The Financial Services industry has traditionally lead with a left-brain approach: research, analytical and factual. But at least 50% of your clients lead with a right-brain approach that is based on feelings and relationships.

With the current market volatility, the fact that you have educated your pre-retirees on withdrawals in a declining stock market means very little when facing hard choices about retiring triggers your clients emotions. They are scared about having to work longer, potentially cutback the “dream lifestyle” or just having to live with the uncertainty of it all.

This fear can be mitigated by one powerful emotion: TRUST

But is trust a “skill” you can sharpen? While I believe each person has a certain inherent trustability, there are ways you can get beneath the surface of a client to get past their fear factor.

1. Let the client choose how to proceed.

They want to feel like a partner, not being controlled. While you have a formal agenda for each meeting, you might begin the session with a simple question: “At the end of today’s meeting, what would be a good outcome for you?”

2. Stay present and open to not knowing exactly what turn the client might take in your meeting.

Be curious as to the “threads” your client may be unraveling. In your enthusiasm to talk about the carefully crafted portfolio you have designed and the safe withdrawal strategies, your client may be wondering, “What impact will all these uncertainties have on my lifestyle?” It would be best to acknowledge that fear and go down that path to demonstrate a deeper level of awareness.

3. Listen for and carefully observe energy or tone shifts.

This type of intuition is not always an advisor’s strong suit. Your client will give you cues: voice level, eye contact, and pauses. But when you listen to the “what” (fixed income in retirement) and are able to move to the “who” (no longer having income from a job, uncertainty of what’s next), you will build trust as you get at the client’s real fears and help them discover their next best action steps.

Focus on the one skill that will have the greatest impact on your relationships with both prospects and clients: TRUST. And, in return, your clients will face these uncertainties with greater confidence.

Avoid Irrelevance- Reinvent Your Financial Practice

Avoid Irrelevance: Reinvent Your Financial Practice

Business school’s books and the internet are filled with examples of industries or companies that failed to heed the winds of change and now, they no longer exist. When my husband and I visited the Guinness beer factory in Dublin Ireland, I was intrigued by the story of the barrel makers (coopers) and how that was a thriving craft until cheaper?methods, and easier to use materials became available.

The most recent memorable example is the mortgage industry. It was booming before the Great Recession due to favorable lending terms and rates. When the financial crash came, many companies were on the brink of collapsing (Lehman did.) Individuals in the mortgage lending business also had to find ways to reinvent themselves.

Technology has already revolutionized other industries and careers (Uber, Amazon, Call Centers, etc.) How people adapted to those changes determined whether they remained relevant. The Financial Services industry is currently involved in a sea change due to technology (Robo platforms), potential legislation (DOL) and changing market demand (tech-savvy and Gen Y clients.)

Many people advocate focusing on a “Niche” and creating a “differentiating” value. Many of those ideas don’t really involve doing anything different, other than marketing and segmentation. Don’t get me wrong, those are good ideas, but they are just versions of what Advisors are already doing.

Fidelity’s Tech Guru Predicts FAs Will Become Life Counselors

Other people and companies are looking at Financial Advice with a different lens. What if you focused more on helping the client achieve their overall life goals and developing the finances needed to support those? What if you were able to assist in managing their emotional and behavioral biases that so often result in costly decisions? What if you became a Wealth Mentor?

Avoid Irrelevance Reinvent Your Financial Practice

Behavioral Biases are our natural, hard-wired reactions to events and situations (market volatility, family, etc.) We all have them, whether we want to admit it or not. As a Wealth Mentor, you can identify the client’s natural behavioral biases and help manage them before the client is triggered to make an emotional decision that will disrupt their Financial Plan needed to accomplish their goals. The best investment recommendations and financial plans are useless if the investor ignores that advice abandons the plan with the next “trigger.”

Cost of Ignoring Behavioral Biases
By Jay Mooreland, The Emotional Investor

Helping them stay on the plan to achieve their goals is the best value you can provide that will differentiate you from the rest of the pack.

Most Financial Advisors were attracted to managing investments and narrowly defined their service and revenue model along those lines. Not only is investment management becoming a commodity, but the whole Financial Advisor business model is being questioned. Many companies and people are eager to fill in the gaps. Merrill Move Upgrades Behavioral Finance.

How will you adapt?