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Lessons from Literature: What Financial Planners Can Learn from Voltaire and Shakespeare

By Martin Casals Iglesias, CFP

Trust and results. Voltaire and Shakespeare have something to teach us.

Reliability and delivery of results: two concepts that are somehow the center of the relationship between a service provider and its customers. When we are talking about a profession that is still looking to establish itself and earn a reputation, these concepts become even more important.

“I would have greater confidence in the performance of a man who expects to have a great reward than in that of the one who has already received it.”  The first time I read the above sentence I thought it was the quote from a modern human resources manager, very concerned about the variable compensation of a team. However, the issue of rewards has concerned human society for a very long time. The statement is Voltaire’s, and in my opinion, it contains a very important lesson about trust. I will try to explain.

Compensation Methods and Trust

First, I believe that trust is a gift, something that is given by clients and therefore must be earned; it’s not enforceable. It takes time to build trust and that has a lot to do with perceptions. I think Voltaire’s statement expresses very well a mechanism through which trust can be built faster than just by working together for many years. You see, if the mechanism of compensation is in accordance with your client´s goals, you may be able to establish trust much faster. I’m not saying I expect a good financial planner to work differently depending on how he is paid. The basis of our relationship is guided by a strict code of ethics that makes us always put the customer first and describe in detail how the compensation is made, but I think that how a planner is paid really impacts the way he is perceived by their customers. The old phrase about Caesar’s wife fits very well here. We should not only be honest but seem to be so.

My point is that if your compensation is aligned with the client’s objectives, it is possible to establish trust more quickly, with a much higher level of partnership, with both parties working to achieve their goals. Just as an illustration, I cite two examples:

  • A portfolio manager who has much of her payment in performance fees may have an incentive to achieve higher returns, which may be very well received by her customers.
  • The second example is beyond the scope of the financial world, but it illustrates my point very well. It is preferable to hire an outplacement firm in which most of the payment is made after the replacement and not before.

But how to achieve this? The problem is the scope of a financial planner is so broad and the possible objectives so different. However, I think it may be necessary to apply different ways of compensation for each type of need. I think this should be discussed thoroughly, and those who solve this problem will be a step forward. I believe models of compensation based on consultation, assets under management (AUM) or rebates don’t necessarily create commitment and reliability.

Managing Expectations

My second point has to do with the idea that most planners are seen by customers as delivering fewer results than expected. I think the main point here has to do with the first conversation between planner and client, when it is discussed what will be delivered by the planner, and especially what will not be. I often see in Brazil a great demand for active management of portfolios, with huge expectations of alpha generation. I think it’s important to align with the client that the scope of financial planning may be different. I also remember a phrase attributed to Shakespeare (although I was unable to confirm its origin), which says: “Expectation is the root of all heartache.”

This article does not intend to answer these questions, because they are very complex; however, provoking a healthy discussion about them is really important.

Here is some advice: if you have a hard time earning the trust of your customers or have lost it with some of them, or if you’ve noticed some discontent, think about your relationship, but do not forget about the way you charge for your services or whether you have made a correct alignment of expectations at the beginning of the relationship. If you don’t find answers or cannot move forward, remember Voltaire and Shakespeare. They have something to teach us.

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