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Financial Planners: You’ll Never Know It All

By Joel Redmond, CFP, United States

The more we study finance, the more we must come to the abrupt and inevitable realization that there is never an end to what we can learn. In the Hans Christian Andersen fairy tale The Garden of Paradise, the prince visiting the garden notices the different fruits on the trees. Each type and piece of fruit represents a different field of study: history, algebra, biology, physics – and the prince realizes that once he eats the fruit, he knows the lesson perfectly. If it were only so easy! For our lessons to arrive safely into our brains, and stay there, we usually need to travel a longer and harder road. 

What inferences can we draw about how we can approach planning, given this simple conclusion? There are several.

Knowledge is the only Asset not Subject to Diminishing Returns

No matter how much you already know about a subject, there is always – always – some kind of benefit to us and our clients and colleagues by learning more about it, looking at it in a new way, or challenging the established notions we or others already have about the subject.

Example: Monte Carlo simulation is an approach to investment stress testing with near universal appeal in the finance community. Yet there are some intrepid souls in finance who are challenging the traditional notions about this method. For more, see this post. 

Making Mistakes is Critical to Success

The more we look at planning, the more we realize that it’s not much more than a series of estimations, assumptions, and approximations. The initial draft plan given to a client is filled with guesses at how well capital markets will perform, the level inflation assumes over the near term, how long a client will live, and so forth. Even the final plan is little more than a refined package of guesses as to what to do, given these occurrences. Like Churchill’s assessment of Russian stolidity in the face of the invasion of Poland in September 1939, the future for our clients is a riddle, wrapped in a mystery, inside an enigma – despite our very best quantitative and qualitative efforts.

Example: Treasure your mistakes, chronicle them, and profit from them. We need mistakes – the more we make, the more work we’re doing, and the more we learn how to obviate those same mistakes in future. In fact, a good idea for many of us might be to keep a journal of mistakes, like many successful scientists, programmers, and researchers do. Being afraid to do anything wrong means being afraid to do anything right.

Colleagues Can Provide Insight 

Everyone has a strong point and a weak point. The human tendency is to approach client engagements from the former – to build on strength. Yet it often provides tremendous perspective to look at problems from a different vantage. Asking a colleague a question about a specific situation can open an investment-savvy planner’s eyes to an overlooked tax item, for example. Often there is an overwhelmingly simple, yet critical issue that the practicing planner overlooks due to emotional attachment, or simply being mired in the details.

Example: A planner was working on a situation with an ultra-affluent prospect, and the key agenda item he was concerned about was lowering the management fee on a stock ETF portfolio. When he asked another planner in the office about the situation, the second planner asked how much money he had. The answer? About twenty million dollars. How much was he planning to put in stock? About seventy percent. The second planner thought a second, and asked, why does he need that much risk? Because he’s looking for returns, the first planner said. The second planner thought again, and answered with a question. Why is he looking for returns – instead of avoiding risk?

We can learn something about perspective from the corporate world. General Electric typically has its executive candidates work in various segments of the business before assigning them management responsibility. A manager at GE might have spent some time originating loans in the finance group, another stint in quality control for the aerospace division, and another in sales training for the home products group – giving that executive perspective on the multifarious world of credit cards, jet engines, and washing machines. We can become people of perspective in our profession by thinking before we say “I’ve already learned that” or “I don’t need to know more about that” or “I’m good with that.” The more we admit we need to learn, the more we will learn – and the better results we’ll obtain for our clients. We may not be able to find the tree that the prince found. But we can make our best efforts to enjoy learning about our chosen profession, our clients, and our world – a paradise in its own right.

 

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