Do you like taking orders from other people?

In my last blog post (Get What You Want), I offered some free financial advice. Something clicked - after just 10 days it is the most popular article on the RichAndFulfilling.com website.

This week I want to take the discussion we started in that blog just a little bit further.   In fact, in light of recent work I have done on my own process, I will tweak that simple advice a bit in order to make it even more useful for you.

Before I get started, I do want to give thanks for all of your support. I am in the advice-giving business so I appreciate it when more people are willing to hear, share and hopefully take my advice – it validates my work and the hours I spend writing this blog. Even if you only take the “free” advice that I give (which pales in comparison to the help I provide my paying clients), I know I am affecting change and helping people reach to their potential – both being major elements of my purpose for being here on this earth.

Do You Like to Behave?

When your mother told you to eat your vegetables or brush your teeth, what was your reaction?

If you were like most any young person you fought every demand you could ... or at the least did the task grudgingly.  It certainly didn't make the process any more enjoyable because someone else was telling you what to do.

I am a notoriously independent person, but I don't think I am unusual when it comes to “honey-do” lists. I love my wife and would do just about anything to make her world a better place. However, when I get a honey-do list, oddly enough the projects that are on that list always seem to get put off to a much later day. This is simply a natural reaction to being told what to do rather than doing something on your own free will.

The Behavior Modification Dilemma

Those of us who give advice professionally (including doctors and lawyers) are often faced with a dilemma. Much of the advice we give goes unheeded. C. Everett Coop gathered all the data and did a fabulous job of communicating precisely how bad smoking cigarettes is for any person's health. Today, while smoking is less common, there are still millions of people purposefully buying cancer sticks.  New, young people are signing on to the practice every day.  It goes against all logic.

Thanks to “free will” most people will do almost anything BUT whatever they are told to do, even when the advice is offered in their best interests.

The Behavior Modification Solution

Oddly enough, one group of people knows how to persuade you to do what they want you to do. Those are the marketing professionals who have mastered the art of persuasion. For a fascinating read about how this all works, check out Robert Cialdini's “Influence, the Art of Persuasion.” It won't stop you from being a victim of marketing schemes, but it may help you catch yourself before you go too far.

The question becomes, what do the marketers know that the professional advice giver's don't?  I believe much of that has to do with the Be-Do-Have equation.

Actions Have Consequences

Human beings are all hard wired to want stuff. There is something about the structure and interplay between our sophisticated cerebral brain and the emotion based limbic system that makes us treasure meaningless trinkets. Other animals (like dogs) are motivated by food (hunger), but could care less about how they're dressed or what kind of car they drive.

At a very young age, we teach our children that in order to HAVE stuff that they want, they have to DO stuff. Actions have consequences. The reason why your friend got the results that he did was because he did (or did not do) certain things.

Your results are determined by your behavior.  Your neighbors results are determined by their behavior.

The Wrong Question

Professional advice givers eat, live and breathe in the “behavior modification” arena.  Financial Planners all are taught to preach: (a) Your results are a direct result of your previous financial choices. (b) If you don't like your results, you must change your choices and actions.

You - as the client are on the other side of the equation - seek out help from a financial professional because some aspect of your financial life is in pain.  The pain is the motivation to go through the (perceived to be) uncomfortable process of getting help.  Nobody ever sought help because everything was going perfectly well.

You have pain in your life and you want that pain to go away. The advisor is trained that your pain is a result of misdirected actions and poor financial choices. Their prescription follows one of two courses: (1) they sell you a product that will mask the pain and justify your failure (and pay them well in the process) or (2) they give you advice on how you need to change your actions in order to get different results.

To use a medical analogy, they either prescribe you a pill (a product which does nothing to fix the underlying problem but may make the pain go away for a while) or they give you a completely new diet and exercise regime which restricts just about everything that is “fun & relaxing” or “tastes good” in your life.

F. Scott Fithian wrote, “A great answer to the wrong question is completely useless.”

Here we have a whole industry that gives “a great answer to the wrong question.”  Financial Services workers are trained and motivated to either sell products (which don't solve problems but mask the symptoms) or give clients a laundry list of action steps which they should do but never will.

The Missing Link – Be-Do-Have

The missing link is the Be-Do-Have connection.

You see, it isn't enough just to DO certain stuff in order to HAVE the stuff you want. The DO-ing all must come from who you are at a foundational level. Actions that are not genuine are impotent.  That is why I hear your neighbors complain all the time, “I'm trying to save. I'm cutting back on frivolous expenses. I'm working two jobs … and I just can't seem to get ahead!”

The trick is to understand that what is important is not just what you are DOING. What is important is who you are BEING (or trying to BE) while you are DOING what you are doing. The BEING is what dictates what you get to HAVE in the end.

Most financial advisors spend all their time trying to modify behavior – what their clients are DOING – not on helping those people change who they are BEING.  I'm sure you are starting to understand why this doesn't work and why everyone around you is fed up with their financial situation.

Good Advice = Good Marketing

The great marketers understand the Be-Do-Have connection. Great marketing focuses on what a person wants to BE and then places the product or service on the path to that end. Whether it's being strong (Bow-flex), fast or sporty (various cars), a world class athlete (Gatorade & Nike) or a sexual god (Viagra, etc), they paint a vivid picture and let you decide that you want to BE like that picture.

The sad thing with marketing is that a person can't really BE different than they ARE just by buying a product or service.  It takes changing yourself and your thinking about yourself at a foundational level to create that shift.  At best the marketing "fix" is temporary.  This is good for the marketer because it keeps people coming back for more and more of their products.

More of What You Want – Revisited

My original advice last week was to “Know what is most important to you and why - and get as much of that as you can. Don't buy stuff you don't want ... and ferociously protect what you already have..”  It's great advice … but I have decided that it is not BE-centric enough, although it doesn't take much to tweak it:

Know what is most important to you and why. That is your BE.
Do whatever it takes to BE as much of that person as you possibly can every day. 
Judge every choice (financial and otherwise) through this lens:
“Will this allow me to be more of who I am or less?” 
Then ferociously protect what you already ARE that you like.

Fortunately, there are some advisors out there who understand this concept and practice it every day (not many, but some). They know how to help you define who you are and what is important to you. They can give you the tools and proper framework to live your life under this principle.

Seek out one of us.  The planning process with a BE-centric advisor is fun and exciting because it lets you be more of who you want to be, not less.  There are no restrictions or people telling you what to do … and there are no painful side effects like there are with all financial products (and pills).

There is just more of you being that glorious you that you were put on this earth to be.

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Comments (2)

1 Tuesday, 31 August 2010 02:45

Kevin@OutOfYourRut

"What is important is who you are BEING (or trying to BE) while you are DOING what you are doing." An advertising manager once told me that the secret to good advertising is to "sell the sizzle and let the sizzle sells the steak".

So they work to create a desireable image--as a result of the product they're pitching--then the prospect actually wants/desires/"needs" what they're selling. Mission accomplished.

That's why it's often so hard to sell people on advice even if it's useful. A vivid picture of the end result needs to be illustrated, otherwise the advice giver appears as little more than another authority figure.

I agree though, that the listener/buyer of the advice has to be committed in his own mind to act on the advice, otherwise it's just another decoration to sit on a shelf and collect dust.

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2 Tuesday, 31 August 2010 03:47

John D. Buerger, CFP®

Thanks Kevin - My point in this article is that advice givers need to shift away from "giving advice" that nobody wants to hear and start taking a page or two from your ad manager's handbook. Right now people don't ask for help (even though they could really benefit from it) because they don't want to be told they've been stupid and this is what they should do instead. They've done that before. It didn't work then and it won't work now.

There are (a few) advisors who are starting to embrace this in their process. I'd like to think my firm is at the cutting edge, but I know I am not alone.

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If I could pass along one piece of financial advice to you, what would that be?

This piece of advice will likely sound different from what you've heard from other financial professionals.  You won't see this on the big financial firm websites ... or hear it suggested by financial experts on TV.  I'm not going to package it in a sales pitch or mash it in between a bunch of jargon that is either boring or confusing (or both).  You won't have heard this from your parents or any other person you know and trust.

As different as this advice is (and it is well off the beaten track) - IT WORKS!  You can embrace it no matter your income, your current wealth, your education or your knowledge about personal finance.  Clients from many different walks of life have told me that they enjoy each day more, have less stress about financial issues and feel more confident that they are on track in life.

If I could take all of my writing in this blog (three year's worth and counting) along with my eight years as a financial professional and fiduciary advisor and condense it down to one nugget of wisdom, what would that be?

Here it is ...

My Advice

Know what is most important to you and why - and get as much of that as you can.  Don't buy stuff you don't want ... and ferociously protect what you already have.

That's it!

And people pay me hundreds of dollars an hour for that?  Amazing but true, they do.  Why?  Because while this advice is simple and anybody could do it, most people won't ... but some hand holding (coaching) and a watchful third party to point out when you're going astray can be worth thousands of dollars in lost wealth each year.

What is the price for true happiness AND peace of mind?  That is for you to decide ... and "true happiness AND peace of mind" is what you get through this philosophy and our unique planning process.  Here are some more details on each piece of that advice:

Know What You Want

Life is long and complicated, right?  We spend decades on this planet from birth to death.  But what is the purpose of all this?  What really matters?  If you are like most people, there are only a few things in life that are so important, you would sacrifice just about anything else to have them.

The more clear you are on what those things are, the better for you.

Maybe your kids or other family members are the most important to you.  How about your spouse?  An animal?  Music?  Art?  Telling stories?  Fine Wine?  Great Food?  Your relationship with God?  These are just a few ideas.  I'm certain you have many of your own (send me an email at jdbuerger@altuswealth.com or leave a comment on this blog and share yours with me - I'd love to hear about them).

For me the most important things in life are my relationships with others: connections and conversations.  Finding solutions to problems - mine, my clients and my friends - is also at the top of the list.  If I could have my way, I would have an endless bar-b-que in my back yard.  We'd have great food, fine wine and endless deep conversations, solving problems and being thankful for all that is good in our lives.  If my wife and kids were part of this, I'd be in heaven.

These things in life that are most important to you - are your Values.  "Values" is not a dirty word.  Having them is a good thing because a life in alignment with your values (the things that are most important to you) is a life of happiness, pleasure and peace of mind.

Know WHY You Want It

The "Why" is critical because without it there is no motivation.  Without motivation there is no action.  Without action you would never purposefully move towards getting what you want.

You need "Action" to get "Results" and people need "Motivation" to take "Action."

You can academically know exactly what is best.  Any traditional personal finance advisor will gladly tell you what this is.  The "experts" on TV say it over and over: "Spend less than you make.  Invest in a well-balanced portfolio.  Pay down debt, etc."  These are all true statements.  Academically they are great advice.  But in the real world, your neighbors (and 98% of Americans) won't follow that advice.

Why? - Exactly!

The reason why they won't follow the advice is that their "Why" is important, but it is completely missing or misunderstood.  It started when you were three and were constantly asking "Why?"  It doesn't stop just because you become an adult.  You are still driven by the same organic structure you had as a child.

Your "Why" is critical to your success in getting what you want.

Human beings are - at the core - emotional creatures.  We are blessed with the most advanced cognitive brain of any animal on this planet.  Yet the vast majority of your choices in life - including almost every single financial choice - is based on your emotional circuitry, not logic.  Whether or not you want to admit it, you have a deep, complicated and passionate relationship with money.  It is a relationship that trumps ALL logic.

If you don't have the "Why" figured out, your best efforts will forever be compromised by advertising, marketing, politicians and salespeople who know how to manipulate your behavior to get more of what they want (product sales) regardless of what is best for you.

Buy More of What You Want

Once you know what you really want - those super-values for which you would sacrifice just about anything - get more of it.  Sometimes that is easy and inexpensive.  Sometimes not.  The better defined this goal is, the greater will be your motivation to make it happen, though ... so cost becomes less important.

REMEMBER: You need "motivation" to take "action" in order to get the "results" you want.

When you have the motivation, you will bulldoze through any barriers - including cost - to get those results.  Make a point every day to be sure you add more of something you truly want to your life.  Feed your passions.  Feed your soul.  Feed your values.  Make this your #1 priority for every day.

Buy Less of What You Don't

It is amazing the amount of money we are hoodwinked into spending on stuff most of us don't need and don't even want.  We do this for a number of reasons.  Marketing and advertising is effective at pitting our hyper-emotional centers against our more logical brain system.  The chemical forces that are unleashed in the midst of a "retail therapy addiction" shopping spree are very strong, even if they don't last very long.

Traditional financial planning advice is centered around archaic and ineffective tools like "budgets" and "saving for the future."  These tools appeal to the logical mind but have no chance of working for most humans.  Why?  Because they DO NOT appeal to the emotional centers in the brain.  While they are academically correct, they are missing that critical "Why" component.  There is no motivation in their application.  No motivation means no action.  People don't follow budgets any better than they follow diets.

The end results are the same: your neighbors waste lots of money buying stuff they don't want just as they eat food that isn't good for them and makes them fatter - then they feel bad about it because they didn't have the "self discipline" to make an intrinsically failed process work.

It's a vicious cycle that only makes the financial advisors and diet companies a lot of money and loads up the citizens with the attitude that they are helpless: they can't succeed at anything (but have to keep paying to try).

You can do much better than that.  Viewing financial choices through the lens of your values allows you to have more of what you want and stop wasting money on stuff you don't want and can't afford.  This is because your "values" have a strong emotional component to them.

Your values are motivating in a deeply powerful way.

Protect What You Already Have

The last part of this advice is possibly the most important because I have seen some of the richest lives destroyed by careless neglect.  Once you have worked hard and built up some wealth (even if it is your first $1000), it is critical to make sure you don't lose that hard earned wealth by exposing it to needless risk.

Be like a momma bear watching over her cubs.  Be ferocious.

Note: The key word here is "needless" risk.  There are two natural laws that exists here, "No Risk = No Return" and "Risk Cannot Be Eliminated."  These laws are just as immutable as the Law of Gravity.

Risk cannot be eliminated, but you don't have to expose hard earned wealth to needless risk which is something almost all Americans do - even (especially) experienced investors.  Here are just a few examples of needless risk:

Following the herd - doing something because everybody else is doing it.  Especially when it comes to your money, there is no safety in numbers.  Markets crash precisely when everybody thinks they are completely safe.  Any doubt?  Just look at the real estate market the past five years.

Mistaking the News for Reality - The news media (especially the financial news media) is there to make their advertisers happy.  They are there to sell products and services.  They are there to alter your perception of what is going on in the world around you so that you will spend more money with their advertisers.  In the investment world, that almost always means exposing your hard earned wealth to needless risk (like the Stock Market Roller Coaster) or spending it on (financial) products you don't need and can't afford.

Unless someone can show you how a product, service or even process can get you more of what you really want in life, then you are probably exposing your money to needless risk.  Remember the second natural law (Risk Cannot Be Eliminated).  Risk is in everything.  The better you understand the risks of a particular product or service, the less likely you will expose yourself to needless risk.

You Can Do This - Go Prosper

A Rich and Fulfilling Life - a life where you are adding more of what is important to you every day.  A life with less stress and fewer worries.  A life where you are confident that you are on track to having more of what you really want.

What's wrong with that?

Nothing - and it is exactly what you will get if you follow this simple advice.   And yet most people won't stop their busy lives (full of agonizing tedium and running around chasing their own tails) long enough to embrace this concept.  Why?  Because that is how we're all wired.  Nobody likes change and especially change that comes with it's own perceived reality check.

There is a sort of insane comfort with letting your emotions drive your financial choices.  It's like comfort food - probably not all that great for you, but it is easy and it feels good (for now).

I encourage you to push through that natural resistance ... at least long enough to understand what is possible.  Anybody can have a richer and more fulfilling life than the one they have now no matter where you are on the quality of life continuum.  You are never "done" with that.  If you want some help, feel free to contact me or continue to read through posts on this website.

The Ultimate Tool to Help - a Shameless Plug

Since I created the concept three years ago, I have done dozens of Wealth Health Check-Ups (a one-shot-fee-for-service review of everything in your financial life).  I should have done hundreds of these in that three year time frame.  It is inexpensive.  There are no strings attached - you don't have to sign on for any other services and it comes with a money-back guarantee ... but people are afraid of the process.  They are afraid of the reality check - learning the truth about their financial situation.  They perceive the Wealth Health Check-Up™ to be a painful process.

It isn't painful - it is empowering.  I love doing these check-ups because I have yet (at least so far) to find a case where we couldn't help the client get a lot more of what they want in life and stop wasting money on stuff they don't want or need.  People always leave realizing they are BETTER OFF than they thought they were (the perceived pain of the reality check turns into pleasure) and loaded with ideas on how they can make their lives even better.

I encourage you to sign up for your Wealth Health Check-Up™ by sending me an email or giving me a call.  Ask about our current $100 discount (for a very limited time).

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Comments (6)

1 Friday, 20 August 2010 18:30

Kevin@OutOfYourRut

John, I think you've just described the key to happiness in life. Most of us never find it because we're too scattered in our focus. At a minimum, if we could concentrate on one thing at a time, achieve it, then move on to another goal, we'd get far more done than we do now with all of this over-rated multitasking.

"Nothing can add more power to your life than concentrating all your energies on a limited set of targets"--Nido Qubein

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2 Friday, 20 August 2010 22:05

John D. Buerger, CFP®

Kevin, thanks for the comment and the quote. Studies have shown that shifting from one area of focus to two cuts the probability of getting either result in half. Sad that most people cannot articulate their values. Can you get any more fundamental than knowing exactly what is most important to you?

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3 Wednesday, 25 August 2010 15:27

Norm Trainor

Great article John. Reminds me of Clayton Christensen's article How Will You Measure Your Life? in the Harvard Business Review.
You have touched on a number of important points and it is great to see an advisor such as yourself taking the time to really understand his clients and what is important to them. I hope you continue to empower those around you.

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4 Wednesday, 25 August 2010 18:50

John D. Buerger, CFP®

Norm, it is great to see your comment here. Thanks for sharing. Those interested can read the article at http://hbr.org/2010/07/how-will-you-measure-your-life/ar/1 It is an interesting read.

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5 Sunday, 29 August 2010 17:31

Stephen - Rat Race Trap

John, this is a fabulous article! I think the whole article can be summed up with this sentence:

"Unless someone can show you how a product, service or even process can get you more of what you really want in life, then you are probably exposing your money to needless risk."

You might have meant that to apply to financial service products, but as far as I'm concerned it applies to buying a bag of potato chips at Wal-Mart.

"If I could have my way, I would have an endless bar-b-que in my back yard."

When you fire up that endless barbecue, let me know and I'll move in next door.

Reply

6 Sunday, 29 August 2010 18:58

John D. Buerger, CFP®

Great point, Stephen. Spending your money in alignment with your values is the ideal. While we're at it - and since you've covered this at http://RatRaceTrap.com - Spending your TIME in alignment with your values is also critical. In general, when ALL of your choices are made within the values-based framework, you will enjoy the life at the highest level.

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Where does the time go?

My son - who I still remember as this little guy who would point out the window into the back yard and say, "Outside Dirt" is now 17 years old, taller than I am, driving a car and looking at film schools for college.

I've been at this blog for more than three years now.  What is amazing is that my writing has aged and improved with time ... and my picture to the left hasn't changed (a little blog humor there).

I'm not afraid of my previous positions.  You and I can both go back and read everything I wrote: the points that were extremely prescient as well as the predictions that were not.  They're all there for you so you can judge whether or not this blog has added value along the way.

Socionomics

In reading over some of the articles I've posted over the years, I have become more aware of the power of social dynamics to shape the performance of individual portfolios, the stock market in general and even the overall economy.

Robert Prechter - the present day guru of the Elliot Wave Theory and founder of a discipline called "Socionomics" - suggests that the stock market doesn't drive the economy in any true cause-and-effect way.  The stock market simply reflects social mood which is the driving force behind the economy.  As such a reflection, it can be a solid predictor of future economic change.

Are We There Yet?

This past week, one of my favorite economists, John Mauldin, posted a blog entitled "Are We There Yet."  I wrote an article with the same title - more than a year ago.  In that article I suggested that those who hoped we were finished with the downslide in the market would still have to hold on for more bad action.  I didn't feel that the bottom was in completely.  We had not seen capitulation.  We had reverted to the mean ... but not past it.

That would seem like a bad call on my part.  After all, the market recovered 60% from that point to the recent April high and we are heading back towards that April high again while the recent sovereign debt scare, flash crash and BP oil rig disaster seem to be subsiding.

Prediction Review

Back in May when I wrote the article - unemployment was at 9% and we suggested that 11% wasn't out of the question.  Today we're just shy of 10% with new claims still stubbornly high, the census takers (who added to the ranks of the employed) now being let go and are on our third round of unemployment claim extensions.  Here in California, the unemployment rate is above 12%.  Nationally, the unemployment rate among young people entering the job market is a staggering 16% (or more if you include under-employed and those who opt for grad school rather than trying to find a job at this time).

Where the prediction missed was in the relative short term time frame and the ability of our government to throw absolutely massive amounts of money at the problem (and how effective doing so was going to be in kicking the can down the road).

Are We There Yet - Revisited?

15 months ago the question being asked was, "have we hit bottom?"  Now the question applies to whether or not we have hit a top?

I don't know the answer to that question.  Certainly the politicians will throw everything they can at keeping things moving in a positive direction.  They all want to be reelected to office in November and will margin the future as much as necessary to make that happen.

That could easily have the effect of keeping this Titanic afloat for a few more months - or maybe even quarters.  But when it finally ends (and it will end) it will be fantastic in a very scary and damaging way.

Some New Predictions

Before I get into these predictions, please understand that the one variable I cannot predict is time.  I'm pretty certain that eventually every one of the following will happen.  I just don't know when.

--- UNEMPLOYMENT - I still believe that 11% unemployment is in the cards before this recession ends ... and it could get worse than that.  It is never good for social mood when your friends, neighbors and family members are all out of work.

--- ECONOMY - Whether we ever got out of the last recession or not, growth in the following 18 months will be anemic.  If it stays positive, I will be surprised, but if that does happen it will be at below average levels (less than 2% GDP growth) which will feel absolutely horrible.  This is also not good for social mood.

--- EQUITIES - By the most reliable fundamental standards, the stock market today is over valued by about 30%.  If the market really does roll over and revert to the mean, will it be able to stop when it gets to that mean (as it did in 2009) or will it go past the mean into "under-priced" territory?  Who knows, but history would suggest that at some point we will see persistent below average pricing.  Once the stock market starts to reflect the other social mood issues cited above - it will create it's own cascading spiral downwards.

--- INTEREST RATES - A few months ago I wouldn't have suggested it, but today the probability has increased substantially that we will see LOWER interest rates in the following months.  Mortgage rates could easily get into the three's which is unprecedented.  For those who qualify, this will be a great opportunity.  For the rest of us who aren't excellent credit risks it will leave us feeling that much more bitter.

--- TAXES - This one is baked into the cake already.  Tax rates are going up in 2011.  60% of small business income is taxed at the highest rate - and that rate is going up almost 3% starting on 1/1/11.  Estate taxes look to be reverting back to 55% with a $1 million exemption.  Capital gains taxes will be at least 25% higher next year than they are today.  The Obama administration seems to think this won't matter to the economy.  I can't see how it will be good for social mood.

Add it All Up

When you add it all up, there are four data points that are not good for social mood (unemployment, the economy, equities and taxes) and one that is good for some, bad for others (interest rates).  I am ignoring in this analysis any exogenous issues like war, sovereign debt crisis in Europe or a real estate bubble in China (all of which are more than possible).

Remember, social mood drives the economy.  As long as these negative factors continue to build and until our leaders change their tune - decide to grow our way out of the problem rather than tax and spend our way out of it - the probability is great that some time in the near future (whether it is weeks, months or quarters I do not know) we will find ourselves in much worse shape than we are today.

Are we at the top?  If not, we are close.  There is far more downside than upside risk in this environment.  Plan your finances accordingly.

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Money is Like Sex!

In the case of the "keep up with the Jones" types, it is easy to see the parallels between money and sex and how financial decisions can often be corrupted by impulses and emotions.  You see that flat-screen TV in the store.  You know your friends all have one (social proof) and you simply must have one of your own, even if you don't have the money to pay for it today!

But what about those of us who are more practical and rational - those who consult with others on financial choices and think things through before making a decision.  Certainly, we have things under control, don't we?

The short answer is, "No, not really!"

Herding Mentality - A Private Orgy

There is a great article in today's Wall Street Journal by Jason Zweig that explains Why Investors Can't Think For Themselves.  The reason - getting confirmation of value from others not only increases the value you see in something, hearing that validation also releases dopamine into your brain.

The very same reward centers that trigger during sex and drug use fire up when someone else (or many other people) says that they see as much value or more in the same object as you do.

This is built into our hard-wiring, so even if you pride yourself on NOT being a "keep up with the Jones" or impulsive type person, your opinions and valuations are being heavily swayed by what those around you are saying.

Your Financial Circle of Influence

If most financial decisions are heavily influenced by the opinions of others - and mountains of clinical research in behavioral finance shows that it does - what/who is influencing you?

It is worth taking a moment to understand your particular situation and circle of influence because those people have a significant impact on your financial choices and net results.

A new independent study commissioned by the Financial Planning Association shows that the top resource most people turn to for financial assistance is "friends, family and colleagues."  More than one-third (38%) seek out advice (and validation) from people who are close to them in their lives.  Second on the list at 32% was "none" (more on this in a bit).  #3 (29%) was the internet.

"Professional Financial Advisor / Planner" was tied at #4 (16.8%) with newspapers and magazines.

Friends = Trusted and Free Advice

One reason why "Friends, Family and Colleagues" is the #1 resource for financial advice has to do with the trust factor.  These people already know you.  You are familiar with them.  Familiarity breeds trust (even when it shouldn't necessarily do so) and since financial decisions are often held close to the vest, the opinion of a trusted, familiar person would seem appropriate.

Also in the grand scheme of things, the advice offered by friends is free - often with no visible strings attached (although I think we all know deep down that often there are strings we just don't see).  Because it costs less, we often equate a higher value to it.  Humans are always looking for a bargain.

I have written in the past about the relationship between price and value and this is a situation where common logic is completely twisted.  Especially when it comes to getting help with rational or logical choices like personal finance, medicine, law or business; valuable advice is never free - you get what you pay for.

If you are sick and present your symptoms to a close friend who doesn't have thousands of hours of medical education and thousands more of experience, how much confidence should you really have in their diagnosis?  Very little, but people do it all the time - equating free advice with valuable advice.

Sure, 9 times out of 10 the free advice will be similar to the doctor's expensive diagnosis.  But it is that one out of ten times where the free advice is dead wrong (pun intended) that is the problem.

None = Delusion

The #2 response on the FPA survey was "none" - people are trying to navigate today's treacherous financial waters totally on their own.  That's like shooting a white water rapid without a kayak, raft or even a swimming suit.

I also think this response is delusional at the core - these respondents are ignoring the reality that they ARE influenced by others.  Most likely that influence is the evening news, headlines or talk around the water cooler.  In today's high-tech world, it is impossible to make financial decisions in a vacuum.  Even if you could, those decisions would have to be based on some sort of education or research.  To me, the "none" response is more likely an "all of the above but I'm scared to admit it" response.

The Internet

The #3 resource for help in making financial decisions was the internet.  This also has appeal because it is free - I won't repeat that price vs. value argument again.

What is interesting is the belief that if you have a lot more information (which the internet offers), somehow all of that information will come to a result that can be trusted more than just one resource.   To an extent I agree with this, but with one caveat - you have to be willing to read through ALL the information that is available and that takes a lot of time and energy.

You are at the whim of the search engines and they aren't perfect.  Search engine results are heavily manipulated by Search Engine Optimizers and other games.

The general dialog about financial issues is also swayed by those that have a vested interest in keeping the status quo.  Certain truths (like the 10% Myth) don't immediately (if ever) gain national traction.

The internet is a useful tool.  There are resources for financial information that are full of useful facts and ideas without all the impulsive, manipulative stuff.  I know I am biased in this opinion, but I believe it is better to start working with a fiduciary professional and access his/her list of trusted internet resources than it is to jump into the wild wild west and take whatever Googles to the top as gospel truth.

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Comments (1)

1 Monday, 21 June 2010 17:39

Kevin@OutOfYourRut

The advice-from-friends problem is compounded by the fact that most of that advice mimics the mainstream media. It's exactly what's available in the media, so not only do you have social proof there, but also validation. When people hear advice enough times, they don't question it, and they become part of the herd.

The problem with that combination is that while many people know the mainstream information as it appears on the front page, few ever know anything deeper. The internet can confuse by the sheer volume of information, which can send you crying back for the simplicity of your friends and the media.

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