Journal of Financial Planning; August 2013
Ross Levin, CFP®, is the founding principal of Accredited Investors Inc. in Edina, Minnesota. His most recent book is Implementing the Wealth Management Index, published by Bloomberg Press. (ross@accredited.com)
I keep a serenity prayer rock on my desk: “God grant me the serenity to accept the things I cannot change; Courage to change the things I can; And the wisdom to know the difference.” (The well-known prayer is attributed to American theologian Reinhold Niebuhr.)
I wonder how our actions would change if at each of the decision points we confront we say the serenity prayer and then ask ourselves whether we are ready to accept an unknown outcome, knowing that we have more control over our process than our result. With this in mind, I want to ask a few questions for you to consider about what we can control and what we can’t.
Can You Accept Your Ignorance and Mistakes?
The more time I spend in this profession, the more I realize how little I know and how often I screw up. And my screwups usually occur because I feel threatened by what I may not know so I try to control my environment to make it safer. No matter what I read, I can’t know what is going to happen next. No matter how intricate our planning, I have no control over random occurrences. No matter how much I draw from the past, I am not sure how similar or different the future will be.
Because we are ignorant about the future, we will inevitably make mistakes about how we will prepare for it. We will certainly be wrong about something, so we need to be prepared for this inevitability.
I hear of people who have been significantly underinvested in the market because of the pending correction. When the correction comes, it doesn’t mean they were right. It means they were consistently wrong until they weren’t. This is not an insignificant distinction. The price of being consistently wrong and eventually right can be quite high and its effects can be dramatic. The most significant effect is that clients may not stay long enough for you to be proven right. I suspect that you, like me, believe that our purpose is to improve our clients’ lives. If clients leave us before we are right, then we did not serve them.
This does not mean you change your strategies. Asset allocation killed us from 1995–1999 because it worked so well. We lost clients to themselves and prospects to other wealth managers who bought into the new paradigm. We were wrong for a really long time, and then we were dramatically right.
Looking back, I would have done several things differently.
I would have explained that our style of asset allocation and mean reversion could stay out of favor for a significant period, but we believe that is the most intellectually honest way of investing.
I would have been clear that in the environment we were in, we would have no hope of coming close to the types of returns growth stocks were providing.
I would have let them know that working with us would probably need to be a several year commitment, because we simply don’t know when we are going to be right on the investment front, but that we will be doing so much planning work the returns only represent a piece of it.
I would have been very clear that we would always own some growth stocks, but that we may sell them as we rebalance to other areas so that we will be dumping the things that they love and buying the things that are far less attractive.
I would have asked whether in their hearts they believe that they can live with this, because the time when they are most likely ready to give up is probably the time when the strategy is closest to paying off. I also would have listened if they said that they could not live with it, instead of convincing them that I know what is best for them. I have to admit, I really don’t know what is best for them.
Can You Let Clients Know What You Don’t Know?
One thing we tell all clients is that we have no idea what the future is going to bring, but we will walk with them through it. Some people don’t like this. They want certainty. We can never provide certainty. Can you live with this?
Can You Acknowledge to Your Staff When You Are Wrong and Sincerely Apologize?
Over the years, we have had problematic hires, numerous initiatives that we stopped and started, and difficult clients. All of these things were preventable. We didn’t prevent them.
For example, at times we overrode our personality and aptitude testing and brought on people who were not a good fit for the firm. We kept them on longer than we should have. This created stress on the staff in a number of ways—they formed relationships with those who were eventually encouraged to find other work, their workload increased as they had to cover for the less effective employees, and at some level, the staff questioned our ability to lead.
We may have believed that filling a position was more important than filling it with the right person. We may have grown tired of the hiring process and brought in people we thought may have been simply good enough. We may have believed that our system was so great that we could change someone to fit it. Unless we really look at ourselves, we will never change the behavior.
The optimism and resilience that often helped our firm grow also created certain blocks. The importance of sincerely apologizing is that it makes us accountable by naming how our mistake impacted those around us. This may make us less likely to make the same mistake again.
Can You Accept Your Imperfection?
When you read my writing, you can see that I am a mess. And everyone I work with, and for, and meet is a mess. None of us has our act together. We can’t. We keep things together until they fall apart and as we get more experience, things fall apart less often or get fixed more quickly. Life is messy. Why not really own that rather than try to pretend it’s different? I am much more attracted to people who are vulnerable than who have a veneer of perfection that cannot be eroded. My imperfections make me human, and frankly, that is exactly what I want to be.
Can You Listen When Someone Has a Better Idea?
Because I am a founder of my company and I have a pretty strong personality, I suspect there are times when I step up and others step back. They may not want to question me because they are intimidated (there are a few of us who control their livelihood), or they think that with my experience, I must know what I am talking about. This is both my problem and their problem. If I show that I believe that my ideas are always the best ideas, why would anyone offer theirs? Yet if I am too insecure to ask for clarification when I don’t agree or understand something, then I should have no right to be disappointed in the outcome.
We have more than 35 employees, any of whom know far more than me or my partners in their particular niches. What kind of a company would we have if their observations didn’t matter?
When I think about the serenity prayer, one of the things I have accepted is that my highest success rate with change comes from working on myself. And the good news is that this alone could represent a life-long project. Would you care to join me?