A “Back to Basics” Reading List for Advisors

A “Back to Basics” Reading List for Advisors

For advisors to individual investors, your advantage is being more nimble than an institutional investor with billions

When we unplug for summer vacation, we usually fill our downtime by reading books we’re too busy to enjoy otherwise.

This summer, however, I’m taking a different approach.

Because we’ve been through a tumultuous year in the wealth management business, mainly due to the disruption caused by the robo advisor news cycle, I’m going back to school to reeducate myself. I need to think more and read more about what makes wealth managers great, especially in changing the landscape.

Let’s Go

There is an old saying that people don’t go to church on Sunday expecting to hear the 11th Commandment. They go to reinforce the 10 Commandments already in place.  My summer reading reinforced what I consider to be the foundational concepts of wealth management.

With that in mind, I picked up – and couldn’t put down – A Wealth of Common Sense by Ben Carlson, a gifted writer and institutional portfolio analyst. Ben also writes a blog that goes by the same name, A Wealth Of Common Sense.

Ben’s book is terrific for a couple of reasons. For starters, he provided voluminous statistical support for asset allocation, the pitfalls of market timing and other topics essential to successful wealth management. 

But more importantly, Ben is illuminating when it comes to more the intuitive side of wealth management, especially about emotional intelligence vs. IQ.

Three Takeaways

I found three themes in his book particularly inspired.

The first is that institutional investors, who we tend to admire, are really no different from high net worth investors. The so-called smart money is subject to the same emotional and behavioral mistakes as individual investors. The key difference is that “their portfolios have more zeros” than yours and mine.

Second, Ben argues persuasively that emotional intelligence, known as EQ, usually trumps IQ, better known as raw intelligence. Given today’s technology, instant communication and the market’s efficiency, IQ is something that can be acquired or readily harnessed by computers. Emotional intelligence is another story because it isn’t as binary and it’s ultimately more complex and personal.

To that point, Ben notes that investment philosophy is more about temperament than raw brainpower. For example, the most successful investors have a high tolerance for repetition, even when it requires doing nothing over and over again. That kind of discipline doesn’t take traditional smarts, but rather having the patience to stay the course – the emotional intelligence to remain patient.

The third key takeaway from Ben’s book is something I’ve always believed in: The primacy of simplicity over complexity. 

Ben’s book made the point elegantly, and it reiterated for me how important it is in wealth management. Complexity results in too many decisions. That causes decision-fatigue, which in turn causes laziness. In a moment of weakness, we say, “Let’s go with that idea” to end the discussion.  This haste often backfires.

Carl Richards, financial advisor and author of The Behavior Gap, made the same point in a different way. He believes financial advisors can help clients in three areas. First is to clarify their goals, second is to remind them of their goals, and third is to stand between themselves and stupidity.

Play Your Game

Ben’s book was filled with lot of memorable adages, too, including one of my favorites about how you beat a team with a superior advantage.

To level the playing field against an overpowering opponent, you’ll need to find and exploit weaknesses. Then you have to utilize your own strengths and be relentless in executing your strategy.  

For advisors to individual investors, your advantage is being more nimble than an institutional investor with billions.  As Warren Buffett said, “when dumb money acknowledges its limitations, it ceases to be dumb.”

*  *  *

Ben writes that investing really comes down to “regret minimization.” For individuals who have outsourced their investment management for all of the right reasons, Ben warns that they shouldn’t outsource their ability to care. Clients still need to pay attention and work closely with their advisor – or regret will be the outcome.

Summer school enables students to start the new year with confidence. Get your mojo back by reading Ben Carlson’s great primer about successful investing this summer.

Jeff Spears is Founder and CEO of Sanctuary Wealth Services, champion of the independent advisor and author of the acclaimed blog, Wealth Consigliere. Follow Jeff on Twitter and Facebook.

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