Most Advisors Not Spooked Yet. Are They Delusional?

Suppose you stood outside your local DMV and took a random poll of motorists. The vast majority would tell you they are very good drivers. And guess what? Those same folks would tell you most other motorists on the road are terrible drivers. It seems like the same thing is happening to independent financial advisory firms.

According to our Wealth Advisor Confidence Survey™ 2017, five times as many advisors expect their own firms to grow by double-digits next year than they expect peer firms to grow by double digits (49% vs. 9%).

  Advisors expecting to grow by double-digits
Our firm ***********************************49%
Peer firms **********9%

Source: HB Publishing & Marketing CO, LLC and The Financial Awareness Foundation,2017

Despite concerns about Washington, the Trump tax plan, robo-advisors, artificial intelligence, a looming market correction and generational shifts, most high-end independent advisors remain optimistic. Is that rosy outlook justified?

A number of our clients weighed in on the subject—hard.

Matt Topley, CIO of Fortis Wealth in Valley Forge, PA said that our egos too often get in the way. “For starters, Wall Street recruits from what it believes are the best of the best young minds, coming from the most prestigious schools,” explained Topley. “Many were scholar-athletes or heads of numerous student groups and organizations. Many more had military backgrounds or other notable leadership experience.  These lifetime over-achievers have stellar resumes and type-A personalities, but that’s also what causes them to develop massive human biases within their psyches. Most don’t realize it.”

How so? All these factors lead to “the illusion of skill,” added Topley. “The more knowledge we possess, the more that overconfidence bias engulfs us. And that’s very dangerous, because a series of human biases are especially damaging to employees in the finance business.”

A partner in a Top-50 CPA firm told me the other day about his big initiative to encourage firms to be more proactive. They need to get their business plans ready for “big technology shifts and other changes that can wipe out your current market advantages.” He said “CPA firms are sitting ducks along with many other sectors,” adding that “Robo/AI risks are a bit overblown and we will actually see a hybrid AI/ Human solution that gives the best of both worlds.  Wealthy people and most others crave human interaction with their professional service providers.”

Kyle Walters, founder of Dallas-based Atlas Tax Advisors, agreed. As he explained in his recent Accounting Today article (The Power of the Red Chair), financial advisory firms should pretend that A-list clients are in the room with them at all times—i.e. sitting in a special red chair–when they make strategic decisions about service offerings, billing models or CRM.

“It doesn’t matter what we think,” added Walters. “The only thing that matters is what our clients think. What can we implement that will make their lives easier and make them happier with the experience we provide?”

Anthony Glomski
, founder of AG Asset Advisory in Los Angeles, told me that financial advisors of all stripes are not setting the bar high enough. “As Peter Diamandis would say: ‘In a world where everyone is competing furiously for 10-percent improvements, you need to be thinking about how to get 10X.’” Glomski added that the pace of change “seems too great today for that to be sufficient, let alone disruptive. Historically, I suspect a lot of “aha” moments got you just 10-percent.”

According to Topley, the reason active managers fail to beat their benchmarks over the long-run is due more to psychological reasons than it is to intellectual failures. “There is non-stop pressure on portfolio managers to DO SOMETHING  for outperformance–i.e. trade around positions, add to winners, find out of the mainstream stocks or sell winners. Ironically, doing nothing is sometimes the best answer,” added Topley. “When we overload our brains with decisions, our human biases come into play.”

And then there are things beyond our control such as the increase of fraud and cyber-attacks. Encryption and security badges serve two very important purposes, explained Samuel Bethea, founder of The Rosewood Group in Rock Springs, WY. “Incorporating these two features into your overall system of security will provide assurances to your customers that you have (a) taken precautions to protect their information and (b) will convey a sense of digital sophistication and understanding of the threats that loom on the internet today.”

Cyber security ensures that all sources of digital penetration from an external source have been mitigated in your system, added Bethea. “In a small business, it might be wise to partner with cloud resources that have cyber security built in to their security systems.”

We live in a highly competitive, information-rich world, said Glomski. “Any AHA moment must be backed by fast and fierce persistence. Many AHA moments are followed by others who say ‘uhhh yeah’ which means I’m doing that too.  AHA can give you a 100-yard lead in a race. Take your foot off the accelerator for just a few seconds, and you can easily be passed.”

Conclusion

Let’s stay in our lanes during the final stretch of 2017 no matter how fast you like to go. You may be a good driver, but without two hands on the wheel at all times, you’re not much better than all the other maniacs on the advisory highway.

As Walters observed: “People don’t leave their [financial advisors] because they charge too much. They leave because they don’t feel valued and appreciated—and because they don’t feel listened to.”

 

TAGS: Kyle Walters, Matt Topley, Samuel Bethea, Anthony Glomski, Wealth Advisor Confidence Survey 2017



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