As we face the start of a new year, I find myself contemplating resolutions for 2015. Sure, I could stand to lose a few pounds. What I find myself looking to improve beyond my physique, is my understanding of the assumptions that I take for granted in my practice of financial planning. It was December’s chapter meeting that sparked my initiative to take a closer look at the fundamental assumptions in my practice. The speaker for the December chapter meeting, Tom Brakke, reminded the attendees of the FPA Standard of Care and that “Acting with due care and in utmost good faith” meant among other things, really understanding the calculations behind the software reports and the decision process of one’s asset managers.
Sure, much of this research will be a rehash of the work done in the initial evaluation. For better or worse though, we live in constantly changing times and the assumptions that we made one or five years ago need to be constantly evaluated for continuing validity. In other words, take a look with a fresh eye. What we lean on daily to serve our clients has probably evolved since we learned it in the first place. Software is constantly being updated. Correlations constantly shift. Market forces make investments less effective.
As I spoke with a couple of very competent and experienced advisors after Mr. Brakke’s presentation, they agreed that while there was much they should review, they doubted it would help them control the uncertainty that our clients face. They are correct that there is only so much we can do about interest rates, the markets and client behavior. They joked that the only tools for coping with the specter of an investment blowing up in a market downturn were “prayer and alcohol”. I don’t expect this process to result in better portfolio returns or more concise reports, but I do expect it to better equip me to discuss these things with clients. To better educate them on what we can control and what we cannot. We all owe it to our clients to walk into every meeting being able to fully explain how a number was calculated or why an investment still makes sense in a particular portfolio.
This resolution probably does not sound anymore glamourous than doing pushups. Anyone who has physically trained with a goal will tell you though that the pushups are not so much about seeking perfection as they are about building confidence in your abilities. Building and maintaining confidence as a professional is no different.
Advocacy Day 2015
A reminder to save the date of Tuesday morning, February 24th for the second annual FPA MN Advocacy Day at the capital. We are looking to meet with officials from the Department of Commerce in particular to learn more about how they go about regulating securities and financial professionals.
An invitation to join us on January 6th at 4:30 for the FPA MN Book Club at 7500 Highway 55. We will be discussing the book The Rational Animal by Kendrick and Griskevicius which is a deeper exploration of the human instinctive forces that underlie many of the biases associated with behavioral finance.