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February 01, 2008 at 07:00 PM
The following is based on one of Norm Trainor’s clients, Ed. All of the names and telling details have been changed.
As a former teacher, Ed takes great pride in teaching his clients the truths of successful investing. Yet, as his coach, I found it surprising that he had great difficulty applying these truths to his own situation. When we first started working together, Ed described with enthusiasm his approach to helping his clients achieve financial security and independence.
In working with clients, Ed understands the simplest and most timely truth that financial success is not based on investment performance, but rather on human behavior. The most important issue in achieving financial security is not what your investments do, but what you do. In our work with advisors, we teach the best practice, “understanding how people make decisions.” The basis of this best practice is that people treat facts as factors, but make decisions primarily based on feelings. All decisions are emotionally based. As a consequence, our emotions usually cause us to make decisions in the moment that are not in our long-term interest.
Let’s examine how Ed applied this best practice with his clients and prospective clients and failed to apply it to himself. Financial and business success is based upon a few rather simple principles. One of the challenges is that these principles are so simple and straightforward that most of us miss them.
The first principle is the importance of discipline. Successful financial management and business management is a result of establishing a plan and sticking to it. It means that you do not allow yourself to be swayed by short-term distractions.
The first thing Ed does for his clients is to put together a long-term plan. It could be a retirement plan, financial plan or estate plan. He spends the time to help them clarify what is important to them and to establish their long-term goals. Then, he makes it clear that his job is to help them stay on course to achieving their objectives. He establishes trust and confidence by demonstrating that he is working for them.
