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.
Without Ed, most of his clients would not have a plan and those who did, would not stick to it. Yet, when we started working together, Ed did not have a plan. Sure, he was always thinking about his business, but that is not the same thing as having a plan. The first thing that we did for Ed was to develop his business plan.
The second principle of financial and business success is patience. Ed teaches his clients that they are planning for the future. They expect to be around for a long time. So why worry about the next quarter? His clients’ financial plans are put together to meet their needs over the next 20 or 30 years. He teaches them the art of the long view.
Yet, Ed was not running his business as if it would be around for 20 or 30 years. He had not thought adequately about his succession plan or exit strategy. In his business, he was opportunistically driven. He focused on the next great investment product or idea, rather than the long-term goals of his business. He too needs a teacher and coach to keep him on track to financial security and independence.
The third principle of financial and business success is faith. It is not possible to have successful long-term results if you are constantly worried about today or tomorrow’s crisis. When you are constantly reacting to short-term events, you miss out on the long-term opportunities that are all around you. This gets back to the importance of discipline. Surprisingly, as his coach, my job in many instances is to point out to Ed what he already knows and to help him manage his own behavior. This allows him to practice what he teaches.
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