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Financial Planning > Behavioral Finance

The 100-0 Rule

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The financial services industry is “blessed” with an abundance of highly sophisticated information. At a single click, investors can obtain—at no cost—oceans of data for which one formerly had to pay princely sums.

And in comparison, financial advisors are provided still greater royal treatment. Former presidents, secretaries of state, generals, NFL or NBA coaches, famous economists and more are ubiquitous at the advisor conferences I attend.

But my quote marks around “blessed” were not accidental. The barrage of data, even the valuable kind for which one pays (or used to pay) dearly, ranks below wisdom, which is and always was far harder to obtain. Yet I knew I was in for a rare course in wisdom from the first Q&A response in our cover story, “Nick Murray’s Hard Truths for Advisors.”

Reporter Jane Wollman Rusoff dutifully asked, and Murray forcefully shot down, her question about the gathering market storms, saying that an advisor focusing on current events is “doomed …. Nobody’s job is selection and timing; everybody’s job is planning.”

The venerable advisor coach went on to say that “all financial success comes from acting on a plan. A lot of financial failure comes from reacting to the market.”

The rest of the interview glitters with many such pearls of wisdom, but let’s focus on why this particular hard truth is vital to a financial advisor’s value proposition. It is because in investing, as in life, one can only influence what is within your control.

Neither you nor your client can control the end of QE nor influence the direction of interest rates. And while one should remain informed of the flow of events, Murray is at pains to warn against making reactive portfolio decisions, emphasizing instead the need to create and follow a long-term plan.

If a client has not achieved his savings goal at his annual financial check-up, the client can act to increase savings, cut spending or wait out a bad period. The client is not reduced to passivity, or worse reactivity, but is always making conscious choices within the framework of a long-term plan.

A well-known principle of management—the 80-20 Rule—holds that 20% of the inputs account for 80% of the output; so for example, 20% of your clients generate 80% of your revenue. Most advisors understand this principle and act accordingly.

But far less well known is what I would term the 100-0 Rule, which is that a person has 100% control over his own actions and 0% control over anyone else’s. All your scheming about the economy and market will be as efficacious as your attempts to convince your spouse or child to lose weight or stop being a slob.

Clients, and their behavioral coaches, i.e., financial advisors, have but one means to influence their environments and that’s through the hard road of controlling themselves.

Later in the interview, the sagacious Murray says “we should never have an unhappy client.”

Indeed, miserable wretches are usually frustrated by their failures to change those around them while happy people are those who have mastered self-control. It should be no surprise then that good advisors have happy clients.