By opening up honest conversations with their clients, advisors can help them gain clarity about their financial intentions and commitments in order for them to take the first steps toward living the lives they want, according to Joe Duran, head of Goldman Sachs Personal Financial Management.
Kara Murphy, PFM chief investment officer, on Tuesday kicked off a Goldman Sachs PFM Private Roundtable discussion called “Get Personal and Have an Honest Conversation” by noting Duran had often told her, “We want to shift our focus away from dying rich to how do we live richly.”
Duran went on to provide some good tips advisors can use to help their clients. Nine that stood out are:
1. Figure out what really matters to clients, what’s driving their motivations and why they work.
If clients don’t answer that question, they can “make a lot of mistakes along the way” for reasons that include the advisor not having a “lens” on when to point out “there’s a discrepancy between what” the client is saving that matters to them and “what’s being done today with [their] money,” Duran said.
2. Help clients avoid making the mistake that investors make most.
The biggest mistake investors tend to make is “your time perspective and your emotional biases … cloud your decision-making,” according to Duran.
As humans, “we are naturally drawn into what we’re experiencing right now and feel the need to act … because every financial decision is emotional” and “every investment decision is a conflict between the fear of losing out and the fear of losing money,” he noted, likening it to a “tug of war.”
However, “the minute you’re feeling emotional, your decisions are going to be almost the opposite of exactly what you should be doing when it comes to investing,” he warned.
It is important to step back and have an advisor provide “a sense of perspective on time and priorities,” he noted.
Clients must understand that investment decisions that look good today “can also go bad,” he explained, so it’s important to ask whether it is worth making a decision that can significantly impact the wealth they have built. One thing to keep in mind: “The pain of losing is much worse than the enjoyment of gaining.”
3. Get clients to start looking at money as “fuel.”
The way to think about money is that it’s a resource that allows investors to do things, and “what your job is as a human is to optimize your decision-making,” Duran said.
Therefore, clients should ask themselves before making a potentially risky investment decision if they are calm, if they have put it into perspective, if they have thought about what could go wrong and will they be OK if it goes as bad as they imagine it can end up being.
4. Get clients to control the few things they can control.
“The most important thing that I say to anyone when it comes to financial decision-making is check your emotions and focus on what you can control,” Duran said.
“You have no control over what the dollar does [or] what the stock market does. You don’t even have control over really your rate of return,” he pointed out. However, “what you can control is your risk,” he said.
“None of us know what’s going to happen tomorrow,” he said, explaining: “What we get paid for” as advisors is “to understand people and then to build a portfolio that [clients] are going to be able to live with and make appropriate adjustments along the way. That’s what a good advisor does. They’re helping [clients] to optimize [their] decision-making.”
Advisors should tell their clients to manage their costs, taxes and risks because when it comes to investing, those are the things they can actually manage, according to Duran. Beyond that: Be diversified, don’t do anything silly and “don’t make mistakes” that end up in the loss of “substantial amounts of money,” he said.