Seawright: I Hope This Doesn't Describe You

He will rarely just stand there. He’ll usually be doing something.

The diffidence-based advisor

Some advisors see a problem and look for an answer. Others merely see a problem. The diffident advisor will often do little or even nothing out of a sense of paralysis or despair.

He will do nothing, because he has no good evidence-based idea what to do. This, of course, is most often better than doing a non-evidenced series of somethings. But that’s a really low bar.

The self-righteous advisor

This advisor hoses his clients while remaining utterly convinced that they are doing what’s best for them. He’s often wrong but never in doubt.

No one should be surprised that, in this instance (as well as others), “what’s best” is often really, really good for the advisor. It doesn’t usually work out so well for the clients.

The nervous advisor

Fear of clients being upset and the potential consequences thereof are powerful stimuli for excessive and repeated portfolio changes. Counterintuitively, this sort of advisor is often quite afraid of offering reasonable expectations, because unreasonable expectations are so much more attractive. Plus, they can be counted on to tell clients and prospects what they want to hear rather than what they need to know.

The ideology-based advisor

This sort of advisor is unalterably committed to his market ideology, contrary facts and evidence notwithstanding. They know what’s True (with a capital T) and will stick with that come hell or high water (and beyond).

The publicity based advisor

This category sets out to convince clients of his bona fides via media appearances, publicity shots and name recognition rather than real client service. That’s because he had to become so well known for a reason, right?

As British journalist Robin Powell puts it, “All too often we base our investment decisions on industry marketing and advertising or on what we read and hear in the media” or on something else altogether.

Evidence-based investing is the idea that no investment advice should be given unless and until it is adequately supported by good evidence. Thus, evidence-based financial advice involves life-long, self-directed learning and faithfully caring for client needs.

It requires good information and solutions that are well supported by good (often academic) research, as well as the demonstrated ability of the proffered solutions to work in the real world over the long haul (which is why I would prefer to describe this approach as science-based investing). It means changing one’s mind, approach and strategy when the evidence demands it.

The obvious response to the question about whether one’s financial advice ought to be evidence-based is, “Duh!” Then again, advisors and investors of every sort — those with a good process, a bad process, a questionable process, an iffy process, an ad hoc process, a debatable process, a speculative process, a delusional process, or no process at all — all think that they are evidence-based practitioners already.

They may not describe it that way specifically. But they all tend to think that their process is a good one based upon good reasons. Nothing to see here. Move right along.

But the bald fact remains that all too few in the financial world practice evidence-based investing. Take a good look at the alternatives and carefully consider how evidence-based your advice and your practice really are. Test and re-test your purported evidence for errors, holes and unsupported conclusions.

Investing successfully is really hard. Adding a client component makes it harder still. Even the best advisors are going to be wrong far more often than they would like.

If you want to do right by your clients, keep checking and re-checking your work, your assumptions and your conclusions. The evidence demands no less.