When investors are immobilized, give them kinetic energy to change

Daniel Pink has a new gem out, entitled "Drive". It's subtitle is quite accurate: The Surprising Truth About What Motivates Us. I bought this book when it first came out last December, but didn't actually sit down to read it until last month. I wish I had read it sooner, because I've changed course in life because of his message.

Pink's premise is that the "carrot and stick" guide to motivating people (employees, children, even your friends) isn't very effective in the long run-it just motivates people to do enough to follow the rules. Rather, he lays out an entire premise to help people find their own motivations, as summarized in his "Cocktail Party Summary":

Pink writes:

Science shows us they way [to motivate]. This approach has three essential elements:
1. Autonomy--the desire to direct our own lives;
2. Mastery--the urge to get better and better at something that matters
3. Purpose--the yearning to do what we do in the service of something larger than ourselves.

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Stop and think about that-we all want to matter, to have a purpose here on earth. Some would say that this is where spiritual guidance comes in, but my approach is completely secular. By stopping to think what we are really, really good at, and then using that skill to contribute to the world at large, we find purpose, and ultimately, some semblance of happiness.

I heard a story yesterday on NPR about soldiers returning from their tours in the middle east to find themselves lost in civilian world. The theory they discussed was that everything was very clear and structured about what is expected of soldier, and none of that structure is in place back at home. No doubt that lack of clear direction is the cause for some unhappiness with returning soldiers. But I think it also matters that their higher purpose (to keep their fellow soliders safe, to protect the interests of their country, to save lives) is lost when forced to sit in an anonymous cubicle somewhere and sit on the computer all day or ring items up with a pleasant smile at some super chain in a generic strip mall somewhere. What if they could find a way to save lives again-not on the front lines, but in other capacities (an ambulance medic, a suicide hotline, safety inspector) and drive happiness from this new role?

Simon Cowell mentioned on Oprah this week that he was bored with American Idol. And yet, he's pursuing another show, X-Factor, because “I like the buzz it creates. You want to be part of something people are talking about. I love that feeling.” Even Simon Cowell wants to have purpose and meaning.

So, across all sectors of post modern society, individuals want more purpose. As a financial advisor, a deeply impactful role you could have is to help individual focus on that greater purpose and motivation. Then the volatility in the market, while regrettable, won't be such a primary focus of every meeting and conversation. Instead, think about the bigger inspirations you could be making.

Have you had that conversation with your client? Have you asked them, "What is it that you are really good at, and how have you used that skill to contribute back to your family, your community, your society?"

Too Much Choice=Worse Off

I was surprised--at first--to hear my mom say she was excited to be able to get back in touch with her Kaiser doctor last week. And then it all made too much sense.

Since my father works for the US government, he has some nice choices when choosing his benefits. They had been with Kaiser for years, and with it came the frustration that they lacked any choice of specialists. I finally convinced them to go with the PPO option, so they could choose whomever they wanted, and find the best specialist in their geographic region.

Unfortunately, it had the opposite intended affect: They were overwhelmed by the choices of doctors, and did not know how to narrow it down. So they did nothing. And last fall, come open enrollment, my parents quietly switched back to Kaiser, where the choice is made for them. All they need to do is make an appointment...and wait...and wait...and wait. But they don't have the stress of trying to decide who is best to address their health concerns, Kaiser has taken on that stress for them.

In the end, I know the option that makes them take action is the best for them. But it's hard to see the real life application of "too many jams" (see UCLA study by Schlomo Benartzi) on your own family. It would be nice to see a nationwide database that helped individuals narrow the choices down, but until then, I see virtue in the Kaiser model.

What investors really want but can't articulate to you

I just finished reading Michael Shermer's book "The Mind of The Market". It's an excellent encapsulation of what our emotions do to our financial decisions. But I was most struck by the "Why Money Can't Buy You Happiness" chapter. He writes that decades of research have found some rather unmaterialistic sources which drive happiness (in this order):

--Social Bonds (marriage, friendship)
--Trust in People (friends, family, strangers)
--Trust in Society (the economy, justice, government)
--Religion and Spirituality (prayer, meditation)
--Pro-social behavior (helping others, volunteering)

These things are all rooted in our evolutionary adaptation, as they were important components to our survival back in the time of the cave man (getting along with others helps when hunting mammoths).

If advisors could tap into the rudimentary components of what drives us to be happy, then perhaps they could change the conversation from one of investment performance, to one that is so much more meaningful. This would require a conversation not just at the 30,000 foot level, but from the stratosphere. Referring to the list above, an advisor would have to deeply understand not only the nuances of a marriage (which they probably usually do), but also what kind of friendships that individual cultivates. (What kind of friends do they have? how deep are those friendships? How wide do they cast their net?)

Furthermore, those clients out there that are known as "the independents" that like to do it on their own are easy to send away, because they don't trust any advisor completely (nor even the entire system for that matter). And yet, it's a rather telling sign of how unhappy they are if they can't trust in society, and likely are in the most need of help to find that trust.

Clients that have a practicing religion are likely to be happier and more trusting. For clients that don't have a religious component to their life, the advisor might do well to probe about where the client finds spirituality.

And lastly, the willingness to help others-either in time or financially. To me, it would be the fun part of being an advisor: "So, Mr. Client, after you've squirreled away your nest egg, taken care of your children and your aging parents, and traveled the world, what do you want to do with yourself? What's your real mission here in life all about?". That truly loftier goal of contributing to the community, or finding a thoughtful cause that they can connect with takes away the grind of investing, and gives it a much greater purpose. And if you can be the person to help define that purpose, I would have to think that you would be in position to be their advisor for life.

And we're back

OK, time out for a little travel, family time, and research. Some updates:

New neuroeconomic book out:
The Secret Language of Money: How to Make Smarter Financial Decisions and Live a Richer Life . Written by doctor and a career consultant. Now if only they could take this out of self help and put it in school curriculum.

Trust Factor:
As reported in CBS Marketwatch today by Adam L. Penenberg, social networking is not necessarily bad. Why are people spending hours on Facebook and Twitter? "The answer is surprisingly simple. Social networking makes us happy."

Penenberg writes:"A research project by Paul Zak, a professor of economics and the founding director of the Center for Neuroeconomic Studies at Claremont Graduate University, found that when a test subject learns that another person trusts him or her, the level of oxytocin, a hormone that circulates in his brain, rises. "The stronger the signal of trust, the more oxytocin increases," Trust, Zak learned, fosters more trust. The more oxytocin swimming around your brain, the more other people trust you."

So advisors need to remember of all the most important tasks they include in their financial planning process, building trust is at the top. The question is, what really builds trust when it comes to matters of managing money?

Lastly, I had the opportunity to meet some of the team (Greg Davies, Head of Behavioral Finance) and more closely examine the Behavioral Finance efforts at Barclays Wealth (they have taken over Lehman's old private client division here in the US to give them a truly global presence). They seem to be leading the charge to incorporate with clients with their Financial Personality Assessment. I would like to see more evidence how it has impacted their advisors ability to convert and retain clients, but it's a much bigger step than any of it's competitors....

NPR covers neuroeconomics and decision making

http://www.npr.org/templates/story/story.php?storyId=106974476

How about stimulus to help people protect themselves from making bad mistakes

i know there are a lot of problems that Obama is trying to solve, and I continue to be impressed, for the most part. I'd like to see a little stimulus money go towards financial education--we'll continue to fall prey to our human emotions if we don't understand them. how many investors are out there right feeling self loathing because they were invested in cash and watched the market climb past 9000? how do we know now is the good time to get back in? do we ever get back in? a little understanding of how we are hardwired would go a long way to address that little social security problem looming over us. If anyone on his fiscal team is listening, there are a lot of good people with good answers-now let's through some money at them to distribute the answers that can start with each of us at home. (Carl Sunstein-you are the closest one to him, let's see you get to things thumping!)

The presence of financial advisors mutes our ability to reason and think

In a recent paper* published March 24, 2009, researches found that the presence of a financial advisor softened our sense of reason and decision making when faced with complex financial decisions: It's as if we know there is an expert in the room, so we don't need to think about it so thoughtfully (and thus strain our minds). Using fMRI scanners, the researchers found that when experts where not present and subject matters presented with a complex financial decision to solove, the problem solving neurotransmitters fired off in their brains. When they were in the room, they slowed down measurably.

If advisors knew that their mere presence caused their clients to think less clearly, they might stop to take the time to walk through the problem solving portion of their clients' complex issues, since their brains are not doing it themselves as well as they should be....


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*Expert Financial Advice Neurobiologically ‘‘Offloads’’Financial Decision-Making under Risk
Jan B. Engelmann, C. Monica Capra, Charles Noussair, Gregory S. Berns
Department of Psychiatry & Behavioral Sciences, Emory University School of Medicine,
Department of Economics, Emory University
Department of Economics, Tilburg University (Tilburg, The Netherlands)
Center for Neuropolicy, Emory University