Looking on the Inside

Any person who has worked in the arena of personal financial planning for long knows that money is a complex topic. The complexity I am referring to, however, refers not to the allocation, placement, manipulation, or management and distribution of the assets, which indeed, are complex enough. These complexities are concerned with what could be called the external realities regarding money. External realities are what the financial services business is all about: How much do you have? Where is it? How could we do better? How much will you need? What are your goals?

It is this last question that has become a staple of discovery in the industry that has caused practitioners to cross unwittingly from the external to the internal aspects of finance. Soon, clients are revealing people and places and events that are important in their lives. Quite often, they begin talking, with a palpable amount of emotion, of how they would like to see their story evolve. It doesn’t take a clergyperson, psychoanalyst, or a philosopher to perceive that the topic of money, merely material and quantitative on the surface, has multiple layers of trust or distrust, emotion, history, meaning, feeling, and intention below that surface.

You are now in the realm of internal finance.

Very little has been written on the internal side of money. In the next decade we will begin to see a proliferation from this emerging field of study and observation, works that will explore the soulish side of money.

What does this money mean?
What price was paid to obtain it?
Whose lives will be impacted and how?

What are your greatest hopes and fears related to this money? How do you view money, and how are you most comfortable dealing with it?

The Soulful Financial Advisor

If you view yourself simply as a tactician or money mechanic, you may say to yourself, “I have no interest in such questions,” but I contend that, as a practitioner, you cannot avoid them for long. Someone in your organization needs to build meaningful relationships with clients in order to create a stable business. A meaningful relationship is just that—a relationship full of meaning. It would then follow that a meaningful relationship around money extends to understanding what this money means to someone’s life and future.

You are now squarely situated in the discussion of internal finance. Another way to frame the discussion is that, after mastering the left-brain side of money management, we are now being challenged to master the right-brain side of the business.

Until recently, the financial services industry was not ready to hear a message that delved into the emotional, meaningful, and soulful implications of the financial advisory business. But the confluence of 9/11, a sobering bear market and revelations of corruptive conflicts of interest has provided the perfect storm that has turned the industry’s focus back to building meaningful and lasting relationships with clients.

This is a time for turning things inside out, for examining the innermost soul of an industry that has held the hopes and dreams of hundreds of millions of people in its stewardship and has often failed in that stewardship.

I believe the financial services industry is being turned inside out for good reason. Too many games have been played with assets that represent people’s lives, hopes and dreams, and quality of life. We all understand that money is a serious topic, but too often the institutions that claim to know the seriousness of the topic have demonstrated otherwise in flippant, foolish, and even felonious fashion.

When trusted institutions and fraternal organizations are found to be exploiting their members and clients and self-serving at the trough of their clients’ travails the time has come for deep industry-wide soul searching. If, as Aristotle said, the unexamined life is worthless, how much more worthless is the unexamined industry. This industry has been duly examined from the exterior by the courts and the fourth estate, and now the time for internal examination arrives where a new and genuine to-the-core type of industry and professional can emerge and be recognized.

I believe the audience is ready. There is a philosophical hunger in the industry among mature practitioners and firms desiring to demonstrate new standards of integrity to build individual advisor- client relationships that will transcend market jitters, trying economic climates, and industry foibles.

Scores of firms are adapting to the themes and models I introduced for building client relationships in Storyselling for Financial Advisors, The New Retirementality, and Your Clients for Life. This book is the most soul-searching yet in terms of coming to grips with what it is going to take to restore and rebuild trust within each individual practice and for the industry at large.

From the Boiler Room to the Living Room explores the following issues:

• Where the industry has failed itself and its clients in the past and how to restore trust.

• Large-scale adjustments the industry must consider to meet the evolving needs ands demands of clients.

• How to gain a greater understanding of what money represents to your client’s life and well-being.

• How to develop dialogues that will build long-term trusting relationships.

My best intention for this book is that it will act as an introduction to the broad and deep territories and avenues of internal finance. I hope that through this series of discussions we can come to a place of comfort and understanding that what we see on the surface with money is just the beginning of the story, and that those with a seeing eye would raise their dialogues and relationships to a place of the highest integrity and empathy.

There are decisions that firms and individuals in this industry still need to make. At the end of each chapter I will offer a ReSOULution—a decision based on internal insight—that I sense is necessary to carry this revolution and industry transformation forward. Ultimately, it is left to each individual to accept nothing less than the best in order for the whole to be transformed.

The financial services ranks are filled with great thinkers and generous hearts that have seen the writing on the wall for some time. They have been doing their best to reshape, reform, and reframe their firms, their offerings, and their advisors’ value propositions. Many of these revolutionaries are fighting extreme uphill battles within their organizational cultures, which cannot perceive how to exist outside of the boiler room template. I have seen a few of these good men and women tire and leave the battle but know of many more who have dug in their heels and are determined to lead their firms in and through this metamorphosis period. Once the industry sheds this cocoon and realizes what it can be, we will all benefit: client, advisor, and firm alike.

PART I

INDUSTRY RESOULUTIONS

Most of us are by now aware of what has been wrong in the financial services industry. Somewhere along the way the industry lost its way or, in some cases, never set out on the right path to start with, and has reached a dead end. This part is not about pointing fingers and pointing out the obvious, but rather about first examining why the industry’s value proposition and ultimate reputation ended up where it did; and, second, about offering a more lasting, more integral, and more perpetual value proposition that will benefit both client and industry, in that order.

CHAPTER 1

If These Walls Could Talk

The most certain science is conscience.

—Viktor Frankl

Anthropologists studying peoples deep within the Amazon came across a tribe that had an unusually high mortality rate and short life expectancy. They studied the eating, drinking, medicinal, and health habits of the tribe and could find nothing to explain the phenomenon. Eventually, they found the problem in the very walls of the houses these people lived in.

The tribe built their homes from river mud, which contained a species of bug that carried a virus. By using this mud for the walls of their home, they were literally building houses of death. Upon discovering this, the anthropologists sat down with the elders of the tribe to reveal their findings. The elders dismissed the anthropologists so they could decide on the issue. They later told the anthropologists they had decided to do nothing—it would be too difficult to find a new way of building shelter. It was the only way the tribe knew.

This same story could be told about some investment firms as well: the dying stock/fund jockey and the diseased investment house that is infected in its very walls with a virus known as self-centeredness. This virus causes its landlords to believe that the client who enters the house exists only to meet the needs of the house and to serve its own interests. Some of the leaders in these houses are perplexed by the number of investment advisors falling by the wayside and the decline of worthwhile clients coming to visit. In declining markets many of these landlords blame the wayward attitude of the market rather than their own attitude and actions for this demise.

How do these same leaders explain away the fact that thousands of client-centered financial planning practices grow and maintain during the same market periods? Those financial professionals whose houses are built with the lasting materials of servitude and self-transcendence are flourishing as never before. The problem, as illustrated above with the Amazonian tribe, exists within the very walls of the infected investment firm office: Those who live within these walls breathe toxic air each and every day and, as a result, mortality rates are high.

The leader of the infected investment firm, whose team suffers the greatest mortality, most likely caught this virus through direct or secondary exposure to Ayn Rand’s philosophy of objectivism that seduces executives and managers into thinking that the greater good is ultimately met by pursuing one’s own self-interests. As the industry headlines of the last few years have demonstrated, this philosophy has been practiced in corporate corner offices to the point of their undoing. If Atlas is shrugging off anything these days, it is this blind and foolish philosophy that purports to help others while only helping oneself. Put another way, it would be like the pig saying his only motive for slurping at the trough is because he knows he will one day be man’s breakfast. The pig overeats jealously only because it is his nature to behave in a hoggish fashion.

The breadth and permeation of this virus has been brought to the public consciousness from the business page to the front page and—as a grave indicator of its endemic state—to the comics page, with Dilbert strips satirizing the selfish advisor. Online brokerage houses joined in the satire with the “Let’s put some lipstick on this pig” ads showing advisors acting like boiler room operators, and posterized human images lamenting how their brokers were ripping them off. These images and messages contributed as well to the heightened awareness by exploiting the techniques of exploitation. Some recent experiences have driven the point home even more.

A friend who is an executive for a mutual fund company called to tell me that his father, whose retirement assets have shrunk considerably, can no longer sleep by night nor relax by day. He joined his father on a trip to talk to his advisor. The first thing my friend noted about his father’s advisor was that he was unaware that his client had been retired for the last year and a half! Within 10 minutes he was trying to sell a new product to my friend’s father. My friend told me he had to muster all his restraint to keep from reaching across the desk and choking this advisor. He told me, “I’m in this business and I understand the need to sell products but, my God, this guy had no interest in my father’s life or dilemma whatsoever.

Why doesn’t this “advisor” know more or care more about his clients? Because the walls of the house are infected, and, as a result, so is he.

My accountant e-mailed to tell me that a client of his had come to see him because she had stopped receiving checks from her annuity and had visited her advisor and was confused about his “advice.” He had advised her to sell the annuity and buy into some bonds that would mature in 15 years. She wondered if that was a good idea given that she was 81 years old at present. The accountant told her he would look into it further. Upon review, he found that the recommended bond fund was almost identical to what she was allocated to within the annuity. The only advantage going was to the advisor, who would profit from the transaction.

Why would an advisor offer exploitative self-interest as advice? Because the walls of the house are infected, and, as a result, so is he.

Several years ago an advisor had recommended that I purchase sizeable stakes in two telecom stocks just before they began their precipitous fall. I wasn’t blaming the advisor for the recommendations (after all, I had agreed with his idea at the time), but I was bothered by the fact that I had not heard from him in almost a year as these investments plummeted to 10 percent of their original value. Not a single phone call. I decided to make the call to him. When he answered, he said, “Oh, I’m so glad you called. My company doesn’t allow us to call accounts anymore that have fallen below $__ in value.” I remarked on the irony of the fact that it was his company’s recommendations that caused my account to fall into their “not important” category. I transferred my account the next day.

Why would an advisor not care? Because the walls of the house are infected, and, as a result, so is he.

A New Campaign

An advisor working for a bank came up to me after a speech with his eyes filling up and said, “I had decided before this meeting that I just couldn’t do this anymore. If you can show me a way to center what I do around the life and needs of my client, I will have hope. I have turned down the volume on my conscience for the last time.”

One can breathe toxic air only so long. At some point, self-preservation kicks in.

You may have noticed that there has been a concerted effort of late to change the image of the house by advertising to reflect themes of client-centeredness and client concern.

As with all paradigm shifts, there are some genuine parties and efforts at work and there are pretenders. The genuine parties are focused on bringing assimilation between their ads and their advisors. The disingenuous and half-hearted simply spend money on the ads.

Do some of these houses believe that the problem is only with the sign on the house? Does it escape their notice that the problem is with the air one must breathe once we’re inside? How long will it take before the perceptions of the advertisements become the reality of the client? Is there a process in place to bridge the promise of the advertisement with the practice of the advisor? Is there any line or strategic process that connects the two? The advertisements may be different, but until the theme of the Monday morning “sales meeting” is different, the death toll will continue to rise.

Until company culture issues are addressed, the inveterate mistakes that have made headlines will prove incurable. Nothing gives away the careless conscience like talking out of two sides of one’s mouth: telling advisors to do their best to serve their clients, but also making sure you do your best with them pushing XYZ fund this week. If the mistakes of the last decade have not brought the issue of self-centeredness to the surface, what will it take? Exploitation continues as long as the virus is allowed to grow.

The selling of financial advice can be a noble trade. But it cannot be noble if it is simply a masquerade for a financial carnival act. There is a better way.

Good advisors can and do play heroic roles in the lives of their clients. Let’s assume that every product designed intends to solve a problem or meet a need. The product is good if the intention of the product is good and the price affixed is competitive. This product is designed to meet a real need, so where does the danger lie in bringing this solution to the public? There is really only one variable that opens the door to danger and keeps the selling of advice from being respectful and dignified. Every professional also knows appropriateness can be solved only through thorough and sincere discovery.

One size does not fit all. But pressure is applied by the landlords of the house to “move” that product, and as long as the message of moving products supersedes the message, this industry will be replete with advisors trying to cram size 11 feet into size 9 shoes.

Not too long ago, I witnessed a sales training session within the industry. The trainer commenced his training paradigm with this premise, “First, create a need.” I was dumbfounded. Create a need presupposes that there are no legitimate needs in the life of this client—therefore the advisor must manipulate his perceptions to act as a springboard for his sales presentation. I challenge any advisor to find any client conversation where, with enough effort to understand the client’s situation and goals, a real need would not appear that could be addressed with a product or process you now offer. It is a self-absorbed and lazy approach to think we must “create the need.”

The Soul of the Matter

Appropriateness is ultimately a question of conscience and soul: Am I trying to create the perception that this is needed to meet my own agenda, or am I trying to find the client’s real needs by offering the most appropriate fix for those needs? The first sign of recovery from this virus is that the advisor begins to take a much keener interest in the lives of his clients and becomes much more intrigued in the discovery part of the conversation than in product pushing. A strange paradox begins playing out in the practices of those recovering from the virus: the less time they spend pushing products and the more time they spend discovering the lives and hopes of their clients, the more products and services they end up distributing. But now all product sales are highly appropriate. Doing the right thing pays off.

Though many campaigns reflect a sincere desire to form better relationships, until the house is rebuilt with a different material, the core of the virus will not go away. It is not a media campaign that is needed but a conversion of the very soul of the business. Self-interest must give way to what philosopher Viktor Frankl called “self-transcendence,” more commonly known as “seeing past your own nose.” The industry can no longer afford shortsightedness, opportunism, or superficial relationships.