Our Highest Value to Clients

Journal of Financial Planning: March 2011

Vern C. Hayden, CFP®, is president of Hayden Financial Group LLC in Westport, Connecticut, author of Getting an Investing Game Plan, and contributing editor to TheStreet.com.

A colleague and I were discussing what we do for clients. I asked the question, “What is the most important thing we do for a client?” The answer to some degree depends on what a client is seeking. Some situations are pretty simple and come close to a commoditized answer. Some want portfolio management, a core profit center for many of us. In that case, it is also somewhat dependent on client perspective. Performance may or may not be the main issue. I realize many financial planners suggest that performance should never be the issue if you are doing everything right, but we don’t live in a perfect world and portfolio management and client behavior are filled with ambiguities and inconsistencies that don’t lend themselves to simplistic absolutes.

Ultimately, many clients are looking for something very serious from us. Perhaps that great western writer Louis L’Amour (300 million copies of his books in 20 languages, and the only American novelist to receive both the Presidential Medal of Freedom and the Congressional Gold Medal) said it best in one of his last novels Last of the Breed (1986). He said, “What is wisdom?… I have often wondered…. It goes beyond mere knowledge, as knowledge goes beyond information.”

Joel Jones, Ph.D., president emeritus of Fort Lewis College in Durango, Colorado, and one of my handball buddies, has an aphorism that blends importantly with L’Amour’s question. He says, “Data by itself is not information, information is not knowledge, and knowledge is not wisdom.”

Webster defines wisdom as “accumulated philosophies or scientific learning, good sense, a wise attitude or course of action.” Many times clients want us to be wiser than we are or even can be. We play a multitude of roles with clients and they are forever asking us questions. We of course encourage them to ask questions in our role as financial planners, advisers, wealth managers, or whatever else we may call ourselves. Sooner or later many clients will put us into a classic King Solomon-type predicament. They want us to sort through all the variables of an issue and give them a great judgment call. Some even say, “I need your wisdom on this.” The older I get, the more I seem to hear the word “wisdom.”

This has caused me to wonder what wisdom really is and do we have it. My inclination is to say that wisdom comes from a synthesis of life experiences and our ability to think and construct a lesson from those experiences. When we answer the tough questions, these cognitive experiences become our basis for judgment calls for clients.

As Jones says, wisdom is beyond and above knowledge. When a client brings an elderly parent to our office and informs us that the parent has just been diagnosed with Alzheimer’s, what do we do? At his point, it doesn’t help to say, “Let me power up my computer and we’ll find an answer for this.” Technology is of no help on this issue. In fact, I believe technology should always play a subordinate and supportive role to the financial planning process. We must constantly remind ourselves that the planning process, and certainly life planning, is a human process—technology should support it when appropriate but never dominate. Our world is being de-humanized; to the extent we humanize what we do with clients, we enhance our ability to bond with them.

Last August, Jones and his wife took me to breakfast just outside Durango, near the home of Louis L’Amour’s widow. At breakfast he gave me the book Wisdom: from Philosophy to Neuroscience by Stephen S. Hall. This is one of the most profound books I have ever read. In many situations where we give advice or make judgment calls for clients, we cannot get all the facts we want or need. The book says, “One of the hallmarks of wisdom, what distinguishes it so sharply from ‘mere’ intelligence, is the ability to exercise good judgment in the face of imperfect knowledge.”

Another interesting aspect of wisdom comes into play when we have to restate an issue or problem for a client. Stephen Kosslyn, Ph.D., head of the psychiatry department at Harvard, discusses a relatively recent concept in cognitive psychology known as “framing,” which refers to the way we conceptualize a problem. He said, “People who are wise can interrupt, take a step back, and reframe, and a lot of wisdom probably has to do with looking at a situation differently and reframing.” An example of this would be when we know a client cannot retire on their current path, and we must “reframe” the situation for them.

Another of Stephen Hall’s points is expressed as follows: “One of the most appealing things about wisdom is the elevated form of self awareness it inspires…. When I consider ‘socio-emotional selectivity theory,’ which describes how a person’s emotional priorities change with shrinking time horizons (due to age, illness, or unsettling external events like the September 11 tragedy), I can’t help but think about my own station in life.… Thinking about wisdom almost inevitably inspires you to think about yourself and your relationship with the larger world.”

Sometimes when we think we are looking at “facts” our sense of wisdom overrides the information we thought was there originally. For instance, the myriad of questionnaires that are used to determine a client’s tolerance for risk becomes a fantasy that fades in the face of a deteriorating market. Perhaps wisdom would suggest we recognize that a client’s interpretation of most things in life is dynamic and subject to radical change. Consequently, if we do planning based on a static interpretation of a client’s situational “facts,” we may become part of the problem, rather than part of the solution.

A final note from the book Wisdom: we have all met people who give the impression they know everything. These people, of course, are dangerous in the face of wisdom. The book points out a situation with Socrates, known for his famous statement to “know thyself.” The situation related to a discussion he had with a politician. Hall relates: “Socrates concluded that the politician ‘thinks he knows something he does not know, whereas I am quite conscious of my ignorance. At any rate, it seems that I am wiser than he is to this small extent, that I do not think that I know what I do not know.’ With this remark, Socrates defined an essential and indeed profound aspect of true wisdom: recognizing the limits of one’s own knowledge.”

We all gather data and facts and they become information, which forms a certain knowledge base to work with our clients. We translate all of that into our style of financial planning. Regardless of our style of implementing a planning process, the most valuable benefit to clients may be whatever wisdom we can bring to their situation.

So as to the question that opened this article, I told my colleague that wisdom is what I thought was the most important thing we could bring to a client.

General Financial Planning Principles