“Nothing is worth doing unless the consequences may be serious.” ~ George Bernard Shaw
Financial advice is less about financial products and more about consequences, particularly significant consequences.
Obviously, not all decisions have significant consequences.
Consider galeophobia – the fear of sharks.
I remember my sisters and I trying to find an open exit out of the infamous Erina drive-in theatre just after watching the iconic opening scenes of the 1975 movie Jaws. Our teenage brains had stupidly believed it might be a good idea to see during our Christmas beach holiday at our favourite spot on the Central Coast – Terrigal.
Galeophobia, however, is over-rated.
According to the statistics from the International Shark Attack File from the Florida Museum, we are 3,000 times more likely to die from drowning and nearly 300 times more likely to die from sun exposure than the chance we might die by shark attack while enjoying the open waters. David Ropeik’s 2010 book “How Risky Is It, Really?” highlights that Nobel Prize-winning economist Daniel Kahneman first suggested that his Availability Bias is the culprit which plays tricks on our decision-making process which can make insignificant decisions seem significant.
Kahneman’s theory suggests galeophobia is rampant because of movies like Jaws, media reports of shark attacks, and our evolutionary tendency to respond to information with feelings first and thoughts second.
The work of Daniel Kahneman and research partner of 28 years Amos Tversky, is insightful for advisers who believe that the future of financial advice is going to be less about financial products and more about other areas of value to clients. Kahneman and Tversky’s work also highlights the opposite of galeophobia, which is when people trivialise decisions which can have significant consequences. Their illusion of validity reliably predicts that many people consistently ignore their own ignorance.
A simple example is gambling, which for some can be a complicated and difficult issue. Thanks to the illusion of validity, gambler’s tend to view their gambling as a set of coherent and reliable actions. The chronic disregard of their own overconfidence means they consistently overestimate their ability to learn from the past. Eventually, they trivialise their risks until they have nothing more to risk and everything owing.
What do galeophobia and gambling have to do with advisers?
Before answering, consider the role airline pilots play in our lives (or did pre-Covid!).
On a normal day, at any one time, there are somewhere between 8,000 and 20,000 planes flying around the world. It’s estimated that Covid has brought those numbers down to approx 5,000. It is also estimated that approximately 90% of commercial flights are not actually flown by the pilots but by the plane’s auto-pilot, with exception of landings which are still done manually. Flying technology is so advanced that in 2019, Airbus’ Chief Commercial Officer – Christian Scherer – announced the Airbus has the technology to build passenger jets that don’t need pilots.
He also said that it was the regulators and passengers – the humans – who remained the barrier to any flights without a pilot aboard. While the technology is available, passengers and regulators fear the possible significant consequences of not having a pilot aboard. Even considering that 90% of flights pilots are ‘doing nothing’ as their aircraft flies on automatic, they are in fact, doing everything they’ve continually trained to do – manage all possible consequences – the significant and the insignificant.
For instance, a subtle wind shift in strength or direction while insignificant will require a slight change in heading. Even when the auto-pilot automatically anticipates this, it is still cross-checked. However, if a hydraulic pump used to control the main landing gear fails, a backup plan is required sometime before landing. Today’s aircraft have built-in redundancy systems meaning a spare pump can usually be fired up enabling a safe landing and re-fitted once on the ground.
In today’s aircraft, a pilot’s job is less about perfect landings and take-offs and more about anticipating and managing both significant and insignificant consequences encountered while flying their passengers safely, efficiently and assuredly. The pilot is continually determining the consequences that could affect the safe operation and navigation of the aircraft while regarding the weather, the other aircraft traffic, the needs and issues of crew and passengers, and the various domestic or international regulatory environments they pilot through.
A financial advisers role is becoming less about the consequences of product selection and more like the pilot’s role to manage a client’s consequences, even those the client may not perceive, like gambling, and those the client believes to be too significant, like galeophobia. The value of advice, particularly for on-going advice, is fast becoming more about the consistent, objective, identification and management of all consequences of significance.
Some believe taking a role to manage all consequences is a path into mine-fields full of legal risk that could nobble reputations and send professional indemnity premiums soaring. Others believe the management of perceived, real or potentially significant consequences in our clients’ lives can be achieved with management that is less risky than the path taken by other advisers who believe they can continue to ‘live off’ on-going fees based upon past advice and product placement in past years.
What do you reckon?
THE ABOVE IS A PART EXTRACT FROM MY NEXT BOOK – WHAT PRICE VALUE – DUE FOR PUBLICATION MID-2021
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted to advisory firms across Australia. His firm, Certainty Advice Group coaches, trains and is building a growing Advice Group of firms delivering comprehensive, unconflicted advice, priced on value and impact provided. The community of advisory firms aligns with Australia’s highest and only ACCC/IP Australia Certification Mark standard of comprehensive, unconflicted advice – Certainty Advice. He is also an author and keynote speaker.