Financial Dna - Discovering Your Unique Financial Personality For A Quality Life

When I was a financial planner and even before that a CPA, I had regularly observed that people's behavior and decision-making patterns changed when they were under pressure; the pressure often being caused by money and relationships. This observation was fundamental to my thinking when I was building the Financial DNA Discovery Process with my team. We wanted to know what a person's natural instinctive behaviors are as this would be key to predicting how they would really behave when there were difficult times and/or difficult decisions had to be made. This plays into the research we recently did of 100 advisors with AUM over $50million. 70% of them said that they were surprised by their clients’ reactions. Why?

I have had some interesting discussions in the past week with financial advisors and managers of advisors. With the financial downturn everyone is evaluating where they are at. The big question being asked is: "Should you be in the business?" My feeling is that over the next 1 to 3 years many current advisors will give up or be forced out. When you think there is research showing that 89% of clients are considering switching advisors there is much to think about. The financial services landscape is going to change dramatically.

I have had some interesting discussions in the past few weeks with business leaders from many different industries and backgrounds in the United States. One of the areas that consistently comes up is poor corporate governance. As mentioned in my last blog most of the economic problems we have right now are due to the behavior of our leaders. Being direct, alot of leadership behavior is not properly monitored. So, a key step towards fixing the problems we have today would be to change the corporate governance structures in publicly traded companies.

At the moment there is alot of talk about the collapsing business and financial environment. For everyone it is having an impact in all sorts of ways. Of course, we all look at the numbers side of the equation; but what about the people side? What are the human risks in your business? How are your people behaving in these times? Then, also, how do you want them to behave to handle the crisis and then build your business going forward? We have been working with many companies all over the globe on managing and developing their human capital. In this regard, we have been using our Business DNA Business Risks Matrix. Review a summary here: http://www.financialdnaresources.com/images/BusinessRisks.jpg

In the financial services industry there are a lot of supporters for the use of behavioral profiles as part of the client discovery process and there are some detractors from using them. Like in any situation where there are detractors most have not yet had a positive experience or seen the full benefits or simply have been listening to the wrong information. This is human nature. Overall, I do believe that you can never have enough information about yourself, your clients and also your team. As Benjamin Disraeli said: "The most successful people are those who have the most information". Of course you also need to have the best and most accurate information.

A statement I have been making to many people for the last 10 years is: "Investment markets cannot be controlled, but how you manage your reaction to them can be". Generally, for most investors the reason that they obtain returns which are on average 6% lower than market returns is because of their behavior. Investors generally make poor investment decisions because of their reactions to events and also to their own life circumstances. This can be because they do not know who they are or how to manage their emotional impulses which are driven from how they are wired to behave. I really want to emphasize that successful investing is about managing your behavior.

Hang on. Where is the market going to? Will the Dow be 5000 in the next few months by June 2009 or 22000 in 6 years? Who knows. They are interesting questions. I have placed my own personal wager on the markets reaching these levels in those time frames with some friends. I have often talked about this with friends and clients since 1999. Japan could still get messy for the world yet as it has many unresolved issues. These problems coming down the pipeline have been a big part of my move into the human behavior business. However, this whole discussion does call into question what is our role in advising clients? Is our role to help them manage their behavior or to get the highest maximum performance?

Well the stock market has gone to 10 year lows. Has it hit the bottom? That is not necessarily the crucial issue although this downward spiral will be raising more fears. What is crucial is how you handle this situation in terms of your own behavior and managing that of your clients. If you read my last blog you will see research is showing that advisors are on the whole not going far enough in client discovery and in particular understanding behavior. Here are some tips for managing your clients which are all based on having greater behavioral understanding...

With turbulent financial markets it is far more likely that your true financial behavior will emerge and strongly influence your financial decisions. The degree to which this true financial behavior emerges and your ability to effectively manage it will to a large degree depend on how much pressure you come under because of financial concerns and difficulties. How are you going to navigate these difficult times? To what extent will your emotions drive decisions?

For a few years now there has been an increasing trend toward people taking steps to find greater meaning in their life. Gradually, more and more people are having the courage to do it and not just talk about it. This may involve turning their back on what is a well paid job and years of study and even moving from where they live. I even believe that this desire to find meaning will increase with turbulent financial times which could be quite dislocating for some. To survive emotionally and financially people will have to change their perspective on life and their relationship to money so that their meaning is not as much defined by how much they have.

Generally in business, and particularly in financial services, people associate risk with the markets or economy. What we fail to drill down into are the risks caused by human behavior. Another way of looking at this is to consider how people handle the market risks. What decisions do they make? What solutions do they come up with? How do they manage their emotions? How do they communicate?

Would you prefer to be asked about your dreams or your goals? Last week in one of our Wealth Mentor Community Calls we discussed this very question. Prior to the meeting, I had the Wealth Mentor participants read a book called the Dream Manager by Matthew Kelly. This book really brings out the connective power of encouraging people to get in touch with their dreams. The point that emerged during the discussion was that most people would prefer to be asked about their dreams rather than goals.

On the weekend, I had the great fortune to listen to a very inspiring presentation by Dr. Ben Carson. Dr. Carson is a leading pediatric neurosurgeon at the John Hopkins Hospital. In his career he has been a pioneer in performing highly risky surgery on children. He has a great book: "Take the Risk - Learning to Identify, Choose and Live with Acceptable Risk". Dr. Carson explained how he has often been faced with addressing the viability of taking a major risk in his work. What is there to gain? Will it be worthwhile? What if I fail?

The stage is now set. The family have committed to a meeting. Further, the initial homework has been done with everyone completing their Financial DNA® Profiles, Family Quality Life Review and other pre-meeting exercises. Remember, there are a lot of settings for a family meeting. Further, there are a lot of times when key questions can be asked. Questions can be asked during meetings with professional advisors, whilst on vacation, over dinner at the family home or in more formal settings such as during a family retreat. The issue is now what questions will be asked at the family meeting?

What has been the impact of money on your family? This is a big question and one often addressed in a family meeting. Also, it is often asked by your financial advisor in the financial planning discussion. In many ways these impacts will shape who the family is, determine the family relationships, define the family legacy and how the family is remembered by others. My Podcast Alley feed! {pca-c7785816d46106f2dad9db212636c9c3}

Recently, I have had a great experience in reading a book called “The Energy of Money” by Maria Nemeth. I would thoroughly recommend this book to any person who is interested in better understanding their relationship to money. After all, this is what I have been advocating very strongly in my past few blogs. To become financially educated and realize your potential, you need to understand who you are and why you make the life and financial decisions that you do.

My last couple of podcasts have really hit on the issue of financial education to develop greater financial capability for the consumer. The need is now "red hot" with the financial markets in turbulence and many people very concerned about how they will unwind. Are we at the lows yet? It would not seem likely. So, there is potential for a lot more concern and emotion yet.

Financial DNA was originally built based on our passion to see the consumer receive education to become more financially empowered and in our view this starts with greater self-understanding. Consumer financial education does not start with understanding the technical aspects of alpha and beta and what a stock or bond is, or hedge funds. So, we believe that financial advisors must play a greater role in consumer financial education starting with client behavior.

Core to my passion is seeing people take more personal responsibility for their financial decisions. In the end this is actually key to your financial success, and overall quality life. To take more personal responsibility means increasing your financial capability. I believe there is an obligation on yourself to get the right financial education and also on your financial advisors to help you by providing it and guiding you. In the end, you need to be able to make more informed choices about the products and solutions you are buying, and not just rely on others to decide for you.

A common derailer that I have seen in many families is a lack of transparency. There is key information which is not being disclosed to other family members and, in some cases, to key people in a family business. Usually, this is caused by the holder of the information not trusting the other family members in some way.