How good ideas become…not good ideas

Good ideas become not good ideas through two mechanisms in any organization:

Mediocrity by Committee: You come up with a great idea called the light bulb. Before you can put your idea out there, it needs to be reviewed to reduce any risks. Legal looks at your light bulb and says, “Is this glass?”.  “Yep. Lets the light get out”. “But glass is dangerous if it breaks.”  “Well, under common use, the chance of it being broken is low.” “But glass is breakable, correct?” “Sure, but..” “OK. We will let you put this out there. Just remove the glass.” “It doesn’t work without the glass!” “Not our issue. Obviously you didn’t design it well.”

Complexity by Piecemeal: Reset. Light bulb again. This time, someone says, “Oh, you know what would make that better? A dab of blue paint.” “What for?” “People like blue” “OK, I guess.”. Next person comes along and says, “Oh, if you are putting that out there, we should get this big glop of clay on there” “Why?” “Well, it needs to get out there too, so while people are looking at it, they’ll see this, too.” Next person adds a sticker. Next adds some wadded-up gum.Sooner or later, so much stuff has been added that the light can no longer be seen.

Ephemeral and permanent

What do you spend your time on? 

Do you spend your time focused on things that will change in the next year, month, day or shorter? Things like the market, the news, opinions of industry pundits and the momentary fears these things create in both you and your clients? 

Or do you focus on the things that will not change over a lifetime or beyond? Things like eventuality of birth, work, retirement and death and the needs these create? Processes that recognize the ephemera and keep short-term fears from guiding decisions, like diversification, rebalancing, and buying the right type and amount of insurance as early as you can? 

One choice leads to fear and uncertainty. The other leads to hope and calm for you and your clients. 

Choose wisely. 

The Trap of -est

You can spend way too much of your time looking for ‘-est’. Whether it is the cheapest option, the one that will get you there fastest, managed by the smartest, which allows you to offer the best option.

Problem is, nothing remains the -est long enough to matter in relation to the goals of a lifetime.

Better to focus on doing the right thing for the client, and help them live with -er (cheaper, faster, smarter, better).

Even better to offer enough to do what they need (cheap enough, fast enough, smart enough).

Allocate then optimize

When planning out just about anything (creating a financial plan, managing your time, mapping out a project), you should first allocate and then optimize.

Allocation is about, “What do I do”. It is defining the steps required to go from where you are today and get you to where you want to be. Each step must be essential – if you can remove it or combine it with another step, do so. If not, don’t.

Optimization is about, “How do I do it”. It is looking at each step you defined when you allocated, and then figuring out ways to complete each step the best way possible (which can be defined different ways – sometimes by efficiency, sometimes by impact).

I’ve found people get messed up when they try optimizing before allocating, or start optimizing while they are still allocating. For example, financial planning is an allocation process – “What do I do to do what I want to in the future, and protect myself along the way?” It is a process of fact-finding, dreaming and discussion. If you start talking about specific products before you complete this process, you’ve started optimizing too early – you make decisions around the product rather than around the client. Same thing happens when you start talking about a specific fund before figuring out what overall portfolio allocation will work for your client.

Tick tock

Make clocks.

Clocks are complex mechanisms that serve a simple purpose: they tell the time accurately and consistently. They are built to withstand dust and humidity. They are built to require little from their owner to keep them running, aside from the occasional winding.

Your financial plans and blend of products your use to put these plans into action should be like a clock – they tick along, all of the parts interacting and moving towards a common goal.

But many advisors do not sell clocks.

They pick up a gear and admire it for being made of gold (‘This fund has the highest number of stars!). They pick up another, and swoon at how finely made it is, and how light (‘This policy has the lowest cost for the coverage!’). And they pick up a minute hand, and admire it for the single diamond embedded in its tip (‘This product has a hot feature that I have great marketing materials on!’). They take all of these parts, put them in a bag of velvet, tie a golden rope around it and hand it to their client, declaring it to be a clock.

Are you making clocks for your clients, or handing them bags of gears and expecting them to be able to tell what time it is?