Sometime around 2001, a few years before Jarrett and I decided to start our own firm and were both working for an advisor at Ameriprise Financial, she and I had a conversation that has stayed with me throughout the ensuing years. Jarrett had started working for her in the late 1990’s after leaving the tax-planning practice he’d been with, and, a few years later, asked if I was interested in coming to work with them part-time. She needed some additional help and would be flexible with my music and touring schedule, which was still my main focus at the time. It turned out to be a life-altering decision for me, as it was the very beginning of a whole new career path, and so many of the lessons he and I both learned working with this experienced advisor have stuck with us ever since.
It was an interesting time for advisors. The irrational exuberance of the late 1990’s had run its course and the first tech bubble had burst, so that by the time that conversation took place, the markets had been in a steady downward trend for many months. Our boss had received a call from one of her biggest clients who was upset about the declines in his portfolio, and wanted to set up a meeting to come in and discuss some of his concerns. Above all, what he really wanted to know was what she planned to do about it. The day before the meeting, when I went to her office to deliver some of the meeting prep materials I had put together for her, I asked her, “So what are you going to tell him you’re planning to do about it?” She looked at me with a bit of a quizzical look and said, without the slightest hesitation, “I’m going to tell him that I’m going to do nothing.” She must have sensed that I was going to need some further explanation; the statement that she was simply going to tell her biggest client, whose portfolio had seen significant declines over the preceding months, to do nothing, was not going to suffice it for a newbie like me. So she continued and said “Look Gavin, my job is to give my clients the best advice I possibly can, not to tell them what they want to hear. And more often than not, the best advice I can give them is to do nothing.”
She went on to explain that her client had a solid plan in place, had cash reserves, and was in no danger of being unable to pay his bills. Therefore, with his well-thought-out investment strategy, being over-reactive, simply due to short-term conditions in the markets, was not only a mistake, but could be catastrophic for him in the long run. It all sounds completely reasonable to me now, and if you’ve worked with Jarrett or me for any length of time, you’ve no doubt heard something similar at some point during our time together. For me, at that time, though, it sounded almost radical. But as I gained more experience, this idea slowly morphed from seeming radical, to being a cornerstone of our long-term investment strategy.
One of the things young advisors struggle with is having the confidence to tell clients to do nothing. That confidence tends to come with the experience of managing portfolios through many years and many different market cycles. It reminds me a bit of the difference between a talented young musician and an experienced one. The young buck has worked hard to develop his chops and has all these licks he wants to play, and gets up there and just wants to “do something!” Or maybe, more accurately, wants to “do everything!” The experienced musician, on the other hand, has all those same chops and more, but knows what not to play. That’s the sign of maturity.
The fact is, it’s hard to tell clients not to do something. It goes against our very nature. Human beings are hard-wired to react to stress or perceived danger. We evolved with a fight-or-flight response which is probably the reason we survived as a species, and it’s difficult to turn it off when it isn’t in our best interests. And if you’re staring down a saber-toothed tiger, that response system telling you to react, and quickly, is a good thing. But when the market is in correction, and the financial media is kicked into fear-mongering mode all around you, it’s almost never a good idea to succumb to that instinct to “do something.”
The bottom line is that what we advisors really want to be is proactive, not reactive. We want to have a plan in place for our clients, and a well-thought-out strategy for dealing with volatility in the markets when it inevitably comes along. That way, when the heat gets turned up, and the markets turn on us, we have the confidence to do our job and give our clients our best advice, which, as a wise woman once told me, more often than not, is to do nothing.
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