An Integrated Advisor Network firm

Taking a personality test is an interesting experience. You find out that you are not alone. There is a whole segment of the population that is just like you. That can be either comforting or disconcerting, depending on your view of yourself. In my case, according to Personality Pathway’s Myers Briggs personality test, I am an “introverted thinker” who ponders “the apparent chaos of the world in order to extract from it universal truths and principles that can be counted on.” My wife is proof that opposites attract, because she is an “introverted feeler.” So, while I am trying to build logical strategies, she is trying to build personal relationships. I want to understand the universe and she wants me to understand her. She trusts feelings and I trust reason. To me, logic and emotions have always been mutually exclusive. What has become disconcerting is that I have found they can also be mutually ineffective.

To even consider that there might be limits to the effectiveness of logic is a heretical thought that is a denial of my DNA. My mom, a Daughter of the American Revolution, always said that I inherited the Adams’ nose and the Adams’ arrogance. The hawkish beak adds to the air of aloofness. However, the arrogance is not based on an over-inflated ego, but on an unwavering belief that through hard work and perseverance an answer can always be found. So, problems fall into one of two categories: those that have been solved and those that are waiting to be solved. The French mathematician, physicist, and philosopher, Blaise Pascal, must have been in our group of introverted thinkers because he once said, “Reason is the slow and torturous method by which those who do not know the truth discover it.”

So, while I gleefully proclaim the dangers of emotional responses to markets, I have to soberly admit that logical responses to markets can be just as ineffective. As Daniel Gross said in a web posting, How to Speak Hedgie, “Anyone who read the best seller The Black Swan knows that random geopolitical, financial and economic events can cause the prices of assets to move in ways that defy history and sophisticated computer models.” And, may I add, logic. Gross points out that when markets crash money managers blame their problems on “irrational collective behavior” brought on because “investor fear has overtaken reason…” In other words, our decisions were logical and rational; it was the market that was irrational.

As a Myers Briggs “thinking” husband, I am embarrassed to say there are times when I think my Myers Briggs “feeling” wife acts irrationally. But that is more of a condemnation of my understanding of her than it is an accurate description of her. What appears to be irrational are really factors that I don’t see, don’t understand, or just don’t pay attention to.

As a logical investment advisor, I likewise, understand that what appears to be irrational behavior of markets is caused by factors that I don’t see, don’t understand, or just don’t pay attention to. And as much as I would like to believe it is a problem waiting to be solved, I know that, for all practical purposes, movements of markets are unknowable in advance. In hindsight it is easy to construct logical explanations of market gyrations. However, they are no better than the self-deceptive logical rationalizations I use to justify arguments with my wife.

As illogical as it sounds to me, there are problems that can’t be solved. So, I need to relate to them based on universal truths and principles that are known to be effective. For markets, that means diversification and discipline, and for my wife that means back rubs and listening.

In this case, tire tracks on his underwear was not a euphemism. It was an accurate description.

It was our 15th annual “guys golf weekend” and we needed to get out of town by 5:00 AM to make our eight o’clock tee time. We had just finished tying down and tarping Bill’s pickup when we realized we had forgotten to pack Bob’s suitcase. Doing it right would have meant untying all the ropes, removing the tarp, and then putting it all back together again. To save time, we crammed the suitcase in a low spot near the tailgate. Although it was on top of the tarp, it looked so secure that Bob uttered what turned out to be a notably un-prophetic statement, “There ain’t no way it’s coming out.”

Since it was still dark, none of us saw it blow out of the truck. However, someone in one of the trailing cars did see it lying in the roadway and called to tell us to turn around. When we got back to Bob’s bag, it was still intact. But that changed quickly as we watched a semi plow through it, scatter the contents, and then run over the debris will all eighteen wheels. There were quite a few jokes about what happened, but the topper came that evening when Bob held up a pair of tighty-whities with a perfect tire track imprinted on them.

What made the whole thing so funny was the fact that a figurative expression all of a sudden became a literal one. I smile and think about that every time I play golf, because my bag tag is made out of a piece of Bob’s old suitcase. It is a visual reminder of the duplicity of many euphemisms and the fact that they are not just innocuous figures of speech. As my favorite comedian George Carlin so emphatically declared, “I don't like words that hide the truth. I don't like words that conceal reality. I don't like euphemisms or euphemistic language, and American English is loaded with euphemisms.”

Unfortunately, financial services is one of the more euphemistically laden industries, especially when it comes to names and titles. As the SEC warns, “…we believe that certain names and titles… contribute to retail investor confusion about the distinction among different firms and investment professionals, and thus could mislead retail investors.” Over the years, financial professionals have called themselves financial planners, wealth managers, and most recently financial advisors, none of which are legal terms. The names change because, according to Ruth Wajnryb, "Euphemisms have a short shelf life—once the stigma of the original catches up to them, the battery that runs the euphemistic device goes flat. The only way forward is to invent a new euphemism."

The SEC points out that names and titles, “…may be granted by private organizations, …may be simply purchased, or even made up by financial professionals hoping to imply that they have certain expertise or qualifications; such titles are generally marketing tools and are not granted by regulators.” Licenses and registrations are different in that they are granted by a regulatory authority of a state or the federal government. In addition to registrations and licenses, some designations granted by reputable organizations are indicators of qualifications. For example, “The mission of the Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning.”

Carlin suggested that we "Question everything… try to see the world for what it actually is, as opposed to what someone or some organization… is trying to represent it as…” That is not much different from the SEC’s advice to “…ask, question… if a financial professional tells you that he or she has a certain professional title…” Because, like tire tracks on your underwear, titles can be misleading euphemisms or accurate descriptions.

“You can trust what he says, just don’t watch what he does.” It wasn’t a derogatory remark - it was an honest opinion. And the fact that it was expressed by a PGA club professional gave it validity.

John and I played a fair amount of golf together until time commitments and changing work schedules made it difficult to coordinate tee times. However, when we were playing together it was usually as a twosome, so we were often paired with a couple of strangers. On this particular occasion I made a suggestion to one of our playing partners - and John, while not discounting the helpfulness of my tip, felt obligated to warn the guy that I wasn’t very good at practicing what I preached.

Thinking back about this reminds me of the similarities between my behavior and that of investment advisors, as described by one of my favorite authors, Jason Zweig, in a blog about a speech he gave on behavioral finance. He “…suggested that many people who try to apply psychological findings to the financial markets do it backwards: instead of studying their own biases and failings, they focus on those of other people.” He says by doing this you are doing a great disservice to yourself, your clients, and your business because you are viewing “…behavioral finance mainly as a window onto the world. In truth, it is also a mirror that you must hold up to yourselves. More worrisome, it is a mirror that magnifies and clarifies and highlights your own warts and imperfections.”

Through the window of behavioral finance investment advisors see the investing public’s weakness for certainty in an uncertain world. However, without the mirror of introspection, advisors fall prey to the same weakness. And in some ways advisors are even more susceptible. As Zweig warns, overconfidence is often an expert’s biggest weakness. “In short, the more you know, the more you think you know than you really do.” Unfortunately, this overconfidence sits well with a client’s need for certainty, but it “…rests on [an insecure] foundation: our almost unlimited ability to ignore our ignorance,” explains his mentor Daniel Kahneman in his famous book, Thinking Fast and Slow.

An investment strategy built on such a foundation causes real problems because clients are often not willing to accept short-term underperformance to achieve long-term success. It is how the industry and advisors have, in effect, trained clients. As Zweig clarifies, “How you market… becomes[s] an inextricable part of how you invest.” Emphasizing short term performance encourages clients to focus on recent returns, which limits the advisor’s options. To avoid client discontent and loss of business, advisors become more concerned with how their portfolios track with the major indices than implementing strategies that enhance the probability of long-term success. That’s why, to be able to implement long-term strategies, advisors must encourage long-term thinking and emphasize disciplined behavior.

Zweig believes investment success is more dependent on character than knowledge. “On whether your firm can show the resolve to stand out from the herd and to stick to your strategy…” even when it is out of favor. That happened in the late 1990s when our globally diversified, small, and value strategy under-performed - and it is happening again today. But, in Zweig’s words, our knowledge of how to invest smarter was and is only worthwhile because of our willingness “…to endure the short-term pain of being right in the long run.” And the only way to be able to do that is by looking into a mirror at your own imperfections, instead of gazing out the window at the weaknesses of others. So, unlike my golf advice, you can trust what I say about investing because it is exactly what I been doing for the last 25 years.

"Most people work from the bottom up. You’re the only one I know who works from the top down." I wasn’t sure it was a compliment or a criticism until he followed up with, "When I said my door was always open, you really didn’t think I meant it, did you?" I did - but he didn’t. And since I never changed my ways, I was always in trouble. What that former employer’s CEO thought was a bad habit, I believe was a good skill - one that I learned from watching my Dad.

When Dad was trying to figure out how to fight forest fires from the air, he got the help of the best experts he could find. For Dad, the best expert was Floyd Nolta, a local Willows, California pilot who had pioneered the process of sowing rice from airplanes. Dad wasn’t alone in his assessment of the man known as "Speed." According to a 2003 Colusa County Sun Herald article, in his final preparation for the attack on Tokyo, then Lt. Col. James "Jimmie" Doolittle turned to his close friend, Floyd Nolta, "…for the final rehearsals of the famous B-25 raid." Under the watchful eye of Nolta, "[Doolittle] and the other ‘raiders’ practiced takeoffs...over and over on an area of the [Willows] runway marked off to replicate the U.S.S. Hornet’s flight deck."

Nolta’s opinion was valued by men like Doolittle and my Dad because they recognized his knowledge. They saw that he was so intimately connected to the fundamentals of aviation that you could almost say he "knew" flying in a biblical sense. True experts (like Nolta) rise to the top because of skills that catapult them off the deck of mediocrity and passions that fuel their ascent to the pinnacle of their professions. Or, as a friend observed, "Most people are content to move with the crowd, but there are those rare few ones who take the time to stick their heads above the crowd to see what is actually going on."

Throughout my career I have sought out such rare individuals in the fields of estate law, accounting, actuarial science, economics, fiduciary practices, and academics. Through their eyes I have been able to see things that the crowd is missing. With their guidance and lots of hard work, I have been able to excel as a retirement distribution planner and prudent fiduciary investor. The accolades I have received for my software on retirement distributions and my book on the Prudent Investor Act are proof of those accomplishments. But it was not fame or fortune that motivated me, it was simply the desire to be the best financial advisor I could be. And that meant not only trying to do things better, but also to do things that no one else was doing.

About twenty years ago I was sitting in a café in the financial district of San Francisco with W. Scott Simon, the second recipient of the Tamar Frankel Fiduciary of the Year Award, and a leading expert on the Uniform Prudent Investor Act and the Restatement (Third) of Trusts. Almost to himself he muttered, "Think of all the people in all those buildings, and no one is doing what we are doing." It still amazes me today what two ordinary guys were able to accomplish with extraordinary motivation and the help of extraordinary people.

My old boss was wrong. Dad showed me that what you know is related to whom you know. By working from the top down, Dad was able to develop a completely new way of fighting fires and Doolittle was able to change the course of the war in the Pacific. My Dad and Doolittle stuck out from the crowd on their own, but their egos did not keep them from seeking out the help of other experts. I, on the other hand, to paraphrase Isaac Newton’s famous quote, have only been able to stick out from the crowd because I am standing on the shoulders of giant experts.


"I bet that cost you a pretty penny," I said with a grin. "No Daddy, it cost you a pretty penny," my daughter replied with an even bigger grin. The object we were referring to was a very expensive double BOB stroller that had caught my eye in my daughter's garage. It appears that, unbeknownst to Grandpa, Grandma had gone a little wild with gifts from Babies "R" Us. With a new grandchild arriving virtually every year for the last ten years, my wife has purchased so much stuff from that store that you would think she could have saved them from bankruptcy all on her own.

However, I don't begrudge her joy when it comes to buying presents for the grandkids. On the contrary, I encourage it because being doting grandparents is important to me. Growing up, I thought of grandparents as old people who lived far away, and you never saw. My mom's mom was 86 when I was born and her father was older than that. They lived in Boston and we were on the west coast. I saw them once before they died and I was only two at the time. My Dad's parents were half as far away, in the mid-west, but I only remember seeing them twice. The first time was when I was eight, and the main thing I remember about that trip was the agony of having to sit in a car for 10 hours a day. To calm me down when I threw one of my recurring "I can't stand sitting still" tantrums, my parents would tell me how wonderful it would be when I finally saw grandma and grandpa. So you can imagine the consternation I felt upon pulling into my Dad's hometown of Pewaukee and having Dad stop at the graveyard and say "That's where grandma and grandpa Ely are buried." Not realizing he meant his grandparents and not mine, I blew a gasket.

For those of you who are not mechanically inclined, that idiom refers to a car engine. When the head gasket blows, your car loses power, overheats, and eventually stops running. I don't know much about leaky head gaskets, but as a financial advisor I know the warning signs of a faulty financial head gasket. And that is why I am not worried about my wife's spending on gifts for the grandkids. They are well within our targeted spending rate, so there is no danger of blowing a financial gasket.

In a September 2018 blog, Michael Kitces, a well-known financial writer and advisor, explains why spending rates are so important. In his article he writes about the rule of thumb of saving 10% to 15% of your income for retirement. "The key point, though, is that it's not really the 'savings rate' that defines a successful savings path to retirement. It's actually the spending rate - and having a spending rate that is less than 100% of household income - because functionally most people don't 'choose' what to save per se... they choose what to spend, and then save the limited dollars that may or may not be left over..." And it is the big ticket items that make the biggest difference. So, "...making good decisions about the cars and the house matter way more than the lattes and the avocado toast!"

From the start of our marriage, we were prudent not only about our housing and transportation costs, but also about the lattes and avocado toast. We always lived in houses that were a little below our means and bought cars based more on economics than ego. We also controlled our monthly expenses by artificially limiting the amount available to spend. On top of that, we practiced what Kitces preaches that " can improve your spending rate (and therefore have more money available to save) by either spending less or simply by spending the same but earning more (or even earning more and spending more as long you don't spend ALL of the raise!)"
To paraphrase the Beatles: as an eight year old, I blew my mind out in a car. However, as adults, my wife and I have lived far enough within our means to avoid blowing a financial gasket. And now that our house and cars are paid for, grandma has the freedom to go a little bit wild.

"I have heard that your first fall off of a horse may determine what kind of rider you will be." I didn’t write that, my daughter Anna did. She continued:

"My heart dropped as I watched Sally fall to the ground, but I knew I had to stand back and watch to see how she would handle it. So did her coach, Sydney. Sally cried, stood up, got a hug from Sydney and hopped back on that horse with tears streaming down her face. Her lesson continued, and another rider who was in the arena came over to me and said, "That daughter of yours is going to be a great show jumper."

"There are so many basic things to learn before even thinking about going over jumps. That is why a coach is needed. A good coach knows when to push a rider and when to hold them back. It’s a matter of not only judging a rider’s skills, but also noticing when they become over-confident in their abilities or too trusting in their horse. It’s when they get these things right that they can guide the horse with clear and unambiguous signals.

"To the untrained eye this looks like nothing - barely perceptible movements - especially when watching an itty-bitty six-year-old. But I can tell you, it takes tremendous precision and skill. Over the last year, I have watched in amazement as my daughter has improved her skills and shown me what bravery, dedication, joyfulness, and passion looks like. I have also watched a relationship grow between a student and her coach. Sydney is an Olympic level rider who adores my daughter and treats her as a fellow rider with whom she is sharing her skills, imparting her wisdom and passing on her knowledge."

Anna’s not only my daughter, but also a fellow advisor with whom I have been sharing my insights and knowledge. And, like Anna being amazed by Sally, I have been amazed by the growth in Anna’s skills, passion, and dedication. Instead of just copying me, she is helping to push our firm into more efficient directions, new programs, and new ways of communicating.

Recently we joined with Integrated Advisor Network, a national advisory firm. This, along with the addition of my youngest daughter, Hillary, as an administrative assistant has made our operations more scalable and sustainable. We are adding a digital interface to our existing systems that will allow us to handle clients with relatively small account balances. And Anna is developing a podcast called Transitions to help people deal with the transitions we face in life – college to career, military to civilian, single to married, working to retired and so forth.

These changes will help us serve our clients better, increase our capacity to add new ones, and provide continuity if something should happen to me. They are not a means for me to slow down or to turn the reins over to Anna. Instead of replacing me, she is adding a focus on clients at the start and midpoint of their careers as a complement to the focus I have always had on clients at or near retirement.

When Anna was an itty-bitty girl, she was on a horse that spooked and, while she never fell off, she didn’t get back on for 30 years. Inspired by Sally, she started riding. Inspired by me, she became an advisor. However, it is her passion that is driving her now and her common sense that is keeping her from making over-confident mistakes and from relying too much on her dad (or trusting her horse too much.) You’ll have to ask Sydney or Sally about her riding, but I can honestly and unambiguously say, "That daughter of mine is a great advisor."