Leading Change

Choosing what to change always seems to be so easy. But making change happen is much more difficult. The solutions are there. We often know exactly what we need to do. The practice management routines have been defined by consultants, published in books, taught in workshops. And even when the problems are so complex, and the answers are not found in a three ring binder, we can use our intellect, our analytic skills and logic to determine what needs to change. There is always some "root cause" lurking behind all of the symptoms we experience. Symptoms if you will, of something more deeply rooted within the system. But still, knowing what to do is the easy part. Leading the change and inspiring others to follow is the hard part.  

Research has shown that individuals who are effective leaders operate at a higher level of maturity. These leaders are rare.  The research in this area has shown that only 10% of adults ever reach this level of maturity, regardless of how long they live. A friend of mine here in Athens, Karl Kuhnert Ph.D., is a Professor at UGA and has dedicated much of his work to Leader Development. He and his colleague Keith Eigle Ph.D. are among a group of academics who are leading the way to a better understanding of how leaders develop and what differentiates effective leaders from the rest. In some academic circles this has been referred to as "Authentic Leadership". Their company The Leaders Lyceum has developed programs that facilitate and accelerate the development of leaders.

The link below is from the recent TEDx in Atlanta (TED stands for Technology, Entertainment, Design) where Keith Eigle addressed a group of some of the "world's leading thinkers and doers". In this video clip you'll see Keith give a brief overview of what it takes to become an effective leader. The kind of leader who can make change happen. As you will learn from Keith's talk, whether you are trying to affect change at your firm, with your team, or with your clients, the change starts with you.

As for me, I feel inspired by all this new learning. It has driven me to ponder new questions for how I can better serve the the Wealth Management community. I hear in Keith's words something worth exploring further. My colleagues and I have been the thought leaders who have helped to shape much of what we see as the Wealth Management industry today. There is hardly an organization that we have not touched in some way through training or consulting. But yet as we have helped to prepare the professionals with the knowledge, skills and practice management components needed to be effective advisors, it seems that those necessary elements are not in themselves completely sufficient.

So this year I resolve to change that. I pledge to continue my learning and study and I ask you to help me in this endeavor. I will keep you posted here on my learning and findings, and I hope to draw on you as well to share with me what you know to be true. Challenge my ideas. Share your perspectives. Together as a community we will shape the future of the business of advice.

So with this Blog posting I welcome in 2010, and an embark on a new quest, the quest for the "Authentic Advisor".

Watch Keith's video at this link. I highly recommend it.

http://www.youtube.com/watch?v=LPPuc_UXXk

Discussing Risk Tolerance

I recently asked several of my colleagues their thoughts on coaching advisors around the "risk tolerance" conversation.  Here is what they had to say:

Jim Privette - "I have made the point that there is the knowable and the unknowable. The knowable is the client insight, the unknowable is what the markets will do next. I ask advisors what their client conversations are about these days and the answers are "should I get out?" or "what stocks to sell or buy" (timing and stock selection). The 7 step interview focuses back on the knowable and the most important decision (asset allocation). I think we need to couple the risk tolerance question with today's unprecedented volatility. Clients current beliefs about risk are being challenged. I encourage advisors to "understand the clients assumptions (based on their experience)and guide the client to rethink risk in light of current market conditions. Risk tolerance will ultimately be about long term outcomes but volatility assumption about asset classes and their historic performance and characteristics are on trial and each day gives us new evidence."

Phil Buchanan - "On the tolerance for risk issue, I've been breaking it into two pieces:

1. The typical up/side down side capture question ---- but I've added time periods of one day, one month, one year and five years, but benchmarking off the answer to the one year question. My reasoning is that so many people are focused on day to day fluctuations that they can't make rational judgments. However, by putting the full range of time elements on the table, it forces the client to "confront the noise".

2. The new element/wrinkle I've added is "Absolute Stop Loss" threshold. What is the $ value you do not ever want to fall below - followed by how would the proceeds then be managed, followed by what would be the plan for re-entry. Of course, this is a great place to highlight "Issue & Consequence" questions."

Larry Divers - "I am very passionate about this topic and I have always set up the +/- 20% in the investment interview around the best case worse case scenario. The 20 %( rounded) is the long term standard deviation of the S&P 500. This number however is based on one (1) standard deviation not two (2) or three (3) standard deviations. Thus, the current market conditions are not outside of the realm of probability and they have happened the past. That is why we need to point out to our clients the best and worse case scenario on one, two and three standard deviations.

From a compliance standpoint this also works well."

Daniel Smith - "I preface that this is a gauge as to risk tolerance in normal market conditions, the time frame is not important as long as it isn't short, and the percentage isn't important as long as it is the same up and down, and that by asking it both ways you assumptively close to the fact that the answer needs to be relative up and down.  If the client does not answer that way, stop and have a conversation about it. And in today's market environment there may be other risk tolerance comments are your clients are considering.  I think it is important that the 7 Step is a conversation model, not 7 questions that will give you the magic answer, rather it is a framework for appropriate and complete discovery."

I have been coaching advisors to include questions like "What has been your experience investing." "What has worked well you and what hasn't?"  "How did you feel about that?" "What role did emotions play in the decision making process?" Ultimately you need to really understand where your client is coming from, but at the same time they need to understand that if they let emotions entirely drive their decision making they may be at even greater perril.

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