StarBiz, The Star, 22 June 2019
In my 19 years of financial coaching and advising high net worth clients, here’s one surprising fact that stood out to me: the greatest challenge is not always the lack of knowledge, but more the lack of objectivity in managing wealth.
What do I mean by objectivity?
To outline my point, let’s look at the adage: “A man who is his own lawyer is a fool of a client”. Ever wonder why it was coined? It’s because a person who decides to represent himself in court is going to have a tough time being objective about the situation, despite what Hollywood movies would have you believed.
Lawyers are hired because of their experience, their expertise and their ability to be objective. When one is not emotionally vested in an outcome, it is much easier to lay things out and get a better view of the big picture.
Think of yourself driving a car. As you are driving, you are only seeing things from your perspective, which is whatever that is in front of your windscreen. But we all know, and were warned by our driving instructors that blind spots do exist. Sure, you have things like rear-view mirrors, side mirrors, front and rear cameras to help eliminate them, but these blind spots are not completely gone, are they?
There are still places that you can’t possibly view from where you are sitting. And what about the bigger picture of where you’re heading to? Can you predict the traffic that is going to accumulate? Do you know which alternative routes to take should it start raining heavily and there is flooding? Your answer is likely “no” as 1) you are blind to any perspective that isn’t your own and 2) you have no idea what possibilities lie ahead. Your best bet would be to turn to someone who is well-seasoned in this subject and makes it his/her mission to navigate the best routes of the city (or in today’s case, Google Maps).
The same applies to wealth management. Without support, be it a professional or via technology, there are many things that you won’t be able to see or predict on your own. Example, an investment insurance link plan which has been grossly misinterpreted, or an investment scheme that may not necessary have all its criteria checked out. Unfortunately, many investors take things at face value and fail to consult an expert to review the investment proposal when it matters.
High-net-worth individuals and successful business owners in particular, are even harder to be persuaded. I find that for this group of people, their biased opinions are more firmly rooted than others.
This isn’t a bad thing. When you think about it, these are traits of conviction and decisiveness – traits that have gotten them far in life, no doubt. They have made many good judgment and even, the right decisions to come to where they are today. It is this unique character they possess that makes them successful in business venture.
However, it is also this characteristic that makes them stick even stronger to whatever perspective they have. In fact, the more wealthy and successful they are, the more difficult to move them out from their current perspective and outlook. They are die-hard optimists. Again, this is the quality that allows them to persevere in the toughest time and succeed. Optimism is good and perfect for business and wealth building. But, not for wealth management after you have made it. This blinkered attitude creates blind spots because we ignore other ways of looking at things.
In fact, I like to joke sometimes that our fee for high net worth clients is greater because we end up spending more effort convincing them to break out from their own flawed perspectives.
Would you see a successful business owner constantly looking for ways to protect their wealth and business? They are more likely to look for opportunities for growth and expansion – in short, as far as money making is concerned, they are natural optimists and thrill-seekers.
However, the same cannot be said about one’s personal finances. The same rules just doesn’t apply here. It just can’t.
You see, unlike business, a big part of wealth management is conservative and pessimistic in nature. There will be times when you need to take risks with your money, but for the most part, it is knowing what to diversify, cut under performancing assets, and when to save for a rainy day.
As an experienced advisor, I’ve noticed that successful business owners tend to live in the present – they’re more concerned with getting the best cars, owning a big house, or injecting their profits back into yet another exciting business venture. They fail to take the precautionary steps to plan how their estate will be managed in the case of sudden death. As a result, they subject their families under tremendous difficulty in claiming and managing their wealth in the event of their demise.
Once, I was invited to share wealth management knowledge among a group of CEOs. After sharing a list of my best practices, one of the CEOs lamented how wealth management was boring and tedious, and that it was more fun to do ‘business’ transactions anytime.
Suffice to say, the unique characteristics that successful business owners posses somehow blocks them from seeing certain critical wealth management issues. For example, a business owner will not succeed in his business if he is thinking about the business liabilities all the time. However, business liabilities management is an essential component of wealth management. You can’t escape from it. The irony for most business owners is that when they do sit down and think about the future, it may already be too late.
Another flawed thinking when it comes to managing wealth without proper support , is the difficulty in distinguishing between actual needs and perceived needs. Take for example, you have successfully achieved a high net worth of say RM30 million. Do you think that it is still necessary to focus efforts into doubling the wealth? The rational answer is NO (assuming that this RM 30 million is adequate to meet all your financial goals). What you need now, is to preserve the wealth and protect it against uncertainties so that your family can enjoy a good quality of life for as long as possible. On the contrary, if you still crave for more – this is what I call a perceived need.
In the absence of objectivity, you are most likely to commit these common wealth management mistakes::
Does any of the above traits sound like you? To effectively manage wealth, you will need to be objective. Keep an open-mind to identify any potential blind spots. Once you have this out of the way, you can take the necessary steps to course correct, and win with a sturdy investment portfolio and a strong wealth preservation plan.
Now that we have established one of the fundamental rules for wealth management, what’s left for you to do is take action………..before it is too late.