How to give good financial advice

No enemy is worse than BAD Advise (Sophocles).

Is there such a thing as universally good financial advice?  

On the one hand, I believe there are universally good financial principles, mindsets, and habits that can be considered valid and beneficial in any culture, environment, and age group.

In the same way, I also believe there are objectively bad financial habits and mindsets to be avoided or addressed. By sufficiently tackling these two broad aspects, I feel It is possible to share timeless advice to inspire and help achieve Financial Independence.

On the other hand, once good financial fundamentals are fully interiorized, I think it is time to rely on tailor-made recommendations that accurately consider each individual’s unique circumstances and features.

The customization goes beyond the common aspects of age, gender, social background, profession, and current net worth; it requires understanding other technical and non-technical aspects that help define the goals and the most appropriate strategy and system to reach them.

Undoubtedly, customization is key to securing the correct identification and the most viable execution of YOUR UNIQUE financial plan.

Why even a piece of good financial advice might still not sound right  

Objective, fact-based or data-driven contents are not enough. The advice can still sound right or wrong based on these typical cases:

1) The “preference matching“.  Quite often, you will ask yourself: “Does the adviser actually see things as I do? is he like me?” Otherwise, you might immediately look for a different adviser and advice, maybe even looking for the exact opposite advice. Quite often, different personality types need to hear literally different advice.

This is not necessarily due to the quality of the advice proposed, but rather how it is proposed and how different personalities interpret or react to such messages.

Let’s take an example: have you noticed a common pattern among people looking for the “right” medical doctor? People often look for a doctor who will prescribe the cure they already have in mind or communicate the advice with the right emotional tone. Once chosen, you will hear: yes, he is the best doctor! You should visit him as well.

However, for the same reasons, this great doctor might not be the right match for your friends, despite his/her qualifications.

As such, any adviser or influencer won’t have a 50/50 chance of “getting it right” because the odds are much higher due to the complex variety of personalities, preferences, and circumstances. Ultimately, most comments you hear might sound like bad recommendations if not personally tailored to your personality.

2) The timing.  Even if we match the right advice for the right person, it is still vital to receive it timely. Over the years, or even during the same day, our priorities change, our needs and desires change, and our moods or attitude change.

It is imperative to hear the right advice at the right moment when we have the right mindset for finding it…” right.”  Do you recall a great piece of advice you received months or years ago that you no longer feel right? It happens. Situations change. You change. It is essential to receive the right advice when the time is right.

3) The format. More information is NOT always better. Search costs and opportunity costs exist. Bad information is often worse than no information at all.  There is a responsibility to find and share quality signals rather than report more unstructured news and facts (noise). It is a missed opportunity if the contents are too complex, long, or difficult to execute.

4) Lack of empathy. When it comes to advising and/or changing people’s minds, jumping from one side’s opinion to the other isn’t easy. You have to slide down it because any idea sufficiently different from your current worldview will feel threatening. Japanese writer Haruki Murakami once wrote, “Always remember that to argue, and win, is to break down the reality of the person you are arguing against. It is painful to lose your reality, so be kind, even if you are right.”

Ultimately, if the situation requires it, be kind first, and be right later. Spanish philosopher Baltasar Gracian wrote: “When you counsel someone, you should appear to be reminding him of something he had forgotten, not of the light he was unable to see.”

5) Introducing a new community and method. Author James Clear pointed out, “convincing someone to change their mind is really the process of convincing someone to change their tribe. If they abandon their beliefs, they risk losing social ties. You can’t expect someone to change their mind if you take away their community too. You have to give them somewhere to go. Nobody wants their worldview torn apart if loneliness is the outcome.”

For Seth Godin, our ideas are often equated to our identity. As such, talking about our ideas is very much the act of talking about ourselves. We often fall in love with our ideas. Our culture and our economy are built on ideas. Ideas are often subconsciously embraced.

Indeed, psychoanalyst Carl Jung stated: “People don’t have ideas. Ideas have people”. While you can easily change non-personal ideas, it is more difficult to change ideas that risk changing your identity.   It should not be that way.

For Seth Godin, you can refuse to believe your identity is embodied in an idea and instead, embrace a method for continually finding and improving your ideas. Once you change your opinion, it helps to have a new group of like-minded individuals to relate with and share a “growth mindset”. 

Data Scientist and Investor Paul Graham provided an alternative method to secure our critical thinking: “If people can’t think clearly about anything that has become part of their identity, then all other things being equal, the best plan is to let a few things into your identity as possible.”

6) How honest you are in giving your opinion, no matter what the clients want to hear! Author Nick Maggiulli shared this lessons, learned from Jason Zweig’s father.

There are three ways to get paid:

(i) Lie to people who want to be lied to, and you will get rich;

(ii) tell the truth to people who want the truth, and you will make a living;

(iii) tell the truth to those who want to be lied to, and you will go broke  

Clear takeaway: the coach or adviser must choose his/her clients properly to secure mutual satisfaction and overall success.  

Bottom Line

Preferences, timing, format, empathy, community, and honesty helps secure good financial advice. Unless all these aspects line up, recommendations are not much better than random noises and don’t produce the expected results.

These are essential remarks for those giving good financial advice and for those receiving it. 

Until next time, sweat your assets and enjoy the journey.

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