What is the “real value” that financial advisors deliver and that clients are willing to pay for?
The value delivered by financial advisors has morphed over time. Decades ago, it was picking stocks and facilitating transactions. Then asset allocation and money management came into vogue. In the past 15 years, financial planning has become popular in parallel with the rise of financial planning software such as MoneyGuidePro, eMoney, and NaviPlan.
Underlying this has been the accelerating pace of technology change as smartphones make the non-behavioral aspects of saving and managing money as simple as a few screen taps. Today, average financial advisors who remain wedded to the way they’ve been doing business will soon find themselves perfectly suited for a world that no longer exists. They’ll be chased out of business by prospects who never became clients, by clients who left to work with advisors better-suited to their evolving needs. Just like smartphones replaced laptops, and laptops replaced desktops, the value delivered by financial advisors is shifting from being “all about the money” to a focus on helping clients align their money behavior with their life satisfaction.
In this world, money is simply a tool. And the advisor’s role is to smartly manage the money and collaboratively guide the client’s behavior so they can live their best life possible with the money they have. In this world, advisors who remain focused on the “mechanics” of money will be replaced by advisors who focus on the “alignment” of money.
Focus on Alignment
As technology automates much of the “mechanics” of money, advisors need to evolve to the more emotional aspects of money. After all, simply helping rich people get richer isn’t usually a driving motivator for advisors—or clients. In my conversation with Doug Lennick, the co-founder of Think2Perform, an author, and former EVP of Advice and Retail Distribution for American Express Financial Advisors (now Ameriprise Financial), he shared four words that he believes underlie the real value financial advisors deliver.
Money is neutral. It’s neither good nor bad. Some say money is a representation of your life energy in the sense that you exchanged your time and your output for something we call money. Values are the things that have intrinsic worth to us. These are the qualities that we hold dear and strive to live. Now, how well does the way you save, invest, and spend your money reflect what you say your values are? Or better yet, do you know what your clients value and do you help them align their money with their values?
Many people go through life reacting to it instead of proactively living a life with purpose. Your purpose is the organizing aim of your life. It’s what gives you meaning to want to get out of bed in the morning instead of staying warm under the covers. Don’t let the word “purpose” overwhelm you with a feeling that your purpose has to be some grand vision that changes the world. It doesn’t. In simple terms, your purpose is a sense of what you can do in life that gives you direction and makes you feel that your life has meaning. Do you have any idea what purpose animates your clients’ behavior? You might think, “Steve, that’s really awkward. I’m not going to ask my clients, ‘what’s your life purpose?’” And I agree. You shouldn’t directly ask that. Instead, you could say, “John, we think about money as a tool that helps us live our best life possible. And while part of our role is to help you make smart decisions about how your money is managed, we also want to understand what your money is for, what you want it to do for you. So I’d love to get a sense for what gets you up in the morning. If there’s anything you can share in that area, it might help us as we discuss the best ways to use your money, to invest your money so it supports the purpose you see for your money.”
“Goals-based financial planning” has become popular in recent years as a way to directly tie how a client’s money is managed to specific financial goals they want to achieve. It makes sense albeit with one caveat—what if a client doesn’t know what their goals are? When a client doesn’t know what their goals are, you have a great opportunity to put your “coach” hat on, help your client dream a bit, and add real value to their life. Through a series of questions, you can help your client home in on what they want their money to do or provide for them. And their goal could be as simple as getting to the point in life where they don’t have to worry about running out of money. Or maybe they have a series of goals and you design buckets of money that are allocated to those goals.
Vanguard has spent years researching what they call Vanguard Advisor’s Alpha®. This is a framework to describe the value a financial advisor adds to the client relationship. Essentially, Vanguard says the value an advisor provides is not in trying to “beat the market,” rather, it’s “by providing relationship-oriented services—such as cogent wealth management via financial planning, behavioral coaching, and guidance.” In real numbers, Vanguard says the behavioral coaching value of an advisor is worth on average 150 bps per year, while portfolio construction and wealth management make up another 150 bps, for a total value of about 300 bps.
Communicating Your Value
How do you make things like values, purpose, goals, and behavior more tangible so clients can get a sense for whether or not that’s worth paying 1% or more per year to you? Lennick says, “The whole idea is the value of the advisor is to help the client align their behavior, their decision-making behavior, and their investment behavior with their goals, with their sense of purpose, and with their values.” And for clients who receive this type of value from their advisor, “that’s a big deal,” says Lennick. The word “align” is key. Helping clients make or save more money with no deeper understanding of what the money is for can be done by robo advisors or call-center advisory services offered by Vanguard, Fidelity, TD Ameritrade or Schwab for 0 to 35 bps. If you compete in this market, you’ll fail and fail fast. Rather, it’s about helping clients be more aware of their values, purpose, and goals, so that regardless of whatever emotion they’re feeling (e.g., freaking out because the market is tanking), your clients can behave in a way this is aligned with what gives them greater satisfaction in life. And who wouldn’t want that?
Certainty of Uncertainty
If all this talk about alignment, values, purpose, and behavior feels too “soft,” to you, then Lennick has another way to position your value. He says you can position yourself as a truth teller and “the truth is uncertainty.” And your value arises when you prepare your clients, “for the certainty of uncertainty.” As you talk to clients, Lennick says you can frame your value this way.
I don’t know what’s going to happen. Now, it’s appropriate for you to expect that I have educated guesses and I do, but they’re still guesses. I don’t know what’s going to happen for sure. What I do know is I can prepare you for whatever happens, such that whenever you need money for whatever the reason, there will be a smart place to get it. Whenever you need money, no matter what’s going on in the world, you can call me and we’ll have a smart place to get that money from. That will help me help you make a rational decision even though you might think the sky is falling and the world is coming apart. We’ll be ready. We’ll be ready for the financial implications of dying. We’ll be ready for the financial implications of living. We’ll be ready for the financial implications of not being healthy and the financial implications of being healthy and we’ll be ready for the markets being up or the markets being down.
This “certainty of uncertainty” and “smart place to get your money” framework is a great way to describe your value because it combines your financial acumen with your behavioral coaching. And it can naturally lead into the values, purpose, and goals conversation I described earlier so there’s no disconnect.
In order to guide clients through the kind of conversation I just described, you have to be there yourself. You have to be clear on your values, your purpose, your goals, and have a high-level of self-awareness. Here are some suggestions.
1. Download and complete my values-clarification toolkit as a way to help you clarify—and live—what you say is most important to you.
2. Learn how to gain greater self-awareness by listening to my podcast and reading the book, Elevate, by Commonwealth Financial founder Joe Deitch.
3. Learn how to facilitate values and purpose type conversations by listening to my podcast with Dr. Martin Seay. What I’ve described in this article represents a major shift for many advisors and you might be wondering where you’ll find the time to have these types of conversations with clients. What I see happening is advisors will use technology to automate much of the money management and planning process and use the freed-up time to have deeper life-centered conversations. Advisors who continue business as usual will begin falling behind at an ever-increasing pace.
– Think2Perform Visit Doug Lennick and his team online.
– Leveraging Your Financial Intelligence: At the Intersection of Money, Health, and Happiness. Leveraging Your Financial Intelligence will teach you a powerful values-based approach to achieving your most important life goals.
– Financial Intelligence: How to Make Smart, Values-Based Decisions with Your Money and Your Life. Beginning with your principles, values, and beliefs, Financial Intelligence offers a concrete guide to help you achieve better results.
– The Importance of Self-Awareness and Action in Delivering Great Financial Advice My conversation with Joe Deitch also touches on knowing yourself so you can know your clients.
– “Moral Intelligence 2.0” by Doug Lennick and Fred Kiel Ph.D. Doug Lennick describes how moral and emotional competencies are critical to success in all walks of life.
– “Exception to the Rule” by by Peter J. Rea, James K. Stoller, and Alan Kolp Doug Lennick recommends this book on the connection between virtue and sustainable value.
– Values Clarification Toolkit Click here to download this FREE tool and start living your values.
Steve Sanduski: You’re listening now to Between Now and Success. I’m your host, Steve Sanduski and I’m talking to Doug Lennick who is the co-founder of Think2Perform. Doug is legendary for his innovative approaches to developing high performance in individuals and organizations and he’s an expert at developing practical applications of the art and science of human behavior, both financial and otherwise. Before founding his current company, Doug, who is a certified financial planner, was the executive vice president of advice and retail distribution for American Express Financial Advisors which is known today as Ameriprise Financial.
Steve Sanduski: Back in those days, he led an organization of 17,000 field and corporate associates to an unprecedented level of success. He’s also the author of multiple books including his most recent, Leveraging Your Financial Intelligence: At the Intersection of Money, Health and Happiness and another book called Financial Intelligence: How to Make Smart Values-Based Decisions with Your Money. Doug is a very wise person with many years of experience and I know you are going to appreciate my conversation with Doug Lennick. Here’s Doug. Doug, welcome to the show.
Doug Lennick: Thank you, Steve. Excited to be part of it.
Steve Sanduski: Yeah, well, I’m glad to have you on and you and I ran into each other probably a couple of months ago at an event in Chicago and it was really fun to catch up because we first met about 20 years ago when you were with American Express Financial Advisors and I was with Securities America, and of course, back about 20 years ago, American Express Financial Advisors had purchased Securities America and that’s how we got to know each other, so it was fun to catch up a couple of months ago. It’s great to have you here in the show and I thought what I’ll do is let’s go back to about 20 years ago.
Steve Sanduski: When you were with AFA, you were the executive vice president of advice and retail distribution. You were leading an organization of about 17,000 field and corporate associates, having tremendous success back in those days. As you look back, what are maybe one or two of the things that you learned back then about working with financial advisors or helping financial advisors be more successful?
Doug Lennick: Well, that’s a very interesting question and one of the things that I would say learned and I often use the word learning because I’m concerned that when I declare I learned something that I don’t learn anymore about it, but I will say in the bucket of learned and learning that what I discovered along the road was that the best advisors have the mind of a capitalist and the heart of a social worker. I learned that the right people to attract were people who wanted to make money making a difference and most advisors do.
Doug Lennick: A lot of the exceptions to that are highlighted in the news, so you get your Bernie Madoffs and you get these various people that steal from their clients and so on, but the vast, vast majority of people who’d become financial advisors genuinely want to do a good job for their clients and they have the heart of the social worker and the mind of a capitalist.
Steve Sanduski: I remember you say in that back in those days and I’ve always thought that was a great way to think about it and I know when you were AFA and maybe since then you’ve been involved in recruiting a large number of advisors and bringing a lot of advisors into the financial advisory business. How do you actually screen for that? Is there a way to screen for people that have the mind of a capitalist and the heart of a social worker?
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Doug Lennick: Well, there are ways you can attempt to, but the screening mechanisms are not perfect, but what I would say in the recruiting process is I was looking for people who were intellectually capable of being in the business because just passing all the exams and getting all the licenses, you have to be a reasonably smart person. You had to have the cognitive capabilities to pull it off, and then technically, you had to have some technical capabilities and these really get into the skills and skills like communications and you needed to be an effective communicator.
Doug Lennick: What I found and what I really looked for were what I would call the differentiators and the differentiators tend to be emotional and moral. I would ask people to talk with me about a situation that went well for them and how they handled it and the situation that didn’t go well for them and how they handled it. That was very revealing because some people kind of pretended like they never had something that worked which of course is disingenuous and can’t be true. I realized that that particular person lacked the integrity that we needed.
Doug Lennick: If you don’t have enough self-awareness to know that some of what you’ve done in your life did not work and if you can’t admit to that, then this is probably not the right career for you. I started doing things like that. I started asking questions more about their ability to handle the emotional ups and downs of the business and the ability to handle the moral challenges, the ethical issues and the capability of doing the right thing in the presence of difficult and competing emotions.
Steve Sanduski: Now, after you left American Express Financial Advisors, I’m not sure if you had other stops in between, but you ultimately ended up starting your own company which today is Think2Perform. Tell me a little bit about that transition from the really large American Express to ultimately your own company and it’s really interesting the work that you’re doing these days with your new company which we’ll get into, but just start with tell me about that transition.
Doug Lennick: Well, interestingly, Steve, I’ve always been a little bit entrepreneurial, so I’ve been involved in various kinds of businesses. Some have failed, some have succeeded, but when I decided I was ready to leave big company, I decided I wanted to be involved in the creation of a company that dealt with the answer to two questions. One question is, why do people do what they do? Then the second question is, is it possible one could really be who they would ideally like to be more often? I started to deal with ideality and reality and we kind of even created a tagline that basically means, “What we do at Think2Perform is we make the idea real.”
Doug Lennick: If you look at the back of one of our business cards, it will always say, “Making the idea real.” What we try to do is gain an understanding from our clients ideally what they would like to happen and then we try to make it real. I really got into the behavioral sciences and why people do what they do and the neuroscience of that, the psychology of that and their behavioral experiences. That was fascinating and has been fascinating. We’ve started in 2002, so we’ve been at this now going on 17 years. I said a few years ago, “We’ve been at this for 15 years and now we’re an overnight success.”
Steve Sanduski: Yeah, isn’t that how it always works?
Doug Lennick: Yeah, exactly.
Steve Sanduski: This idea of why do people do what they do, obviously a fascinating area and it’s one that oftentimes financial advisors are banging their head against the wall when they’ve got clients that are doing things that are just sort of dumb, so how do you work with folks? I know you have a lot of financial advisors that you’ve worked with or advisory firms that you’ve worked with over time, so what is that process looked like in terms of, let’s say I’m a financial advisors, I’ve got clients who are doing dumb things with their money, they’re making bad behavioral decisions? How do you approach that?
Steve Sanduski: How do you work with an advisor? What are some of the things advisors should be thinking about when it comes to trying to help their clients make better decisions and better behavior?
Doug Lennick: Well, one thing I will say, I’ll get back to answering that in a better way, but I do want to say that more often than we would like to be true, the advisor is part of the problem, not necessarily as involved in the solution as they should be, but the client needs the advisor to be involved in the solution. The client needs the advisor to understand the science behind human behavior. When we get into why people do what they do, part of it has to do with how the brain functions, the physical brain and then part of it has to do with how the mind functions within the brain and that requires almost an explanation because sometimes people think, “Well, aren’t the brain and mind the same thing?”
Doug Lennick: The answer to that question is no. The mind operates within the brain, but it’s not the brain. The brain is like the musical instrument and the mind is like the musician. What we need to understand is we, the people, are the musician playing our instrument, the brain, and that as we play our instrument, we physically change it, but we also need to understand the predisposition of the brain. The brain is wired to avoid danger. It’s wired to pursue opportunity and the wiring is triggered by emotions. When people get scared, they sense danger. When they get excited, they sense opportunity. The wiring triggers certain responses.
Doug Lennick: We have fight or flight syndromes and so on, but when we talk about the brain and we talk about differentiating competencies like emotional intelligence, we point out that number one, emotions are real. They’re a real form of intelligence, but they’re not cognitive. My emotional intelligence is not the same as my cognitive intelligence. Number two, emotional intelligence sacrifices accuracy for speed, and for all of the advisors that we have listening to us today, we need to understand that emotional intelligence can’t differentiate between a bear market and a bear in the woods. Both bears will scare people and frequently will stimulate irrational responses.
Doug Lennick: When you run from a bear in the woods, the risk your taking is your life and the loss you’re going to lose is your life unless of course you’re running with me because I’m painfully slow and then you can speak at my services and say, “Doug was too slow. I outran him and the bear caught him,” but that’s the loss. When it comes to money, it’s when you run from a bear market, you lose your money. People don’t know how to behave in the presence of the bear and that’s where the advisor comes in. We have to help people understand everything that I just said and then deal with it.
Doug Lennick: That’s kind of an overview of how it plays out, but a lot of it has to do with how the brain works, how the brain functions and why it functions the way it does. We’re wired to survive. Our brains have a primitive element to them, so they don’t know that everybody listening to this podcast is either sitting in a comfortable car or they’re sitting in a comfortable office and they’ve got heat if they’re in a place of cold or they have air conditioning if they’re in a place of heat. We’re all comfortable, but our brain is still wired to deal with things like fear and anger and exuberance.
Doug Lennick: When Alan Greenspan was chairman of the Federal Reserve, he coined the term irrational exuberance and one of the things that we point out is that irrational decision making trumps high IQ every time. A role, not the role, but a role of the financial advisor is help people make rational decisions in the presence of these difficult-to-deal-with emotions.
Steve Sanduski: Now, you started off that by saying that oftentimes it’s the advisor that is a big part of the problem. I’d love for you to explore that a little bit further. What do you mean by that and what kind of –
Doug Lennick: Well, advisors themselves, historically and I’m 66 years old now and I started my training in the industry 45 years ago when I was 21 years old. There may be people that have been in the business longer than me, but most everybody on the call has been in the business less long than I have and we were taught to sell products early on and you showed what was emotionally easy to get people to buy, not necessarily what was the right thing for them to do, but what was the emotionally easiest thing for them to buy and emotionally, people prefer buying high and selling low.
Doug Lennick: Intellectually, we understand we should buy low and sell high, but it’s easier to sell into someone’s emotions than into their cognition and so, a lot of advisors do that and we have our own issues. When advisors have their own biases that they’re trying to deal with, they may be overconfident, they might be looking at recency bias, they might be dealing with excessive optimism, they might be suffering from confirmation bias and by that I mean we are attracted to data that confirms our position.
Doug Lennick: Here we are in the real year 2019 and most of the people on this call, I’m not going to get into what your political persuasion is, but most of you know which cable programs to turn on to hear your point of view. You prefer data. You prefer input that confirms your position, and unfortunately, those biases get reflected in the advice that we provide and that’s why advisors are oftentimes more of the problem than they realize and they want to think it’s all about the client being stupid, but sometimes it’s about the advisor providing inadequate advice.
Steve Sanduski: How do we overcome that? If I’m an advisor and I cognitively know that I have this bias and that emotionally I want to by high and I want to sell low, but cognitively, I know I should be doing just the opposite, what should I be doing as an advisor beyond just understanding that what I should be doing and I should be doing something different than what my emotions want me to do, how do advisors go about becoming that great advisor is in a position to counsel their clients to do what is in their best interest as opposed to what the clients’ emotions are suggesting that they want to do?
Doug Lennick: Well, I would say this, Steve, that the primary value of the advisor is to prepare their clients for the truth and the truth is uncertainty. What I would suggest to your listeners or our listeners is that they say to their clients, “My primary job is prepare you for the certainty of uncertainty. I don’t know what’s going to happen. Now, it’s appropriate for you to expect that I have educated guesses and I do, hypotheses or educated guesses, but they’re still guesses. I don’t know what’s going to happen for sure. What I do know is I can prepare you for whatever happens, such that whenever you need money for whatever the reason, there will be a smart place to get it.
Doug Lennick: Whenever you need money, no matter what’s going on in the world, you can call me and we’ll have a smart place to get that money from. That will help me help you make a rational decision even though you might think the sky is falling and the world is coming apart. We’ll be ready. We’ll be ready for the financial implications of dying. We’ll be ready for the financial implications of living. We’ll be ready for the financial implications of not being healthy and the financial implications of being healthy and we’ll be ready for the markets being up or the markets being down.
Doug Lennick: No matter what happens, if you need money, we’ll have a smart place to get. Then when you get scared, when get freaked out and when you call me, I will say to you, Steve, you might remember that I said I don’t know what the future will bring and I’m not here to predict the future, I’m here to prepare you for it. Even though I didn’t predict this recent volatility, I did prepare you for it. If you need money today, let me know because we’ve got a smart place to get it, so we don’t have to make an irrational decision. We don’t have to make an emotional decision. We’re ready.”
Steve Sanduski: Yeah, I really like how you frame that where you said, “Our job is to prepare you for the certainty of uncertainty.” I really love the way that you described that and really this is at least one of the values that a financial advisor can provide. Certainly, this idea of the behavioral aspect, preparing clients for the certainty of uncertainty and making sure that when that uncertainty does arise that if you do need some money for examples there are some smart places to get it. I think that’s a great framework to think about. Now, obviously in recent years, everybody is talking about technology.
Steve Sanduski: They’re talking about how Robo-Advisors and Charles Schwab and all these other organizations are driving down the value or the cost of investing towards zero. The Robos are maybe 25 basis points to manage your portfolio. Schwab is out there and they’re actually doing it for free and so some people are suggesting that the investment management piece is being commoditized and I happened to be in that camp and so I’m a big believer in this idea that a lot of the real value of a financial advisor is in helping their clients make smarter decisions with their money in terms of how to use their money that’s more in line with their values and making sure they’re using their money in ways that is improving their life.
Steve Sanduski: How do you think about that? I know spend a lot of time and do a lot of research and written books in this area. Tell me a little bit about how you think financial advisors help clients align their money with their values or some type of values-driven planning methodology. What are thoughts on that?
Doug Lennick: Well, of course, that’s a great question. I love it for a lot of reasons. One is it reinforces a lot of what I’ve done, so thank you. One of the books I wrote a few years ago is called Financial Intelligence, the subtitle is How to Make Smart Values-Based Decisions with Your Money and Your Life. Then more recently, we’ve released a book called Leveraging Your Financial Intelligence, which is subtitled At the Intersection of Money, Health and Happiness. I would say what’s happening in today’s world is you and I are in agreement doesn’t make us right, but it does make us in agreement and I think we’re right that money management is a commodity.
Doug Lennick: Products have become commoditized over time and now the process of managing money is commoditized and you can manage portfolios inexpensively. The role of the advisor I’ll say four words and really all of you that are listening, some of you might have an inked pen and a pad of paper, I’ll just ask you to write these words down. Write down the word values, write down the word purpose, write down the word goals, and write down the word behavior. Something you said, Steve, is about alignment.
Doug Lennick: The whole idea is the value of the advisor is to help the client align their behavior, their decision-making behavior, their investment behavior with their goals, with their sense of purpose and with their values and people will pay you for that because it’s extremely valuable and what we know is we have a fair amount of research which I won’t get into today that suggests that values-based decision making is actually more powerful than goals-based decision making. We use myself as an example. I value family, happiness, wisdom, integrity, service, health.
Doug Lennick: Ten years ago, in the late 2000s when the markets were crashing in ’08-’09, I didn’t predict it, didn’t expect, knew it could happen, was prepared by and large for it, but it hit harder than I thought it could. I think some of the people on the call remember this time period. Things went to crap really fast. The markets went down dramatically. I remember I was on a speaking tour in Europe and my wife was with me and we were in Paris at the time and I woke up and I got online and was looking at the data, and when my wife got up, I said, “You know, I got some good news and some bad news.”
Doug Lennick: She said, “What’s the good news?” I said, “The good news is that our money is worth a lot more.” She said, “That’s great. What’s the bad news?” I said, “We have a lot less money.” What happened is the dollar went up in value, but the values of our investments went down. I made a values-based decision. I called my financial advisor, and because I value family, so I looked at my list of family, happiness, wisdom, integrity, service, health. I value family. I value wisdom. I value health. My own mother had passed away as a result of a car accident, so I knew health was fragile and unpredictable.
Doug Lennick: My dad ended up in an assisted-living facility and so I understood the implications also of that. I’ve realized I cared about my family, my wife specifically. My children were all adults and they’re all now taking care of themselves, but I always worry and I want to make sure that if anything ever happens to me, Beth Ann would be fine and I value wisdom. I took family, wisdom, health and I said, “Based on those values, I think I should increase my death benefit.” I called my financial advisor and I said, “I’d like to have $3 million more of life insurance.”
Doug Lennick: Actually, I talked to my wife first about it and told her what I wanted to do and she said, “Why?” I said, “Well, you know, things are down a little bit,” and truthfully, they were down more than $3 million, but we hadn’t needed so much and I kind of have a baseline number, everybody does and I just want, if I’m above that number, then I always feel like I’m fine. I said, “I don’t expect anything to happen to me, but if something does, I just don’t want you to be concerned about it, so I’m going to get some more life insurance,” and she said, “Okay.”
Doug Lennick: Then I called my advisor and said, “I wanted more life insurance,” and he said, “Okay.” He was fine with me wanting more insurance. My wife was fine with me wanting more insurance, but the decision was about values, not about goal. My goal wasn’t to die sooner. It was really about values and values drove the decision. I think what we want our listeners to understand, Steve, is that if they get in touch with their clients’ values, what do they really care about and they help their clients align their behaviors with their goals and their values, that’s a big deal.
Doug Lennick: I think increasingly advisors are going to help people develop things like purpose statements and advisors who like looking at pie charts and bar graphs and stuff are going to think this is stupid, but all the pie charts and bar graphs, that’s all commoditized and any robot can do that, but they don’t need you to do that.
Steve Sanduski: Right, you and I are in total agreement here. This whole idea of values-based decision making I think is hugely important, and in fact, I put together what I call my Values Clarification Toolkit, so this is something that I make available to folks that want to visit my website and it’s just an exercise that you can go through with some narrative that surrounds it, that talks about the importance of values, how values help you be more definitive in making decisions and some stories and there’s an exercise in there that you can go through to just help you clarify your values.
Steve Sanduski: I would love to give it away for free to anybody that’s listening to this. All you have to do is go to belayadvisor.com/values and put your first name and email address in there and you can download the toolkit, so totally in agreement with you there. In terms of you mentioned there, Doug, that some people might be more, some advisors might still be interested in pie charts and performance and return on investment and what not, but as we’ve talking I think that’s really moving to a commodity state if it’s not already there and these areas that we’re talking about here, values, purpose, goals, behavior. To me, those are the real areas where financial advisors can add value and those are the type of guidance that people will pay for [crosstalk 00:31:04].
Doug Lennick: Exactly.
Steve Sanduski: I’m glad you brought that up there.
Doug Lennick: I think there’s a guy that probably many of our listeners have heard from, learned from, Mitch Anthony. He talks about return on life versus return on investment. What our clients want is return on life. They want their life to have had meaning and they want to have a good return on their life. For those people that are simply looking for investment return, generally speaking, they’re not the best clients because they actually think that they’re hiring the advisor to help them outperform the market. I will say this and some of you have seen this, the Vanguard Study, Morning Star Study.
Doug Lennick: There have been studies that have come out that have basically said, “An advisor who focuses on client behavior is worth about 300 basis points per year on average over time, above and beyond cost,” so it’s a 300-basis point improvement, but it’s not about picking the best stocks, it’s about having your client behave the best with the stocks they pick.
Steve Sanduski: Yeah, and Doug, I don’t know if you’re aware of this or not, but Mitch Anthony and I are business partners in a company called ROL Advisor, Return On Life Advisor. Thank you for that nice set up.
Doug Lennick: Hey, Mitch! Hope you’re well.
Steve Sanduski: Appreciate that. What we are doing in that business is we have created some digital tools that revolve around getting the client’s story and really having a deep dive in terms of who the person is, where they’ve been, where they are today, where they want to go in the future, getting those stories, capturing it, and the tools really are designed to help financial advisors facilitate these life-centered conversation. It’s all about getting this return-on-life stories from their clients and so if anyone listening wants to learn more about that, you can go to roladvisor.com, so this episode isn’t designed to be a sales pitch for it, but since you brought it up, we’ll direct people there. Just again –
Doug Lennick: I had no idea, so a little lucky strike extra.
Steve Sanduski: Well, checks in the mail, Doug, but I’d love to get your thoughts. I know Mitch and I, we’ve got a way that we think about it and Mitch, of course, has been a real pioneer in this area for about 20 years now, written books on it and certainly a great authority, but I love to hear some your thoughts and with all your great experience, your 45 years in the business, how do you approach this when you’re training folks to think about the values, the purpose, the goals, the behavior? Do you use certain types of assessments that you’ve created or maybe some thoughts on how you go about training advisors to think in these terms?
Doug Lennick: Well, we do use some assessment tools like we use EQI 2.0. We have people sometimes go through the DISC Assessment, so we use some assessment tools that are available in the marketplace. We’ve developed a few things of our own that we engage people in, the values exercise for example, so we take people through that exercise and what we do is we basically focus on, we have a concept we call the Alignment Model, where what we’re trying to do is help advisors help clients align their behavior with their goals and their goals with their values. If you go left or right, there are three boxes and anybody can draw this picture out on their piece of paper right now if you want.
Doug Lennick: The left side is ideal self and that’s about principles and values. The middle frame is about goals and purpose and the far right frame is the real self and that’s about the emotions and actions. What we attempt to do is help people understand how to develop the competencies they need in order to be self-aware enough to make good decisions that allow them to manage themselves well so that they can in fact live in alignment. That’s the concept. There’s a logic chain we use. If you talk about it from the perspective of money, it’s like effective relationships with people and money is a function of effective management of oneself which is a function of decision making, which is a function of self-awareness.
Doug Lennick: A lot of what we do, Steve, is we teach people how to be self-aware and most people overestimate their level of self-awareness which is sort of in of it itself, interesting but not shocking once we get into it. What we try to do is help people become more aware of what they’re thinking, how they’re feeling, what they’re doing, more aware of what their goals and their purpose happen to be, more aware of what their values are and from a position of awareness help them make decisions with what they think and what they do regardless of how they feel, so that they’re thinking and doing what they need to think and do in the presence of whatever emotion they’re experiencing in order to honor their sense of purpose and goals and live consistently with their values.
Doug Lennick: We know if we can get people to do that, then they in fact are going to behave in a way that will give them greater satisfaction in life, will enhance them physically, emotionally, financially and that’s kind of the big enchilada.
Steve Sanduski: Here’s what interesting is I know there are some people that are going to be listening to this and they’re going to be thinking to themselves, “Well, geez! I’m a financial advisors. Clients come to me because they want to know if they have enough money to retire. They want to save money on taxes. They need some insurance. I don’t want to talk about values and purpose and self-awareness. I mean that just sounds like foo-foo kind of stuff.” Like I said, I’m onboard with you 100% with this and what I find fascinating is really smart people like you, like Mitch, Joe Deitch.
Steve Sanduski: I don’t know if you know Joe Deitch, but he’s the founder of Commonwealth Financial, the independent broker/dealer. He recently wrote a book called Elevate: An Essential Guide to Life. His main thing in the book is self-awareness. If you want to be more successful, whether you’re a financial advisor or whoever you are, that it starts with working on ourselves first and a great book. I had Joe on an earlier episode of the podcast, so we’ll link to that in the show notes. I’m all about trying to get this word out. People like you will link to your books, will link to Joe’s book.
Steve Sanduski: Of course, we’ve got ROL Advisor that helps advisors in this area that not only is this going to help the client live a more successful life, but it’s going to help the advisor live a more successful life and get more gratification out of the work that they do because I find that you don’t necessarily get a lot satisfaction helping a rich person become richer, but when you have a client and you work with them and you help them get clarity on their values, you help them clear on their purpose, you help them change their behavior in positive ways and make smart decisions that are aligned with their values that when you do that and they look at you and they say, “Man, my life is so much better because you’re in it,” that to me is just priceless.
Doug Lennick: Absolutely right. What’s interesting is one of the things in the book, Leveraging Your Financial Intelligence, subtitled At the Intersection of Money, Health and Happiness, this is such an important and significant thing is regardless of one’s wealth, very frequently as they get older, they experience financial stress. I would say there is three data points that helped us come to where we are at with the work with we did Leveraging Your Financial Intelligence. Everybody knows what’s leveraging is about and I already said financial intelligence is about making smart values-based decision with your money and your life.
Doug Lennick: If you can leverage your financial intelligence, the leverage is involved in your physical health, your financial health, your emotional wellbeing, your happiness. We know these three things are true. As people get older, we become interestingly interested in being healthy. I want to be healthy. When we’re young, we often take health for granted, but as we get older, we want to be healthy which is different than the political sound bite which suggests what we want is less expensive access to healthcare. Truth is all of you advisors that are listening to us right now, the vast majority of your clients would prefer not needing healthcare rather than having inexpensive healthcare. They’d rather be healthy.
Doug Lennick: The second thing is people want to live their life consistent with what they value. The older we get, the more we want to behave in a way consistent with what matters to us. We want to do what we want, when we want, with whom we want and where we want. All this stuff by the way involves money. It’s not about the money though. It’s about the values. It’s about the health. Then the third thing is as we get older it’s not uncommon for our level of financial stress to rise because we begin to become aware of our own mortality and we begin to be aware that our runway is shortening and the length of time left for us to make up for stupid mistakes is reduced.
Doug Lennick: We can’t be stupid anymore, so we become a little bit more stressful. What we know is that creates kind of a miserable situation. We created this metaphor from misery to wisdom and then the misery is an M, so you think about is this way I’m going up on the left side of the M is as financial stress rises which frequently happens as we get older, our ability to handle things emotionally falls, irrational decision making and behavior rises and then physical health, financial health, emotional wellbeing and happiness all suffer. That’s miserable.
Doug Lennick: Enter the financial advisor. This is why the role of the advisor is becoming increasingly important in today’s world because it’s anticipated that in the next 30 years or so the number of centenarians will increase by eightfold. There’s going to be a lot of people living beyond age 100. They’re going to live a long time. What we need to do is prepare them for uncertainty and reduce their stress, so I say to you, Steve, if you knew for sure that no matter what happened, that financially you would be prepared, so if you live a really long time or if you die prematurely, if the markets went up or they went down, if you were sick or hurt or you were healthy, if you just knew that no matter what happened, you would be financially prepared for that, would that help you feel less stressed?
Steve Sanduski: Oh, absolutely. That’d be huge.
Doug Lennick: Yeah and that’s the role of the advisor, and by the way, that’s where all your money management and all the things that you really like doing come in to play because you use all the financial instruments at your disposal, equities, fixed income, insurance-related products, life insurance, accident and health insurance, long-term care insurance, disability income insurance, annuities, whatever all product lines are that you use. You plug in to this outline and you prepare people for uncertainty. Now, we’re into wisdom. Now financial stress goes down and the M turns upside down. We now have a W. Financial stress goes down. One’s ability to handle things emotionally goes up.
Doug Lennick: Irrational decision making and behavior goes down. Physical health, financial health, emotional wellbeing and happiness all improve. Financial advisors today, more so than ever in our history, are prepared to help people with what matters the most and it’s not their money that matters the most. It’s not the money. Money is an instrument. It’s a tool. What matters most to people is what matters most to people. For the very few people who say, “The only thing that matters to me is money,” it’s a small, small number of people. Most people care about their grandchildren, their children, their spouses, their friends.
Steve Sanduski: What do you find, Doug? We’re talking a lot here about values and understanding what’s important to you. You’re 25 years old. Most people are like, “Hey, I just want to have a good time and make some money, blah, blah, blah.” Do you find that over time, when people reach a certain age or they get married or they start having kids that that’s when they really start being conscious about what is most important to them and starting to align how they’re using their money with what’s important to them or –
Doug Lennick: You can actually do it at any time, Steve, because the idea is to provide them the education and it’s not an either or-proposition and part of the role of the advisor is to help the client to understand if it’s a 25-year-old client, “You can live a life in the moment and enjoy your life now, and at the same time prepare yourself for the future.” Everybody on this call understands the significance of compounding money. The earlier people start, the less they have to invest in order to have the desired results. The later I start, the more I have to do to make up for what I didn’t do.
Steve Sanduski: Let me play devil’s advocate here for a second. Let’s say I’m 58 years old and I want to retire in four years, so I ring up a financial advisor and I say, “Ms. Financial Advisor, I’m 58 years old and I just want to know if I’m going to have enough money to retire when I’m 62 in four years from now?” Let’s say you’re the advisor. What do you do in that case because I’m coming to you, I’ve got a specific thing that I’ve said, “I want to retire in four years. Do I have enough money to retire”? Do you as the advisor go with that and say, “Hey, let’s solve that problem because that’s your big thing,” or do you eventually get to that but you say, “Hey, before I can answer that, I need to know this, that or the other thing”? How would you approach that initial conversation with that kind of set up?
Doug Lennick: Well, you can do it either way, but I like the latter rather than the former. I would say, “We could certainly talk about that and we can address that, but in order for me to really answer that question, can you afford to retire, I need to know more about you and what matters to you. What I want to do first is I want to get to know what matters to you. We’re going to go through this little exercise we call Values Exercise and I’m going to get in touch with what you value, so what you actually care most about because the decision you said I help you make regarding retirement need to be consistent with what you care about because four years from now, you’re going to be 62 and you’re going to be a lot younger than you think 62 years olds are.
Doug Lennick: That’s a current reality. Current reality is if you’re 62 today, the probability of you living to age 90 is really high. That means you’re going to live 28 more years. What we need to do is we need to think not just about, can you afford to live for a year at age 62, because I’m betting without even any analysis that you probably can. I’m betting that if you were to retire at 62 and die at 63, you’d be fine, but what if you live beyond 63? The question isn’t just, can I afford to retire for a year? The question is, can I afford to retire from work and then live the rest of life? In order to understand how to answer that question, I need to know what you care most about.”
Doug Lennick: Then you get into the various examples, but for example, if somebody does care about their family and today it used to be, when I grew up when I was a little kid in North Dakota, people grew up. They got older and some of them would move as far away as 5 miles. Everybody lived within 5 or 10 miles, but now that’s not true. Now you’ve got family members who you might live in the Midwest and you might have somebody living on the East Coast, somebody living on the West Coast. They might have children.
Doug Lennick: You might actually care about your grandchildren and you might actually want to spend some time with them. Well, that’s going to involve travel. Either they’re going to have to travel to you and you will probably have to help afford that or you’re going to travel to them. Like my wife and I just hosted the holidays. We have a home in the desert, in the Palm Springs area in La Quinta and we had all of our family members there, all three of our adult children and their spouses and we have one grandchild and we helped pay for all of them to come there.
Doug Lennick: We celebrated the holidays together. That stuff costs money, but if I didn’t know that that mattered to me, I could say, “Well, I can afford to sit in my house. I just can’t afford to go anywhere.” You got to know what people value. You got to know what they care about. What I would attempt to do and this is probably how I should have started the answer to the question is I would attempt to say, “I’ll get to that, but let’s bring the periscope up a little bit and let’s talk more about what matters to you most first, but if all you want to talk about is can you afford to retire, I can do that with you, but I will be limited in my capabilities because of what I don’t know about you.”
Steve Sanduski: Right and that point of do I have enough money to retire, that’s really a mechanical mathematical answer where you could go to any calculator online and plug in some numbers and it will spit out yay or nay, whether you’ve got enough money to retire and you can change some variables. I don’t think a tremendous amount of value that an advisor can add that all the things that you just talked about with kind of reframing the conversation, “Yes, we’re going to get to that, but in order for me to really help answer that question in a way that’s going to be of most value to you is for me to understand what your money for, what do you want to do in retirement, how do you want to use your money in ways that’s going to help you live your best life possible,” as we say at ROL Advisor.
Steve Sanduski: To me, that’s where the real value can come in and some people like I said earlier might think, “Well, that’s kind of the soft stuff.” Well, really the soft stuff is the hard stuff because it takes that real emotional intelligence that you have spent a lot of time researching and talking about. That’s hard to really do the self-awareness, to do the internal work on yourself as an advisor to be in a position to guide other people through that.
Doug Lennick: Absolutely. I mean what you and Mitch are doing with Return On Life is really the game, meaning it is the value. Everything else is commoditized. Products are commoditized. Money management is commoditized. Investment research is commoditized. If you look at the evolution of the industry over the last 30, 40, 50 years and I’ve been associated with it for 45 of those years, everything has moved from being differentiator to being commoditized. It used to be there was a wide disparity of the value of products and that’s not true anymore. That Bell Curve has gotten compressed significantly and the price differentiations used to be high.
Doug Lennick: Paying more for a product, there’s no data that says, “I get to pay more for a product that does better,” and assets under management, charging a higher fee for managing assets doesn’t make your performance or the performance work better and all the research would suggest that that is absolutely true and that’s why companies like Vanguard have done well because they come in and they just basically say, “Let’s cut out the price. If we cut out the price, then we’ll immediately improve the return.”
Doug Lennick: That’s true. You have to think about what then can I offer that is valuable to people and it’s this and that and it’s not this or that, so it’s a two-sided coin. One side of the coin is technical and fundamental planning and all of the stuff that goes with that and the other side of the coin is behavioral and you’ve got to do both.
Steve Sanduski: Great! I like how you set all that up there. Well, Doug, as we wrap up here, is there anything else that you want to share that we haven’t talked about yet before I jump in to a few rapid fire questions?
Doug Lennick: No. I’m sure there’s a bunch of stuff I’d love to say. For those of any of your listeners have ever heard me speak, they know I’m never done, I just stop. I always –
Steve Sanduski: What’s the best way for folks if they want to reach out to you or reach out to your company? Where should they –
Doug Lennick: Well, our company is Think2Perform. The word think, the number two, the word perform, think2perform.com and like Steve was saying, you guys can go to ROL and do a values exercise. We have one. You can do one and it’s free. You can do it online. I kind of experienced it. It’s like a card sort of thing online, but you can reach out to us that way. My email address for those of you that would like to email me is firstname.lastname@example.org, and for those of you that are texters, my cellphone number is (612) 747-0004.
Steve Sanduski: Excellent. Well, of all my guests, I think you’re the first one who has publicly shared their cellphone number.
Doug Lennick: Yeah, you can call me. There’s no secret, although I did get called by the IRS today which means it’s a scam call. IRS never calls, but I smiled when I saw their call come in.
Steve Sanduski: Great! Well, let’s just go through a few rapid fire questions designed for some short answers. You have written a number of books and I know that you read a lot of books as well, so is there one book maybe that you’re reading now or a book that you’ve read that you’d say, “Gosh, this is a good one. This is one I’d recommend for the folks to actually read or actually listen to on books on audio”?
Doug Lennick: Okay, the book I’m reading right now, Steve, is I just started this actually yesterday, so I haven’t gotten too far along. It’s called Exception to the Rule and it was a gift given to me by Financial Services professional guy named [Danny Wales 00:58:39] who I’ve known for a long time and the subtitle of the book is The Surprising Science of Character-Based Culture, Engagement and Performance. These are things that are always interesting to me and so I’m finding this to be reinforcing. This gets back probably to something I said earlier about confirmation bias, so this sort of book kind of confirms my own thinking, so I’m always liking that. I don’t dislike reading …
Doug Lennick: I like reading stuff that differs from my point of view. It just so happens that this happens to agree with what I think. One of my co-authors of Moral Intelligence and Moral Intelligence 2.0, this guy named Fred Kiel and Fred wrote a book called Return on Character and that’s a great book too, because I always like to see, are there real linkages? Is there any real value to have any integrity? Does cheating work better than telling the truth? Do the Bernie Madoffs, are they the real winners and the honest people are they real losers? The data incidentally suggests that character actually does matter, that sort of a Stephen Covey message. That’s what I’m reading now.
Steve Sanduski: Okay, good. How about a habit that you think has led to your success? You have a great career. You’ve been in this industry for 45 years, multiple books, just tremendous business success, personal success. Any habits that you attribute to that?
Doug Lennick: Yeah, I make a habit of doing what I call key activities. When I was 22, I met a guy named Roy Geer and Roy Geer taught me this concept called WDYWF, What You Do You For Yourself. Roy passed away almost two years ago now sadly, but I learned that most of what we do, we do because we did and the whole key is habit, so it’s all about habits and so I tried doing what I call key activities, activities that must be done to achieve a goal, make those a habit and practice makes permanence. The things that we repeat essentially get wired into the habit center of the brain.
Doug Lennick: What I have found is doing key activities which includes making calls and includes following up and includes just doing those basic things. It includes dating my wife. It includes contacting my children. I want all those things to be habits. I don’t want to leave them to chance.
Steve Sanduski: Okay, then a final question here, I’m just going to start a sentence and I’d love for you to finish it and the start of the sentence is what I know to be true is.
Doug Lennick: That’s a great question. What I know to be true is truth has many colors and reality has many sides.
Steve Sanduski: Okay.
Doug Lennick: What I know to be true is you and I could be looking at the same thing and seeing something different and the fact that you see something different than I see doesn’t make you a liar and me honest or me a liar and you honest. It means truth has many colors. Let’s imagine for example, Steve, that we have a sphere hanging between us and so you’re sitting on one side of the table and I’m on the other side of the table and in the middle is the sphere that’s hanging down and your hemisphere, the half that you can see is colored blue and the half that I can see is colored red and if somebody said, “What color is the sphere?” What would you say?
Steve Sanduski: It’s my color.
Doug Lennick: Yeah, you’d say blue and I’d say red. Which of us would be lying? Neither of us. Truth has many colors and reality has many sides, and to me, that’s an important message and what I’ve also learned is that where one stands on the top it has a lot to do where one sits. The chair I sit in influences what I see and so what I know to be true is I don’t have a corner on the truth.
Steve Sanduski: Well, I think that’s a really important understanding for all of us, I mean not just for all of us, but for financial advisors as well when they’re dealing with clients and trying to figure out, “Why in the world is my client not doing what I know they should be doing?” They may be seeing things in a different way than the advisor sees it. They have different experiences, they have different belief systems and they view things differently, a different perspective, a different world view. Just having more empathy I think and understanding that, trying to put yourself in the other person’s shoes and understand where they’re coming from and as part of that discovery process, asking questions to try and further understand the person, you may or may not agree with their view or their behavior, but does it make it right or wrong?
Steve Sanduski: It could just be different and having a deeper understanding can enable you to be a better advisor.
Doug Lennick: Exactly. Now, there are some things that where facts are facts, two plus two is four. Two plus two is not a five and so just because you might think it’s five doesn’t mean it so.
Steve Sanduski: With all those alternative facts.
Doug Lennick: Yeah, the alternative facts. That’s right. We have a world of alternative facts, but there are a lot of things where that’s not true. It’s like the sphere, the blue and red sphere that I talked about. The truth is is that it’s a blue and red sphere, but neither of us could see the whole thing and so if we are engaged in a constructive dialogue and you say, “I see blue,” and I say, “I see red,” then we go, “Aha. It must mean it’s blue and red,” as opposed to me getting all upset going, “You’re crazy, Steve. It’s red. I can see it’s red. You’re saying, “Doug, you’re crazy. I can see it’s blue,” when it truth we bought can’t see the whole sphere. It just depends on the circumstance, but that’s a great question. I love the question.
Steve Sanduski: Yeah, great! All right. Well, great! Well, Doug, we’re going to wrap it up there. I appreciate it. This has been great! It’s been fun catching up with you and I hope we’re going to run into each other again here before too long.
Doug Lennick: Yeah, please give my regards to Mitch.
Steve Sanduski: Will do.