All too often, it seems that human nature leads one to believe that some are better than others at making financial decisions and that they are among that select group. This leads to what we might call overconfidence and often to ill-advised investing decisions. Worse, it usually leads these persons to ignore advice from any credible or unbiased source.
We all know these folks. Take, for example, the client who believes that real estate is the best possible investment and that one should always be looking to add to their property holdings and not to look at selling or diversifying their overall investment portfolio. Or maybe the client who puts all available funds into annuities because the salesman is a member of the same country club and appears to be very successful. Scarier examples, like the professionals who are sold a variety of tax avoidance schemes, also abound.
What is missing here is both a basic financial education and any sense of understanding that one doesn’t know everything. That makes it difficult to try to help these clients but providing strong examples of mistakes by other investors or thoughtful discussions of basic theories by people who understand finance can help. Even if it is an uphill battle it is worth it to try to provide some financial education to such clients.
The alternative usually is to fire those clients since they will not choose to follow your advice and you will always run the risk of their complaining of your services when they don’t do as well as they expected while ignoring your suggestions. Of course, you can always try a little guidance and perhaps get these clients to see that others can add value. One adviser uses brief presentations long on graphics and short on verbiage to illustrate basic concepts. This adviser finds that clients can grasp the ideas if they are at all open to learning. At bottom, the financial gains obtained or losses prevented will make it positive for both client and adviser.