Participants:
Steve Wershing
Julie Littlechild
Brian Portnoy
Julie Littlechild:
Welcome to another episode of Becoming Referable, the podcast that helps you be the kind of advisor people can’t stop talking about. I’m Julie Littlechild and on this week’s show, Steve and I are joined by Brian Portnoy for a fascinating discussion. Brian is the Director of Investment Education at Virtus Investment Partners, and has spent more than 25 years as an educator, investor and strategist. He is the author of two books, The Investor’s Paradox and The Geometry of Wealth, both of which tackle the challenges we all face and face with our clients: how to make better investment decisions and understanding how money figures into a joyful life. Brian tells us about the concept of funded contentment as an overarching goal. He draws a clear distinction between being rich and being wealthy. And he shares the two distinct experiences of happiness that we all face. But more importantly, Brian breaks these complex topics down to their essentials to help you become a better advisor for your clients by helping them to understand their relationship with money, and what they really want to accomplish.
In many respects, Brian will help you to reframe the conversations you have with your clients in a way that will deliver significantly more value. And with that, let’s get straight to our conversation with Brian. Brian, welcome to Becoming Referable. I am so happy you’re here.
Steve Wershing:
Yeah, welcome Brian.
Brian Portnoy:
I’m very happy to be here, thank you.
Julie Littlechild:
I had a chance to hear you speak recently and I tell you, you held that audience. And I know you’re going to hold the audience today. Your stuff is just awesome. And what I was thinking is, I’d love it if we could frame at least part of our discussion around your latest book, which is The Geometry of Wealth, and we’ll make sure we include a link to that. Such a great book, and I think of it, and please use your own words if I’m getting this completely wrong, but I think of it as a real roadmap to understanding the difference between … and these are your terms … what it means to be rich versus wealthy and the differences between those two and the path from one to another.
And I love that differentiation, so maybe we can just start right there at the highest level and ask you how would you describe the difference between being rich and being wealthy.
Brian Portnoy:
Yeah, thanks. And I like the term roadmap, because I do think of rich versus wealthy as a fork in the road, and so let me briefly state the difference. So to me being rich is the accumulation of more, in particular more money. And I’ll just stipulate that what we know from psychology and other disciplines is that that quest for more can ultimately be very unsatisfying. Wealthy by distinction is what I think about in terms of the ability to underwrite a meaningful life. The shorthand that I have come up with is funded contentment, and it’s the idea that we want money to fit into our lives in a constructive and healthy way. We have to recognize that there’s no avoiding it. There’s no walking in the woods for the rest of our lives. There are certain practicalities that we need to deal with, so insofar as money is unavoidable, we can certainly find better ways to think about how it can be used to support contentment or meaning, as opposed to just being kind of a fruitless quest.
Julie Littlechild:
And so this idea of funded contentment, how does having that kind of distinction matter to investors and the end client? Most of our audience of course is advisors, and how does understanding that difference really help them communicate more effectively with their clients?
Brian Portnoy:
I feel like depending on where you’re coming from in our big money ecosystem or food chain, there’s a good chance that you’re missing a good part of the story. So from a practitioner’s point of view, whether you’re working in a money management firm or whether you’re a financial advisor, we tend to focus on the financial stuff first; the investments, the portfolios, things like that. And then at some point maybe we come around to thinking about goals. And if you’re coming at it from the other direction, just regular people who find money intimidating, if they ever took a finance class and they didn’t find it the slightest bit enjoyable, they’re thinking about they want to lead a happy life and money becomes an annoyance.
I kind of want to bridge the gap between these two audiences by saying that through this lens of funded contentment we can have a much, much better conversation about what really matters. And I think the conversation starts with contentment, it starts with what counts as meaning, and we can get into the details on that if you’d like a little bit. But then once we recognize that that is the objective, which is a life well lived, then we have to ask about how we can afford a meaningful life, which I think is kind of an awkward, uncomfortable question. What does it mean to afford a meaningful life? And with that, we can explore that there are different forms of happiness in our lives that we are dealing with. Some of it is short term pleasure and pain and at the other end of the spectrum is that deeper sense of meaning or contentment that many of us are searching for.
Julie Littlechild:
Well you actually talk about two different experiences or distinct experiences of happiness. Can you talk a little bit more about that. I thought it was a really interesting way to look at the world.
Brian Portnoy:
Yeah, and here I’m borrowing from Aristotle in 2400 BC-
Julie Littlechild:
Boy, you go right back, don’t you?
Brian Portnoy:
Yeah, we go way-
Julie Littlechild:
Some solid references there.
Brian Portnoy:
Yeah, yeah, I mean this has been a debate within the broader exploration of the human condition. This is something that people have been thinking about forever. The way that Aristotle and his contemporaries debated it was really going back and forth between what the hedonists would refer to as just pain versus pleasure. And that’s their version of happiness. And Aristotle had this concept of eudemonia, which is sort of the good life or a deeper sense of contentment. And what’s really interesting to me as you track those two ideas forward over the last couple millennia is that they’re both super relevant. We can sort of dismiss the day to day pleasure and pain as ephemeral of trivial or not that import, and we should really focus on the big picture so to speak.
But that’s not the way our brains are wired. So we know now through neuroscience and some elements of psychology that we’ve got different modes of thinking. We’ve got different relationships between logic and emotion. And our fast-moving brains, where most of the activity is subconscious, we really don’t have direct access to it. That pain versus pleasure dynamic is what we’re all about. It’s kind of what we’re focused on most of the day. Most days we’re not sitting around contemplating the good life. Most days we’re just in the moment leading our lives and it’s a good day or it’s a bad day.
The other mode of thinking, what some would call slow thinking, which is very deliberate, very rational, that’s when we have the opportunity to do that step back and say hey, is this all going as I would hope to. But it’s very effortful thinking. It actually takes a lot of mental energy, it actually drains glucose and other chemicals out of the brain. And so we can’t really afford mentally to sit around thinking about that deeper contemplative joy all that much. But it is important to us and part of what we want to recognize is that both are legitimate, and that we’re sort of shifting back and forth between pleasure, on the one hand, and meaning on the other. And we have to recognize that both are really important.
Julie Littlechild:
It sounds like there’s a … we’re talking about a mind shift and what I’m trying to understand is, is it a shift in how we think for the end client or for advisors? Or does it actually require both, if you know what I mean?
Brian Portnoy:
Well, I think it all starts with the fact that each of us is a human being experiencing this in the here and now. So we can certainly as practitioners, as financial advisors and coaches and educators, put on those caps and try to do the best that we can for our clients. But we would probably not be doing ourselves or our clients a great service if we didn’t recognize that this was impacting us as well. So I think in the financial advice business we’re seeing this what I call grand pivot away from brokerage toward goals-based wealth management, and ultimately toward life planning.
We know that going back decades, most of this industry has been focused on buying and selling securities, capital market access. And that’s neither good nor bad, that just is what it is. But as that has become commoditized and we know that we can access the markets for free and we can buy many investment products effectively for very, very low cost, that’s not the high margin business that it used to be. And that in order for advisors to be not only effective with their clients but to run sustained high-margin businesses, there’s got to be something more.
So engaging in this broader explanation of what it really means to help not only clients achieve their goals but become the person that they want to be over the course of their lifetime, it’s a little bit daunting. It’s not necessarily what a lot of advisors signed up for. But it’s really where I think the industry is going. And it does create, I think, a really amazing and fascinating and even fun way to run our practices.
Steve Wershing:
And so Brian, let’s see if we can get a little practical with this. And this is really important to be able to engage clients at this level. So how do you see helping clients … I want to jump into what … You have a great expression in your book, talking about dealing with it with clean minds and dirty hands. And so how do we help start them on that path of defining what that meaningful life is going to look like so that we can write those plans that will help them underwrite it?
So George Kinder has his three questions, and the whole movement behind that. How do you see this effecting that goals conversation to get started with a client?
Brian Portnoy:
That’s a great way to frame it. How do I put this very cleanly and simply? Most advisors and their clients are overly focused on something called the market. I think that the general conversation in many advisory relationships is about the portfolio that you build and the accomplishments that it has along the way. And the entire thesis of my book is that that’s the wrong end of the process to start at. Let’s not forget that a relatively large percentage of financial planning clients don’t have a financial plan. And that when a client goes in to see an advisor for a quarterly or semi-annual or annual review, most of that conversation is about … it’s usually about the portfolio, how each of the investments has done, what the outlook for the market and the economy are. And I would say most of that is largely irrelevant to what the client should be focused on and what the advisor should be focused on.
Which is leading a meaningful life. It’s achieving the things that you want to and it’s becoming the person that you want to be. To your point about George Kinder, I think the way he and his acolytes think about the world is very constructive. I think in terms of deeper forms of contentment, our connection with others, the liberty or control that we have over our own lives. The meaning that work gives to us; the broader context in which we operate where we care deeply and are devoted to something beyond just ourselves, whether that be religion or nation or a grand idea.
I think those are the motivating factors that should be driving the conversation, and somewhere along the way, and I would argue toward the end of the process, we get into the investments which help underwrite those sources of meaning.
Julie Littlechild:
Have you seen or do you recommend particular questions to get at what you just talked about? I’m also in my mind thinking this can be an uncomfortable conversation for advisors as well, so I’d love to get your perspective on that. But how do you think they can attack understanding those motivations?
Brian Portnoy:
This is where advisors have to play the role of educator and coach. And I think being kind of a salesman and a market guru has a limited shelf life on a going forward basis. Yes, you can be salesman and market expert, but the availability of low cost digital options for people who want cheap portfolios that track the market are right there on offer. And easy to find and relatively easy to use. So first of all there should be just sort of a professional imperative, which is that if you are looking out five, let alone ten years or more, that this is going to be the nature of the conversation.
And if it’s something that’s uncomfortable for you and you don’t want to go there, you don’t have to go there, you just have to appreciate that I think your business is going to be significantly challenged in the years to come. As it relates to playing that role of educator, I think we need to really explain and maybe it’s a tough love thing, maybe it’s an intellectually and emotionally honest thing, but we need to explain to clients what really matters, and where money fits into this bigger picture.
So one thing that I spend a fair amount of time on in The Geometry of Wealth is describing how much behavior more so than portfolios or specific investments will drive long term financial outcomes. So I think there’s a lot of low-hanging fruit, and I see this in my day-to-day engagements with advisor on a consultative basis and in speeches that to try to educate regular folks like us that it’s really about the decisions you make. It’s about the priorities that you set. It’s not about eradicating the biases that we have, because those are hardwired and our brain software is not going to be updated any time soon. We are who we are for a bunch of reasons.
But to recognize that these decisions are quite hard as it relates to not just picking the right stocks and bonds, but to saving and spending and a variety of other fundamental money-related activities. And to bring those people, those clients, along the way to appreciate that that’s what matters. It’s the behavior, it’s the decisions, it’s not all the pieces and the parts that we get so consumed by.
Steve Wershing:
And so Brian, much of our audience already buys into the financial planning concept where investment management is subsidiary to the financial planning, and it follows up the planning. So let’s follow up that thought. Where does an advisor, where is that line between an advisor educating a client about the things they should be worried about and helping the client contemplate where that meaning might come from, or helping coach them along the process of finding out what’s meaningful to them?
Brian Portnoy:
Yeah, well you know, it’s ultimately up to the client to decide what’s meaningful for them. But then it’s up to the advisor to sort of create a framework through time so that you can track how things are going. One thing worth mentioning, I’ve been thinking about this a fair bit lately, is that we now live in a world of goals-based wealth management, in a world of financial planning where you set your goals and you make a bunch of decisions that hopefully lead you in the right direction. You mentioned that a lot of your listeners are already focused on financial planning.
One thing I’d want to flag, and it’s a bit of a concern, is that living exclusively in a goals-based environment is a pretty good recipe to not being particularly happy through most of your life. Why is that? It’s because as we chase goals and actually achieve them, the intensity and the duration of the happiness or the emotions we feel when we achieve them are relatively short lived.
So if you think about retirement, and this is the big topic that most people are focused on from a planning perspective, we’ve got a bunch of special circumstances now where if you have a bit of money, your life expectancy is relatively long. So living into your mid-80’s, into your 90’s and beyond is no longer an anomaly. It might even be expected.
So what it means to save enough and have enough by the time you’re 62 or 65 but then have 25 or 30 years to go is a very difficult conversation. In this what I call new retirement, we have to think of retirement either as a curtain call or as the next act. And for many people I meet, both advisors and the clients, they struggle with having the conversation that hey, at age 65 you’ve done well, you’ve saved some dough, you’ve got some good cash flow into the future. But many of the clients are saying what’s next? Yeah, I’ve got some money.
And what that does is reveal the fact that this is actually mostly about your identity. This is mostly about becoming the person that you want to be and the fact that we’re never really fully formed. Yeah, we sort of like what we like at times, but that really changes. So if we can set a conversation with our clients where we really take seriously who they are and who they want to be, the things that are really meaningful to them, and think about that sort of engagement, not just having a plan, but embracing planning. Those are two different things.
I think advisors will find that they will have very satisfied clients, and they will have a large number of references from their existing clients. Because even though people talk about planning, it’s still not something that’s a relatively fulsome practice through a lot of the industry.
Julie Littlechild:
It’s an interesting … You always believe are incredibly smart if it validates some of your own research, obviously. Which is what you’ve just done. But as you’re listening, I was thinking about some of the research we’ve done around client engagement and how it ties back in particular to two concepts. One being leadership, as in … Which is what you’re describing. An advisor who takes someone by the hand and helps them through the tough decisions, tells them what those decisions are, and guides them. And then this whole idea of aspiration.
Tell me if I’m getting the words wrong, but that’s what I’m hearing in a lot of what you’re talking about is then providing conversations and a process that are more aspirational for clients.
Brian Portnoy:
Yes. And I like the word aspirational. I also like the word adaptive. People are moving along their journey. And I’m trying to be sort of maudlin or literary about all of this, but we’re all trying to figure things out. I start this book off by saying that the question that almost none of us is really asking is are we going to beat the market? The question that all of us are really asking most of the time is am I going to be okay? Are things going to work out? Am I going to be comfortable? Am I going to live a life hopefully devoid or largely absent regret?
Because minimizing regret in my view is a more important objective than maximizing gain, and sort of taps into the loss aversion bias that our brains are deeply wired with. So that aspirational notion and the ability to adapt that through a noisy and unpredictable world, this to me is like, it’s really exciting. I mean, the opportunity … And I’ve been really happy over the last few years as I’ve sort of been hip deep in the wealth management business and meeting advisors and hopefully helping them a little bit, is to help them appreciate that their opportunity to do right by their clients and their communities more broadly is so enormous.
And it’s exciting for me. I meet some of these folks in the field and they get it. And they are energized and they are showing leadership. They embrace their roles as educators and coaches. And then I meet other folks who are concerned about whether the … what markets do after midterm elections, and where the price of oil is going to be. Or whether social media stocks are going to rebound from here.
And you know, candidly, I think they’re focused on exactly the wrong things. But it’s what they do, and along the way they socialize or teach their clients to care about that same noise. And as a result, it’s a pretty lousy relationship.
Steve Wershing:
Brian, in your book you talk about how you can … The different areas in which you can work to sort of bring about the conversations about the right things to talk about, and you talk about connection, control, competence and context. Can you talk a little bit about those concepts and how they relate to each other, and how you can incorporate them into the conversation with the client?
Brian Portnoy:
Yeah, and I appreciate you bringing that up. I touched on them very briefly. Let me give it a little bit more runway, because I think these deeper sources of contentment are really driving the conversation around purpose and meaning and that longer term sense of joy. And this is based partly on me just being in the world for a long time and observing, but also doing some focused reading and philosophy and religion and neuroscience and anthropology and so forth.
To me broadly there are four things that really drive a more meaningful life. The first is the connections that we have with others. We are tribal. We are wired to be tribal. And small t, I don’t mean that in a political sense. I just mean that we need others around us not just for safety, but to help define our identity.
The second item is control. We need to have some sense that we’re in charge of our own lives, that there’s some element of self-determination. Not only in the physical sense of being able to go and do what you want, but in the sense that you can tell the story about yourself that you really want to, and that’s an inspiring form of liberty.
The third dimension is what I call competence. We might call it mastery. But it’s being really good at something that you care about. When you go to a party or you meet somebody for the first time, what do most of us ask of each other? It’s what do you do? Now, no one really cares what you do, but what they do care about is who you are. And I think we can appreciate that work is very much a part of our identity. I think one of the ironies of the modern retirement system is that we spend 40 years saving a lot of money so that we can stop doing the thing that’s most meaningful to us. I think that’s creating a fair amount of psychological distress in society, and specifically within the financial planning business.
And then finally what I refer to as context is this idea that we gain so much meaning from things that are beyond ourselves. People who are inwardly focused about their own advancement, whether that be in terms of money or fame or beauty or any other sort of accomplishment, tend to be less happy than those who have some sort of attachment to something bigger. And I think I mentioned earlier, religion over the millennia as been the biggest item in this category.
But nationalism, patriotism, environmentalism, something that’s big that you can really devote yourself to. And I’ll just sort of tie a bow around what I call the four C’s, these four different sources of contentment, which is that this is not an algorithm. And even though I’ve sort of painted it as a taxonomy, there’s bleed between the categories. These are supposed to be kind of touchstones that help you think about where it is you want to go, and to appreciate that at any one moment in time some issues are going to be more important than others.
Sometimes your family or your community is more important. Other times you’re more focused on work and your career. Other times you’re anchored to that broader cause that brings you great meaning. But generally these are the things that we want to underwrite, which leads us to sort of a bigger question as to whether money buys happiness. And I think we’re all trained to say oh, money doesn’t buy happiness. But in point of fact, it actually does. Money does figure positively into the ability to underwrite those four C’s.
Julie Littlechild:
I could listen to this all day, by the way. Earlier you mentioned a framework, and I wanted to come back to that because it strikes me … What it sounded to me like is there’s a process, a tool, a resource, a way to describe this perhaps to clients that an advisor can grab onto. When you think of help providing a client with a framework, how would you describe that?
Brian Portnoy:
It’s a good question, and let me just put something out there but by all means come back if it’s not where you wanted to go. I think of the different things that advisors as educators and coaches can do to help structure their clients’ quest for a meaningful journey. And this goes beyond just the plan, which is just a list of things that you want to do.
I think in terms of managing expectations, managing decisions, and managing time. So by managing expectations I want to point out that if you get into the science of happiness, you’ll see that one of the most important findings is that met expectations drive happiness and unmet expectations drive sadness. Sounds like a very trivial observation, but it’s actually very deep and very complicated.
Because what it means to set and manage an expectation in a noisy world is quite difficult, especially when that expectation is shared. So whether it be husband and wife, client and advisor, parent and child, building shared expectations and trying to achieve them is quite difficult. I think the framework that advisors can bring to their clients is to set expectations across multiple dimensions, but especially in the realm of what the market can provide over time. What the market can do for you.
And I always think of this quote by the legendary investor Marty Zweig who said that the market will do whatever’s necessary to screw over as many people as possible. So the market doesn’t really owe you anything. It is what it is, and survey after survey, year after year, both clients and advisors have very lofty expectations of what stocks and bonds are going to do. And today’s not the day to set realistic expectations but I would say that the last ten years, notwithstanding the last couple months, has been more or less an uninterrupted bull market, especially in U.S. equities.
More broadly over the last three decades we’ve seen a largely uninterrupted bull market in fixed income. The longest in 5000 years, by some accounts. And so I think we had very lofty expectations. Setting a framework where people can tie realistic expectations to the things that they want to achieve is hard work, but it’s good work.
The second piece is managing decisions. My first book, The Investor’s Paradox, dealt with this in really extensive detail. But we are overwhelmed by choice. We are overwhelmed by information. And having more information sounds like a good thing, but it actually leads to subpar outcomes. One thing that advisors can do in terms of this framework that they want to build for clients is to simplify.
If I think about what I do for a living, it’s largely to simplify the complex world of money, and this is what advisors should be striving for as well. And if you think about you go to morningstar.com, fabulous website, my former employer, you’re going to find 24,000 mutual funds on there to choose from. Even if it was 2000 that would be a lot, but we have 10x that amount. What I think advisors need to do in terms of making better decisions with or for their clients is to take this very large and noisy world and whittle it down to a simpler set of choices.
I mean today’s not a detailed conversation on practice management, but this is exactly what I work on with advisors all over, is how do you create menus that indicate that people still have choice in one way or another but it’s relatively limited. We like to have some sense of flexibility, but we don’t want too much choice. And architecting that Goldilocks scenario where it’s not too much and it’s not too little is really an art that only a few advisors I’ve seen have done a good job.
And then I’m going on a bit, but I’ll just punctuate it by my third category which is managing time, which is a weird thing because it really gets into how the brain is wired to be a very forward-looking thing. And humans have a unique ability to think forwards and backwards in time. That’s a great thing in terms of our survival instinct. It’s not a great thing when it comes to money, because it means most of the time we’re not particularly patient. We’d rather have one marshmallow today instead of two marshmallows tomorrow. And so what advisors can do is really coach up their clients on being patient and recognizing that as their minds sort of focus on the now, there are better things to focus on in the future.
Steve Wershing:
And Brian, just like Julie I could talk about this stuff all day because it’s really interesting stuff to mine, but in the interest of time when you can engage with conversations like this with clients, what kind of impact can this have on your clients and then on your business?
Brian Portnoy:
I think in some ways it’s a radical proposition to your clients to say that I’m not going to do it like almost anybody else. I’m going to focus on you and your journey and I’m going to introduce a ton of really not only interesting but fun and actionable insights from the behavior sciences to get you where you want to go so that you can spend time efficiently and effectively to make the right decisions. But for the most part, not worry about any of this. This is largely about minimizing regret as distinct from maximizing gains.
And there are so many things the modern advisor can do, what I call the adaptive advisor, can do to bring some of this basic insight into their practice so that they move the attention away from the market, away from choosing specific investments or funds or stocks or ETFs and make it more about kind of building great habits. Getting actually a little bit away from goals and more into habits. Making it less about being and more about becoming. And bringing people along that journey.
As we’ve kind of hinted at, there’s so many different ways to get at that but I think that … And maybe this won’t be the right approach for a lot of people. Maybe there’s going to be people who say you know what, my neighbor Ed, he’s picking these great stocks and I want to do better than him. That’s probably not a great client for this framework. But as I meet people, especially under the age of 50 and especially under the age of 40 who have digital access to everything, who through Google can know basically the same thing as the person across the table within a short period of time, you’re actually going to be providing a very differentiated product. They’re not going to be looking toward a robo advisor.
They’re going to be able to charge a premium margin for this. And you’re probably going to inspire so much loyalty that you’re going to have referrals for the rest of your career.
Julie Littlechild:
Well, that was a mic drop statement so we’re just going to … You can’t add to that, that was perfect. Thank you so much, Brian. This has been so helpful-
Steve Wershing:
Yeah, thank you Brian.
Julie Littlechild:
If people want to learn more about you and the work that you do, where’s the best place to find that?
Brian Portnoy:
Sure, couple of things. First of all, follow me on Twitter. I’m @brianportnoy. There’s a really amazing community on Twitter, actually pleasant, not political, supportive so-called financial-
Julie Littlechild:
Where do I sign up?
Steve Wershing:
Which Twitter is this, Brian?
Brian Portnoy:
Yeah, yeah, so so-called financial Twitter or the shorthand is fintwit and if you follow me and you’ll see me engage with a lot of other super smart, generous people. There’s just a lot of conversation about the things that we’ve been talking about. So @brianportnoy. Two websites, the first is virtus.com. I’m the Director of Education for Virtus Investment Partners. Some of the content that I’ve created along these lines is available on our site at virtus.com.
And then for folks who want to know a little bit more about me, I have a personal website called shapingwealth.com. And that speaks to the books that I’ve written and some of the media that I’ve done over the years. And it’s certainly a way for you to reach out to me if you’d like.
Julie Littlechild:
Well, that is wonderful. We’ll make sure we get all of those links on the page. But let me just say thank you so much for your time. It has been an awesome conversation; we really appreciate it.
Brian Portnoy:
This is a lot of fun, thank you very much.
Steve Wershing:
Thanks, Brian.
Hey folks, Steve again. Thanks for joining us on Becoming Referable. If you like what you’ve been hearing, please do us a favor and rate us on iTunes. It really helps. You can get all the links, show notes and other tidbits from these episodes at becomingreferable.com. You can also get our free report, Three Referral Myths That Limit Your Growth, and connect with our blogs and other resources. So until next time, so long.