TGBA #20: The First Rule of Getting in Financial Shape? Don’t Quit?

Welcome to the 20th edition of?#theGoalsBasedAdvisor ?Newsletter!?

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I read a recent article in the Globe & Mail titled “The first rule of getting in shape: Don’t quit”. As a personal trainer (for fun) and an investment guy (for work), I saw the parallels between getting in physical shape and financial shape and hence, with a hat tip to Alex Hutchinson, the title of this edition of the newsletter.

In the article, a recent study by McMaster University provided some interesting, if unsurprising, findings. When it comes to building muscle, specific elements like how much you lift or how often you exercise, play a rather small role. The real key is sticking to your routine, as Jonathan McLeod, co-lead author of the study, pointed out. Get that part right, and then you can think about the smaller details.

This is exactly the same for getting in good financial shape. Far too many clients, and some advisors, think that getting the details of the portfolio, or the debt repayment strategy, or the savings discipline, is absolutely critical. It’s not. It is about being consistent. About not quitting.

Consistency over complexity

Consider, for example, advising a client on paying down their debt. Let’s assume the following hypothetical situation:

And let’s assume the client can pay $500 a month towards repayment of his outstanding debts. What do you advise?

Well, a common approach, and one that makes sense financially, is to pay down the highest-cost debt. In this case, it would be the credit card debt. But, even without interest expenses accruing, it would still take 20 months for the client to pay it off. That’s a long time to expect the client to stay disciplined.?

A second approach, a behavioral approach, might be to have the client pay down the utility bill. Why? Of course, it has the lowest interest rate. But the client can pay it off in a little more than 2 months. Imagine the confidence boost that this gives the client. Picture the motivation that the client has to tackle the next debt mountain.?

So it isn’t just about the reps, the routine, or the rate — it is also about the reliability of follow-through. Peter Drucker, the late management expert, said that “strategy is a commodity, execution is an art”.?

Bright Spots

Solving complex problems doesn’t always need complex solutions. Sometimes, it's a matter of amplifying what is already working.? One great example was that of a charity fighting malnutrition in Vietnam in the early 1990s. The new American head of the local office was told by local politicians that he had six months to make a difference. The conventional wisdom was that malnutrition is a systemic problem — bad sanitation, poverty, lack of clean water, lack of knowledge.

?Faced with a tough challenge, the charity head took an unconventional route. He decided to hunt for 'bright spots’. He found healthier kids in some villages. What was their secret? They ate four small meals, not two big ones. Their parents were hands-on with feeding. But the cool part? The moms of these healthy kids added cheap but easily obtainable foods, such as tiny shrimp, crabs, and sweet potato greens to the rice meals. Sounds odd, but it worked. The charity leader spread these finds with local champions, and it worked like magic across Vietnam. It just goes to show, that small changes can spark huge success .

Implications for Advisors?

Creating lasting behavior change is less about sweating the details and more about identifying the underlying motivations and delivering quick wins that can keep your clients motivated. Years ago, I did Tae Kwon Do with my young daughter. The dojo where we trained had lots of young kids. Tae Kwon Do, like any martial art, requires consistency and discipline. Getting kids to be focused was difficult but the kids were always excited about getting their next belt. This showed that they had mastered the next level. The problem? It typically took months to move from belt to belt — a long time for anyone but especially young kids. The dojo came up with a neat solution. Electrical tape!?

Every few weeks, the kids would be tested on mastery of part of the next level. If they passed, they would get a 'stripe' on their belt. Three stripes and they got the next belt. Simple but effective. This kept the kids motivated, on track and focused on their ultimate objective.

This same approach works with advisors’ clients. Expecting them to stay motivated and consistent by focusing on a goal or objective 3, 5, or 10 years in the future is a tough ask of anyone. Instead, use “electrical tape” — create milestones along the way that can show progress, that can be celebrated, and that can help build the client’s confidence in both the plan and their advisor.

As the ancient Japanese proverb says: 'Fall seven times, stand up eight'. Advisors who can help clients find a way to stay in the race and keep going will not only help their clients but will also help themselves.?

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