New Year’s Resolutions: Your Can’t-Miss Failure Guide

A few years ago, Professor Richard Wiseman, a psychologist at the University of Hertfordshire, followed over 3000 people who had made New Year’s Resolutions…and tracked their ultimate success or failure. Since 88% of the participants were successful in failing to achieve their goal (i.e. only 12% actually achieved their goal) he had many examples of what NOT to do in making a New Year’s Resolution.

Make Many Resolutions: The chances of failure are greater when you channel your energy into changing multiple aspects of your behavior. To guarantee failure, try to achieve too much by making way too many resolutions.

Be Impulsive: Wait until New Year’s Eve to consider your resolution(s). By waiting until the waning hours/minutes of the year, you can assure that your decisions will be based upon whatever is on your mind at the time…or in your glass.

Make the same ol’ resolution again, and again…and again: Wallow in frustration and disappointment by re-visiting a past resolution that you failed to achieve. Choose the same old problem, and the same old approach that you botched last year.

Be vague and fuzzy: Do not think through exactly what you are going to do, where you are going to do it, and at what time. Be as vague as possible which will allow you to disregard your failure because you didn’t really commit to anything anyway.

ok...ok…ok…enough of the sarcasm. Let’s get serious.

Willpower is a muscle
As we learn more about the brain, we also learn that willpower is a muscle, like our biceps or quadriceps or latissmus dorsi, and can fail from fatigue by being overtaxed, or “weak”.

In an experiment led by Baba Shiv of Stanford University, undergraduates were divided into two groups: one group was given a two-digit number to remember, while the other was given a seven-digit number. Both groups were asked to walk down the hall…where they were offered two different snack options: a slice of chocolate cake or a bowl of fruit salad. Notably, the seven-digit group was 100% more likely to choose the chocolate cake. The reason, according to Professor Shiv, is that the seven-digit number was taking up valuable space in the prefrontal cortex portion of the brain, (i.e. cognitive overload) making it more difficult to resist a self-indulgent dessert.

The pre-frontal cortex, located right behind the forehead, is also in charge of keeping us focused, handling short-term memory, and solving abstract problems. Asking it to do too many functions at once can create a “tired” brain which is less resistant to outside stimuli.

In another experiment, by Professor Roy Baumeister of Florida State University, students who fasted for three hours were asked to perform a variety of self-control tasks, e.g. focusing on a boring video. The results were that students with lower glucose levels also had lower self-control. In other words, willpower requires real energy.

"A new oath holds pretty well; but... when it is become old, and frayed out, and damaged by a dozen annual retryings of its remains, it ceases to be serviceable; any little strain will snap it."…Mark Twain

Observations for Success
Let’s return to the research of Professor Wiseman that we pointed to earlier…without the sardonic, tongue-in-cheek tone.

What else might his study inform us about achieving success with New Year’s Resolutions?

One very interesting observation was that there were large differences in the goal-setting approaches that best suited men and women:

• Men were significantly more likely to succeed when asked to set S.M.A.R.T. goals (i.e. Specific, Measurable, Achievable, Relevant, Time-Bound)…as well as focusing on rewards and benefits.
• Women were more successful when they made their goals public to friends and family…as well as simply having someone encourage them to be persistent in taking time to learn new habits.
  

To recap the research findings on New Year's Resolutions, sans cynicism and sarcasm...consider these eight bits of learning:

1. Make only one resolution,
2. Plan ahead,
3. Avoid previous resolutions,
4. Be specific,
5. Set S.M.A.R.T goals,
6. Carrot good, stick bad,
   
7. Go public,
8. Be persistent.

Above all else, trust yourself. The first step to goal achievement is self-awareness. The best way to fix willpower flaws is to be aware of them.

In the New Year, may your right hand always be stretched out in friendship, but never in want.

Happy New Year to you...from all of us at ClientWise!

by Chris Holman

“It is sad to grow old but nice to ripen”

"It is sad to grow old, but nice to ripen."...Brigitte Bardot

According to a series of articles in the NY Times column “The New Old Age”, adults over the age of 80 are the fastest growing segment of the population. So, what are all these elderly people doing with their lives?

Well, as you might imagine, some are living the life they dreamed of, but a growing number are still working…some out of necessity and some just because they want to keep busy.

Those with financial security and good health are living the retirement lifestyle they planned. Those who aren’t in good health need someone to take care of them; oftentimes this burden rests with their children, another relative, or a home health aide. The elderly who aren’t financially secure need help, too; again this burden typically falls on their children’s shoulders.

However, more and more seniors are taking matters into their own hands and continuing to work to support themselves…or just for the fun of it. In fact, for many seniors, the jobs they are getting are the most fulfilling they’ve ever had.

Recently, I had some work done in my house and needed to get a room painted. The carpenter I used recommended a painter he has referred to other clients, so I had him come over to give me an estimate. When I opened the door, I was surprised to see an elderly gentleman standing before me dressed in his painting whites and holding a clipboard.

While he was measuring the area to be painted, we chatted. Clearly, he was well past retirement age, but he was still working…painting. He told me that he doesn’t need the money, but wants to keep working because some of his friends retired, then got sick and/or passed away. He doesn’t want to spend his days on the couch in front of the television. His theory is that if he keeps working, keeps active, and keeps his mind engaged, he’ll live longer. A lot of today’s seniors feel the same way.

However, finding a job when you’re well past retirement age is not an easy task. There are several obstacles that get in the way, including age discrimination, available jobs (currently there is a 5.7% unemployment rate for people over 75), and competition from younger workers.

These statistics are worth noting:

• According to the AARP, in the past 20 years the oldest group of workers (the 75-plus work force) has increased enormously to approximately 1.3 million as of 2009. This number was just under half a million in 1989.
• Since oftentimes it’s the woman who outlives her husband, a growing proportion of this work force, almost 44%, are women.
• A large percentage of working seniors are putting in long hours. More than 42% of the people in this age group who are working are holding full-time jobs, according to the Census Bureau.
• A quarter of older workers switch occupations after age 50, according to Richard Johnson, a senior fellow at the Urban Institute in Washington, D.C. The federal Department of Labor estimates that between 2006 and 2016, the number of workers over age 55 will rise 36.5%. That increase will create the grayest labor force since the government began tracking this data, according to Richard Johnson, a senior fellow at the Urban Institute in Washington, D.C.
• Of workers over age 65, more than 90% say they enjoy their jobs — a higher proportion than among young people, Mr. Johnson noted.
  

As a financial advisor, you should be doing everything you can to help your clients formulate an appropriate retirement strategy. But, what else can you be doing to support your clients who are approaching retirement age?

• Start the new year with a new plan for your clients who are seniors now...or “soon to be” seniors.
• Create a "Retirement Checklist" which would include a comprehensive review of all retirement-related issues, e.g. assets, documents, accounts, etc.
  
• Engage your clients in a retirement conversation...that doesn't necessarily involve money.
  
• Become familiar with some of the excellent informational resources available. For example, this book..."Get Inspired to Retire, Over 150 ideas to help find your retirement" is a great first step.
• Team up with a local university or host a volunteer night to connect seniors with local organizations who can use their valuable time and talents.
• Remind seniors to take care of themselves, physically, spiritually and mentally; consider hosting a “Get Fit” night with local doctors or experts in the fields of Alzheimer's, dementia, heart problems, cancer or arthritis.
• Organize a “Getting Old and Taking Control” day for seniors and their children with executives from various local senior organizations, such as nursing homes, home health aides, assisted living housing, long term care choices, etc. Having information such as this available long before it’s needed, so it can be reviewed in advance is much more beneficial than having to rush around and find such a service in an emergency.
  

When we talk to financial advisors, many of them will say that "retirees" are one of their target markets. What is becoming more apparent each day is that the "retiree" population is remarkably heterogeneous. For advisors who want to specialize in "retirees", it might make more sense to further isolate sub-sets of this growing demographic and become an expert in the needs and concerns of more homogeneous groups.

by Theresa Ficazzola

The Power of Reciprocity: The Weight of Obligation

The Principle of Reciprocation states that one should repay favors in return for favors that we receive is a psychological phenomenon in which we feel somewhat compelled to repay what another has provided for us first.

This explains why restaurants often include candies or mints when presenting the bill. (In a study completed by the Center for Hospitality Research, it was found that giving customers fancy chocolates increased tips by 15-23%. In fact, the highest tips were received when the server gave dining parties one piece of candy per person and then “spontaneously” offered a second piece per person.)

In a good blog post in the Harvard Business Review, Steve Martin (not THIS Steve Martin!) points out that positive reciprocation is definitely not the “If you help me, then I’ll help you” variety. Constructive reciprocation requires one to give first without the blatant expectation of receiving something in return.

Indeed, numerous studies have shown that when one extends a service in this manner, those who we “invest” in very often return the favor by exceeding the expectations of scale in their reciprocation:

• When hotel guests were informed that the hotel had already made a donation to an environmental organization, those guests were 45% more likely to reuse their towels and linens.
• In a study of wineries offering complimentary wine tastings, vs. those that charged a small fee, visitors who had complimentary wine tasting spent significantly more money at the wineries than visitors who paid a fee for tasting. Furthermore, visitors who tasted wine for free felt significantly more appreciative of the personnel than did visitors who paid a tasting fee.
  

As Mr. Martin points out, there is also a delicate balance between the aggressive posture of… “Yes, I did help you out and now you owe me” and the much more compliant response of “Hey, it’s no problem. I’m happy to help.” The deficiency of the second response, from a business standpoint, is that it doesn’t really lead anywhere. “Happy to help…I know that if the situation were reversed, you’d help me” is more suggestive; as is…“You are most welcome. That’s what we do for important clients such as you.”

The one big exception to the Principle of Reciprocation rests in overt requests for trade. If someone feels something will be expected if he/she accepts, the power of reciprocation is greatly diminished.

Financial advisors who understand the persuasive effects and nuances of the Rule of Reciprocity can enhance their ability to build stronger networks, create more trusting relationships, and become more influential over others. Some specific examples might include:

• When sending out client surveys, include a $5.00 gift card from Starbucks, or your local coffee purveyor. Organizations that have included "preemptive gift cards" have doubled their response rate to client surveys.
  
• Never, ever, never say to your clients something like… “There are two ways that I get paid, and one of them is from your providing referrals to me.” Cheeeeesy!
• For your clients who are business-owners and entrepreneurs, reach out to them and help them grow by advocating and promoting their services and businesses to your own clients and networks.
• The Golden Rule, i.e. treat others as you’d like to be treated yourself.

"The Golden Rule is not a sacrifice. It is an investment."...Paul Bunyan Walker

by Chris Holman

Delusional Diversification Redux

In our most recent blog post, "Delusional Diversification: The Flawed Logic of Using Multiple Advisors" we discuss the inherent risk and complexity that results from investors who use more than one advisor. We also point out the unfortunate paradox. One of the reasons that investors use multiple advisors, unconsciously or not, is to reduce portfolio risk by increasing diversification. The paradox lies in that, by creating layers of communication and efficiency boundaries, the investor increases portfolio risk.

As we reflect on this situation, a number of questions spring to mind. These are questions that an advisor might ask an investor who has created this circumstance...or questions that investors might ultimately ask themselves:

1. Why do you have multiple advisors?
2. What is your asset allocation strategy?
3. Who is accountable for your asset allocation strategy?
4. How do your advisors coordinate and collaborate with each other?
5. What's the communication plan amongst all of your advisors...and you?
6. How do you prevent portfolio overlap?
7. If all of your advisors have partial information about your entire portfolio, how do you estimate the outcome of choices on the final portfolio?
8. Which of your advisors has the responsibility of considering your unique investment variables, i.e. your age, current taxable income, future income needs, investment strategy, asset allocation strategy, etc.?
9. Have you considered the hidden risks of having multiple advisors?
10. Most all of the affluent investors who I work with have a fundamental need for a trustworthy relationship with one financial advisor. Would it help you to work with one advisor who has a deep understanding of your personal goals and monetary philosophy?

From our observation, the benefits of working with one advisor are three-fold: simplicity, more effective and efficient portfolio management, and having one relationship seems to increase the level of trust and understanding that the advisor has of the investor's needs.

On another completely different note, today is the birthday of author, humorist, and professional "epigrammatist", Ashleigh Brilliant. Brilliant makes his living authoring witty pronouncements, such as:

• I feel much better now that I've given up hope.
• I try to take one day at a time, but sometimes several days attack me at once.
• I have abandoned the search for truth, and am now looking for a good fantasy.

Brilliant once sued television journalist David Brinkley who wrote an autobiography entitled, "Everyone is Entitled to My Opinion." Brilliant proclaimed that the words were originally his, and Brinkley's publisher paid Brilliant $1000.00.

by Chris Holman