Risky Lessons

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Many advisors don’t understand risk.

I don’t mean they can’t assess the risk of an investment portfolio. They’re great at that. But they often apply different standards when it comes to assessing risk in their business and personal lives.

No risk can be risky

I have a lot of experience with risk. I’ve taken some big risks that worked out well and many that haven’t.

Here’s an epiphany: Sometimes, not taking a risk can be as risky (or more) than taking it.

You’ve probably had experience with clients who proudly state they’re “risk averse.” You may have explained to them that a portfolio of all bonds in a low interest rate environment is riskier that one with a modest allocation to stocks because of the ravages of inflation.

A similar misunderstanding of risk comes up when I’m asked by advisors about making a career change. I don’t feel qualified and don’t know what’s best for them. I want them to think correctly about the risks inherent in their decision. I ask them questions to explore their feelings, like:

Why are you contemplating a change?

What’s keeping you from implementing your decision?

What’s the risk of staying the course?

The last question is the one that provokes the most insights. They may be bored, unhappy with the way the firm is run or, as one person told me: “I feel I’m helping someone else live their dream. I want to live mine.”

Their decision often comes down to whether the risk of making the change outweighs the risk of staying in their present position.

Most don’t take the leap.

That can be risky.

Risk of spending money

I took a big risk when I wrote my book, The Smartest Investment Book You’ll Ever Read, in 2006. The thrust was that many investors would be well served by buying three low-cost index funds, without using an advisor.

At the time, most investment books made investing complex and daunting. The intention seemed to be to persuade the reader they couldn’t possibly do it themselves and required the assistance of an expert (presumably the author).

I took another risk with that book. It was very short. Some of the chapters were only a couple of pages. It was easy to understand and implement.

My biggest risk was marketing. I was an unknown author. I spent months researching how to market the book. I found a firm in Los Angeles that guaranteed extensive media coverage. There was one catch. Their media program cost $100,000 and it had little experience with books.

I consulted with my publisher who told me the idea was “crazy.”

I did it anyway.

I don’t know if this expenditure was related to the success of the book, but I don’t care. It became a New York Times bestseller and still sells briskly.

I tell this story to authors who ask me about how to market their book. Most books these days are self-published. Often, their books have poorly designed covers, little interior design and are published in paperback. They are reluctant to spend significant advertising dollars on their books.

If they don’t believe enough in their book to invest in it, why should others?

More AUM. Better Relationships.

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Many advisors show the same reticence when allocating funds to marketing their advisory firms. If you’re not spending 5%-7% of your revenues on marketing, you’re unlikely to see results.

I’ve seen firms invest in lavish offices, but their websites don’t reflect the uniqueness of their services. These days, when relatively few prospects and clients visit your office in person, it should be the reverse. Your website is the first impression most people will have of your firm.

It’s expensive to create a custom website, with videos, that showcase your firm and show the partners as warm and relatable.

The more successful firms invest in their websites and in training their advisors.

They aren’t afraid to take the risk.

Dan trains executives and employees in the lessons based on the research on his latest book, Ask: How to Relate to Anyone. His online course, Ask: Increase Your Sales. Deepen Your Relationships, is currently available.