2.1.3: Does financial advice help or hinder?
The people you pay to solve money problems tend to make them worse
Cultivating a better money mindset, so that we make better money decisions, and generally feel as though the whole thing is less scary and complicated, isn’t easy. Luckily, there’s a financial-advice industry set up to help us. Unluckily, it’s spectacularly bad at helping anything but itself. It’s not incapable of helping. But it’s staffed by humans, who have the same faulty wiring as everyone else, and its problems are pumped up by an egregiously misaligned corporate incentive scheme. If someone’s hired you because they think finance is scary and complicated, do you teach them it’s not really, or do you assure them that it’s more scary and complicated than they could possibly imagine?
The genus Investment Guru contains several species. Each one has the opportunity to make your life better. Each one usually – but not always – does the opposite.
The ‘Manager’ species says it’s all about money. In their eyes, you are your money. If anything, you get in the way. They pick stuff to invest in, you can come along for the ride, but do please try to stay out of sight. The Manager’s way of making your life better is to send you a letter every now and then explaining why their views on the future prospects of company X or country Y are so much better than the aggregated views of everyone else in the world that even after paying an enormous fee for their enormous wisdom, you’ll come out ahead. Depending on your own status (i.e. how much money you have), you’ll also be treated to a royal welcome in an oak-panelled room a few times a year to hear some lies about ‘current market volatility’ and imaginary correlations between the forecasted fortunes of certain subsets of the world’s companies and the electoral prospects of certain political parties.
The ‘Adviser’ species says: ‘I’m on your side.’ They’ll reassure you that you are more than your money. They’ll talk about how wonderful it must be being you, among other things you like to hear. You’ll agree, then together you’ll interrogate the performance of the Manager. This is a wise move on the Adviser’s part. Because if you’re willing to give each Guru (be they Manager or Adviser) a few chances to prove themselves, then where you may give a Manager two or three years, say, you’ll give an Adviser two or three goes at picking a Manager (and thus maybe nine years) before you get rid of them.
The ‘Planner’ species is at times indistinguishable from the ‘Adviser’. They’re also on your side. They also appear to be more interested in your life than your money. The difference is that the Planner actually believes this. They like to play psychologist doctors and counselling nurses. They really do derive more value from talking about your children’s or grandchildren’s education and your holidays than ‘boring investment stuff’. However, the centre of a Planner’s world is still the numbers, and the conclusion of a planning process is often to live as expensively as possible, thereby tacitly at least equating ‘quality of life’ with ‘cost of living’ and overlooking the fact that ‘not spending enough on myself’ isn’t ever a regret of the dying, but ‘not being true to myself’ definitely is.
Ultimately, when it comes to the sort of advice that’s likely to help you flourish, they’re all the same. Your blindness is their lifeblood. If you believe that your blindness is an unavoidable burden, and if you believe that while it can’t be cured, it can be managed with magic pills, then the market for confirming your fears is going to dominate the one for teaching you that there’s nothing to be scared about in the first place.
 Not that the letter will actually explain how enormous those fees are, of course.
 I use the most generic ‘adviser’ throughout the book, except where I’m referring to actions only really taken by ‘managers’ or ‘planners’.