In this episode, host Sam Sivarajan interviews John De Goey, a wealth advisor and consumer advocate, discussing his journey in the financial advisory industry, the concept of optimism bias, and its implications for investors. They explore the role of financial advisors in managing client expectations, the importance of diversification, and the impact of technology on financial decision-making. John shares practical strategies for advisors to help clients navigate biases and make informed investment choices, emphasizing the need for critical thinking and evidence-based practices in the industry.

takeaways

• John De Goey's journey began in public service, leading to a career in financial advising.
• Optimism bias can lead investors to underestimate risks.
• Financial advisors must balance optimism with realistic expectations for clients.
• Expected returns for traditional investments are declining, necessitating new strategies.
• Diversification is crucial in managing risk in investment portfolios.
• Technology can enhance risk assessment and client suitability in financial advising.
• The financial advisory industry is slowly professionalizing, but challenges remain.
• Misguided beliefs among advisors can lead to poor investment decisions.
• Pre-commitment strategies can help clients stick to their investment plans.
• Continuous education in behavioral finance is essential for both advisors and clients.

Sound Bites

• "I wanted to work in the public service."
• "Optimism bias is when people think bad things won't happen to them."
• "The less you touch it, the more it grows."

Chapters

00:00 Introduction to John De Goey and His Journey

02:49 Understanding Optimism Bias in Investing

06:03 The Role of Financial Advisors in Managing Biases

08:56 Strategies for Managing Client Expectations

12:01 The Impact of Market Conditions on Investment Strategies

14:49 The Importance of Diversification and Risk Management

18:05 The Role of Technology in Financial Advisory

20:48 Challenges and Opportunities for Financial Advisors

24:02 Practical Examples of Managing Optimism Bias

27:03 Final Thoughts and Recommendations

keywords

financial advisory, optimism bias, investment strategies, client management, behavioral finance, financial literacy, risk management, technology in finance, market conditions, advisor-client relationship

So First off, how many people do you know that have a financial plan or or that are motivated to work with a financial advisor? If you tell them their return expectation is 5%, many people have come to expect higher returns for benchmarks for for if you were to buy the S&P 500, if you were to buy the bond index or what have you. But.

Of course, markets don't have fees, and of course, benchmarks don't have advisors that charge fees. So FP Canada says that in order to plan properly, you have to back out the cost of the product.

Product and the cost of the advice. So if the products are let's say low cost ETFs that costs say 25 basis points on average, that's one quarter of 1% of of return that gets gets lopped off. Let's say the advisor charges a fairly traditional 1% advisory fee for his or her services that is.

A rate of return that almost no one is assuming, and if I could be so bold, represents an existential crisis for the wealth management industry.

This is the future Ready Advisor, a show about transforming your financial advisory practice. I'm your host, Sam Sivarajan, a wealth management consultant, behavioral scientist, and keynote speaker.

In this podcast, I dive deep into the real challenges advisors face and bring you insightful conversations with top industry experts. Together, we'll explore practical strategies grounded in behavioral science to help you better serve your clients, optimize your time, and build a future ready practice.

Yes.

Hi everyone I'm your host Sam Sivarajan. Welcome to today's episode of The Future Ready Advisor. Today I'm here with John Dugui, wealth advisor, author, and podcast host. John, welcome to the show.

My pleasure to be here.

Good to have you. Let me quickly introduce you to our audience.

John is a passionate advocate for investor rights and client first practices as a portfolio manager at design securities, he helps families achieve their financial goals. John has a wealth of credentials. Let me share a few.

A certified Financial Planner, certified investment manager, and fellow of FP Canada, John is committed to education, best practices and transparency. He is also the author of three books and the host of the podcast Make Better Wealth Decisions.

Twice named one of Canada's top 50 advisors by Wealth Professional magazine, he provides valuable, cost effective and diversified investment advice.

John.

That's a great background.

Can you share a bit about your journey in the financial advisory industry?

Here, Sam, I think I should begin by saying that I very few people who actually work in personal finance actually aspired to work in personal finance when they were growing up and in school. For me, I wanted to work in the public service, and I was doing a Masters degree in public administration at Carlton in Ottawa, and it's a Co-op program. And and when I was starting, I I was given a chance to work on.

Consumer and corporate affairs looking into credit card rates and and then later into the effect of the.

Because it's one thing to say you're a behavioral coach, but it's difficult to get people to behave like they ought to sometimes. But if I could just go in and automatically do what ought to be done without having to even, you know, get prior commitment, that's a better way to get people from, from where they are to where they want to go. And I think.

That that helps us as well. Along the way, I've written a couple hundred articles, three books, as you say. And you know, I've done a fair bit of media things. So I've become advocate and and a a consumer advocate in parallel with my role, my day job as I would call it as as a financial advisor. And that brings us to where we are today.

Well, as you say, I didn't know about your masters in public policy, but I can see the parallels between public policy and consumer advocacy. I mean, in many cases, I think there is.

Needs to be a greater awareness of financial literacy and the industry and all of our goals, and I think you've been. I've watched you from afar and from a close, I think you've been a tireless advocate for for the industry and I think for the consumer in your podcast and the book, you talk extensively about what you call the optimism.

Uh.

Can you describe what that is, how it is developed in the industry and why you think it poses such a risk for investors?

A simple definition of optimism bias, and by the way everyone is biased. And by the way, there are dozens if not hundreds of biases that we're all subjected to. So it's not like I want to pick on optimism bias, but I wanted to write about it in particular because it is often overlooked and misunderstood, as you suggest.

Optimism bias is when people think that bad things won't happen to them. They recognize that bad things happen. But they have this hubristic approach to thinking it won't happen to me. I recognize that people get divorced, but I'm not going to get divorced. I recognize that people are sometimes in car crashes, but not me. I'm not gonna be in.

A car crash.

So that view of acknowledging that bad things will happen, but somehow.

Simultaneously thinking that you're immune because you're special for some unidentified reason is dangerous, because now you recognize that there could be a broad macro problem, but you don't stop to reflect upon how it might impact you impact you should it happen to you. And that's really dangerous. And one of the things about biases.

And there again there are many is that many of them are unconscious.

So what I mean by that is a lot of people will be aware and will acknowledge that they have a bias. Everyone has them, but many people are biased in ways that they themselves don't recognize. They don't think they're biased, they are, but they don't think they are. And so when you have you go through life making decisions, when you've got a filter that causes you to look at things a certain way.

And that then creates blind spots because you're not considering other alternatives. There's danger there and. And, you know, I don't want to go into too many details, but that's that's the the the short.

Look, it's a great point. We do have lots of biases, as you say, everyone of us has them and we don't have time to get into some of the evolutionary and biological reasons for it.

Some of those were good reasons that existed because of our environmental conditions a few thousand years ago, but our human wiring hasn't changed. Well, our environment has the optimism bias, particularly strikes me as something that is potent, and I love the way you described it, and it's everywhere in the industry. In my former life, I was an investment banker and I.

Remember that equity analyst, for example? I've remember seeing a stat that of all of the equity analyst reports that you get something on the order of 55% of equity ratings. Stock Ratings are a buy about 40% is a hold and 5% is a sell.

I mean and the.

That strikes me, and I'm sure you and others as that's that's, you know, optimism bias operating there at A at a pretty fundamental.

I strongly agree. I will. I will.

Maybe couch that to give the industry a little bit of leeway and that is that one of the things that people say about personal finance is that it's not like other elements of business and business. We have a a bias toward action. Now, don't just don't just stand there, do something, but in investing a lot of what makes sense is to don't just do something stand there.

Which is to say, there's a evidence shows that you are 10. You tend to be rewarded for being deliberately inactive, and the the, the the joke is that an employer is like a bar of soap. The less you touch it, you know, the more you touch it, the smaller it gets and and so.

Well, we we have to find ways to leave things alone. So that could be part of the explanation for the 55% by the 40% hold and the 5% sell, but I think.

So I'm giving the industry, throwing them a bone to say that could be one explanation, but I'm with you. I think it's highly suspicious that there's so much of A bias toward buying and thinking positively and optimistically about what great things will befall you in life as a result of having bought XYZ stock and just waiting long enough. And I think that is dangerous.

No, you're bang on. And look, we all have the biases in our industry in every industry and I think the challenge is to get that balance between action bias, the rush to do something without enough information and the status quo bias. The temptation to do nothing. And as you rightly put it, particularly in personal finance affairs.

That becomes an even more cogent challenge that we all have as advisors and investors for financial advisors that are aiming to build a future ready practice.

What strategies would you recommend for managing optimism bias, both in the advisor themselves and the clients? I mean, part of it is, as you can say, that you don't get clients by being pessimistic. You know you have to have a solution to the challenges or the pain points that they get. How do you manage that conundrum, if you will?

So the first thing that I will draw attention to is that managing it and getting the clients in the 1st place are different skill sets because you need to be optimistic enough in order to get clients to to come on board to, to hire you to provide yourselves. But once you've got once you've been hired, you need to be realistic in in what their expectations are.

And so that can be the same thing, but my experience is that a lot of financial advisors out of the ordinary business imperative of needing to gather.

Sets we'll we'll promise the some of the starters to their clients and then of course that's great. If it helps you to get the client, but then it's not so great when the client expects the son of the stars from you on a go forward basis for the rest of the relationship because you've set an expectation that you can't adhere to.

Let me give you a specific example. FP Canada, which is the organization that confers the CFP mark, puts out annual assumption guidelines at the end of April every year.

And it tells you what you should expect in terms of what the CPP benefits will be, what the inflation rate will be, actuarial tables for, for life expectancy for males and females and couples. But most importantly, in the eyes of many financial planners, it puts out return expectations for different asset classes.

And for stocks, it's 6 or 7%. So a balanced portfolio using just ordinary benchmark returns might be expected to return something like 5%. So First off, how many people do you know that have a financial plan or or that are motivated to work with a financial advisor?

If you tell them their return expectation is 5%, many people have come to expect higher returns. Many people actually think double digit returns are reasonable, and they categorically.

Are not.

It gets worse. Those return assumptions that I mentioned a moment ago with the 5% for a balanced portfolio is what you should be expecting as a return for benchmarks for, for if you were to buy the S&P 500, if you were to buy the bond index.

Or what have.

You, but of course marks don't have fees and of course benchmarks don't have advisors that charge fees.

So FP Canada says that in order to plan properly, you have to back out the cost of the product and the cost of the advice.

So if the products are let's say low cost ETF that costs say 25 basis points on average, that's one quarter of 1% of of return that gets gets lopped off. Let's say the advisor charges a fairly traditional 1% advisory fee for his or her services.

Now that's set 5% expected return for a balanced portfolio becomes 3 3/4 percent rate of return.

MHM.

Vic.

So the industry as expected, returns have been compressed, are going to have to find new and improved ways to add value. And I'm looking at you tax optimization and and and estate planning and behavioral coaching because the the expected return premium that you might be getting from managing money is not likely to cut it if that's your only value.

That's a.

Fantastic point. What do you think about the influx, if you will, of call it high alpha products as a way to offset this lower expected returns on call it through traditional markets. So I'm talking everything from private investments, real estate, etcetera. Do you see that?

Just playing a role and I'm asking you to generalize. Do you see that as playing a role in people's portfolios or do you think it's a straw that people are grasping in order to kind of not have that conversation?

Or not have.

That.

Adaptation of the practice to kind of add value in the way that you are describing through tax optimization, estate planning, behavioral coaching, etcetera.

So I'll I'll make a distinction here, Sam, because Alpha is is a term that that refers to beating the market on an absolute and or risk adjusted basis. And I don't believe that's possible in a reliable way. You can get lucky just like you can win a lottery ticket, but that doesn't mean you can reliably.

Pick lottery.

Numbers, so I don't believe alpha exists.

So anyone who has a product that is predicated on the delivery of alpha, I am highly, highly skeptical.

However, I do believe in diversification and if you have asset classes that are maybe a little bit riskier but have a higher expected return that are weakly or negatively correlated to other assets that you might otherwise own, well, then that's the reason that I that I that I think you should consider those sorts of products and strategies because now.

If we can extend the so-called efficient frontier, which is the the universe of portfolios that you could construct that gets you the highest rate of return expected return I, maybe I should say for a given amount of risk.

Tolerance than if using different asset classes or strategies will extend that frontier, even if it's only 20 or 30 or 40 basis points. You know right now return is very precious and it's hard to come by and if you can get a slightly better risk adjusted return, I'm all. I'm all for exploring. You know what you might be able to do and how you might be able to do.

No, I think it's a great point and it reminds me 20 years ago is working at a firm where we had this flagship product that was diversified across.

Us a variety of asset classes and geographies, etc. Had a 10 year track record of something in the order of 12% annualized return and 5% volatility. So you can imagine 20 years ago it was selling itself. We didn't really have to do much about it and it worked beautifully until of course soon.

An 8 when it didn't work anymore and the point that you make about diversification and the returns being precious, the learning that I got from that was that no model or no product or no approach works in all mark.

Kids and this comes back to the role that an advisor can play is to be vigilant on behalf of their clients and ensuring that the the portfolio or that the advice or that the plan that they give them is current for the current market circumstances and environment.

Yeah, I I agree. And that's one of the things that I lament in in bull shift. And one of the things that I lament about the industry is that the industry is so.

Set in its ways, and that might be a status quo bias for the industry in terms of what, what the what proper advice is and what that constitutes and what it looks like.

We have a cyclically adjusted price earnings ratio for the S&P 500 that's over 30.

About the risk that we're taking by being 60% in the stock market when the stock market is trading at 35 times earnings, which is a different proposition than being 60% in the stock market or stock markets plural when they're trading at 15 times earnings and that is a consideration that I think the industry oftentimes it it, it's not sufficiently.

Contextual it just says this is the right thing to do and we're going to do it and we do it all the time and we don't stop and and sit back and assess and say maybe we should be a little more careful now and and I don't see, I don't see that as much as we as I believe we.

I love that. I think this is another example of your optimism bias that you talked about. It's absolutely bang on and part of the challenge and we can have a whole segment about this is the rather 1 dimensional view that the industry takes in many cases of what risk is. So yes, you can talk about risk as volatility, but there is other risks that we're not.

Now.

You, as we mentioned earlier, have your own podcast make better wealth decisions. Can you talk a little bit about the focus of that podcast and you know, some of the guests that you've had and you know what your objective is in terms of?

You know what's the message and the focus of that pod.

Thanks. So make better health decisions is very much predicated on the things that we've just been talking about for the past 3 or 4 minutes stopping, reflecting and say before I before I just do what everyone does all the time because that's just the way things are done.

Let's let's assess the the universe here and.

Before we decide.

Think about whether or not valuations are a consideration and and should we change what we what we do and to be clear.

Given what I was saying even earlier with regard to the bias toward inaction and status quo bias.

Maybe we don't do anything. It doesn't necessarily mean that we have to do something different. What I'm trying to get people to do as they make better wealth decisions is to contemplate the universe of alternatives so they can make a fulsome decision.

Thinking about everything and and thinking holistically about, you know, their tax situation and their estate planning with their children and you know what will the ramifications be?

Before they just do what they always presumptively thought was the right thing to do without really thinking critically. So I'm trying to get people to make better decisions by thinking critically and challenging assumptions that are rooted in, well, that's just the way we do things around here, which is.

A lot of what the industry does.

In other words, you mean to get your clients or investors to think and consciously act or not act as the case may be without implicitly doing it or not doing it, which is what the the default position seems to be in our world.

It is so that's part of why I became a portfolio manager 15 years ago is that.

And I, and again everyone, no one really resists their own ideas and and everyone can be subject to overconfidence. And so, you know, perhaps I'm overconfident as a portfolio manager, but my experience is that many advisors and this was really rooted in what happened in the global financial crisis of 07 to 09 people say I I have a long term time horizon.

I'm.

Have XYZ risk tolerance and then reality strikes and people realize that.

Like you know, a lot of people just didn't think that was possible because of recency bias, because they haven't experienced it recently, so they don't think about it. So my view is that it's it's better in my personal practice if I can.

Yeah, yeah.

Your $1,000,000 is now now down to 700,000 because your 600,000 and stocks is now down to 300,000. What we need to do is we need to take over $100,000 out of your bond position and put it into your stop.

M.

And now we have this hurting effect and no one wants to do it because no one wants to go 1st and as a result, inertia that sets in and we don't move forward even though that is a big part of the brand promise of what advisors say they are offering to.

Your clients.

Look, you're absolutely right. It's hard for anybody to be objective and rational when it comes to their own affairs. I mean, so it's not just on portfolio. We see this in other professions. Doctors should never treat themselves. We've seen evidence of cases where doctors have misdiagnosed themselves.

Thinking that it's a stomach ache when it actually is a heart attack, there's the old saying that a lawyer who represents himself has a fool for a client. It's very much in tune with what you're saying. It's not that the doctor is not.

As a.

Table it's not that a lawyer is not capable. It is when it comes to your own personal affairs or someone close to you's affairs, it is hard for even the most professional of us to stay rational and objective and not given to emotion. And that's what you're bringing to your clients, or what any discretionary portfolio manager is bringing to their client is that.

Ability to remain a little bit more objective and a little less emotional because it's not your money that you're managing.

Exactly. And I don't want to overstate it. No, I'm human, too. It's not like I can't make mistakes or, you know, anyone is prone to mistakes. But I'm hoping that the odds are a little more in your favor if you can provide that objectivity, as you say, combined with experience and and the ability to read the room.

So to say, so to speak.

So.

Technology is becoming increasingly a a a factor. And how do you see technology playing a role in helping advisors manage biases and make more informed decisions? Do you see this playing a good role or bad role in terms of some of the optimism and other biases that you talked about?

I see technology as being First off, it's inevitable. So whether I like it or not, it's going to happen. But the other thing that I would say is that most technology, like anything in life is only as good as garbage in garbage out. So as long as the factor inputs are robust.

Then you would expect the outputs to be good. So for instance, good financial planning software isn't going to do you a lot of good if you're using unreasonable assumptions as one example. But.

When it comes to managing risk that that's where I think is where the rubber hits the road. So regulators in the past two or three years have been talking about client suitability being being run through a ringer with two tests, which is a risk tolerance and risk capacity.

And if you can use questionnaires that can do a better job of analyzing risk tolerance capacity because those things make First off are different things. And then secondly, we need to manage portfolios to the lower of the two. So if you're tolerance is an 8 out of 10 and your capacity is a six out of 10, the portfolio should be.

6 out of 10 because you you you can't exceed either. You have to, you know, go no further than the most aggressive of the two.

And in order to to be able to do that, you need to be able to reliably quantify where that threshold is. So good questionnaires that will be more psychometric and not just intuitive because a lot of the questionnaires that are used even today are not that great.

We'll probably do a better job of using technology to help advisors be compliant.

And so they're not offside with regulation, but also helping their clients reach their objectives, because the best portfolio is 1, you can stick with and it does you no good if you recommend an 8 out of 10 portfolio and that's relatively aggressive and the person can't handle an 8 out of 10 either for tolerance or capacity and then they bail and then they move to a three.

Exactly.

And portfolio because they lost their nerve. And now now we're really not going to meet our objectives. Technology is useful, but like anything, it has to be in the right hands and you have to use it judiciously and and apply.

Quickly.

That's a great point. Looking ahead, what do you think are the biggest challenges and opportunities for financial advisors in the years?

In the well, I would say that.

I would say the industry needs to think more about evidence and professionalism. So my first book, the professional financial advisor, talked about how the industry was professionalizing the way doctors, dentists, lawyers and accountants.

Professionalizing and that is is continuing, but it happens very, very slowly and my my foolish assumption was that it would professionalize as a result of regulatory reforms that will.

Those higher professional standards, my experience in the 25 years as an advocate that I've been working as an advocate within the industry since I started writing my first book, is that regulation is slow to the point where instead of leading the industry to to being more professional, it tends to lag and that the best advisors and firms.

Push the envelope forward and regulation changes after maybe 20 or 25% of the of the early adopters have have already moved in.

So I think that will continue. I think that's positive. I don't really care how we get things moving forward as long as we move things forward that'll be that'll be good in terms of best practices, but also with regard to evidence, you know there's a mountain of evidence that active management doesn't really add value in aggregate that is is understood by.

By ethical and and intelligent people. But there are a lot of people who don't really fully appreciate what that involves, so I'll give you one example and then I'll.

And then I'll stop with this.

A paper came out about seven or eight years ago called the misguided beliefs of financial advisors. Now, this was a study that was done as an academic study. Peer reviewed, published in a learned journal, and it showed that these are now mutual fund registrants. So these are not security advisors, but they looked at two dozen of the biggest mutual fund firms in Canada and the advisors and.

You're going to say, well, isn't that because there are inherent biases because of embedded compensation or whatever you would say?

No, actually, the evidence showed that these advisors did this even with their own accounts, and even after they retired from the business.

Mm-hmm.

So these are these are people who believe things that are simply not true and and so in terms of the industry moving forward, I think we need to agree on facts. Right now. It seems as though there are, there are even facts, things that should be self-evident that there are many people who are giving the advice who don't recognize the facts imagine in the.

1964 the Surgeon General report came out in the US saying that cigarette.

And the people who are giving the advice were the ones who had to stop and look in the mirror and recognize that perhaps the advice they were giving was not correct and they needed to confront the evidence. And that's really, really hard. But that's where we need to go.

No, that's a great point. I read that paper by Steven Forrester and I like it and it informed a lot of my doctoral research. I think you're absolutely right. It was advisors were investing their own portfolios the same way that they're recommending clients. One of the conclusions I took from that besides what you've just said is.

That look, there's a lot of speculation by in the popular press that that there was conflicts of interest and everything else, and at least one conclusion I took from that finding was it wasn't a conflict of interest. It was this almost this belief that, look, I'm recommending all of my clients do this because it's the best advice.

To them, because I myself am taking it so it's it may be misguided beliefs, but not a conflict of interest, right? And The funny thing is, I think that we've got.

Exactly.

A lot of regulations, including now coming out there trying to fight conflict of interest, which by the way, I totally agree with. OK, I don't like conflict of interest, but I think the point that you're making and that the evidence points to is that maybe one problem and one problem that we're solving. But there's other issues that we've got include this idea of misguided beliefs, etc.

That, I think, is pernicious in our industry, in every industry, including in the average person.

Out there and if we can solve that, I think we'd make a bigger dent in peoples lives.

Yeah, I strongly agree. I I think it's one of those elephants in the room that no one wants to. They think it's a question of wrong incentives or misplaced agency and it could be those things. And those are bad things. And I certainly wanna. I'm. I'm with you. I you know I I think we should try to root those things out as well but misguided beliefs is a lot more.

M.

So it's almost 8 years old now and the industry hasn't done anything really to disabuse advisors of these misguided beliefs, so they're aware of the problem, and this is part of what I say. Regulatory reform takes a long.

Time regulators don't seem to be too fussed about this. They would rather talk about the things that we're talking about here in terms of misplaced agency and and better compensation causing bias with regard to product recommendations. But they're not really doing anything to deal with misguided beliefs, and that's as big as or, in my opinion actually a bigger problem.

Yeah. And last point, not to beat this dead horse, as you say, it's easier to show action and something that is visible and tracking as in conflict of interest and compensation, etcetera you.

And show the error. You can show the the bad behavior you compensate, you can fix, etcetera. I think misguided beliefs is under the radar and it requires like academic data and evidence. It doesn't mean that we should say OK, because we can't see the problem that we shouldn't solve it. It just means we got to get more creative in trying to identify.

How we measure the problem and our effectiveness in solving it.

Yeah.

So let's go back to the dangers of optimism bias in investment decisions. I'd love it if you can walk us through practical example of how you think and advisor might approach this with a clients investment strategy.

So as I mentioned a moment ago, regulators are now looking at buying risk tolerance and risk capacity.

And and managing building portfolios, making recommendations that take those things into.

Account.

So how do we actually get a handle on what those are, and specifically, how do we fulfill our role as advisors as behavior modifiers as as behavioral coaches to help people to stick with the plan? Is is really the question a few things the the most obvious thing I had to still of Solomon, who's a who's a prophet U of T beer talk about this at a client event that I had.

MHM.

That I will not sell in a panic and that I will rebalance My Portfolio to bring it back to the the target asset allocation. So if you can get it committed, get people to commit to it in writing now it's not now. Now they're making a commitment to their to themselves. So you make a commitment with your prior self that when this happens and you always say, Oh yeah, yeah, yeah, I will have the resolve.

MHM.

Moment when you don't actually have to do it, but when the time comes to do it.

Yeah, that so.

Much.

Yeah. One of the things that you can do to help get that pre commitment in writing.

Is there's two things. One, one thing I call a lifeboat drill and one thing I call a pre mortem. Danny Kahneman talks about a pre mortem, so let's do that. First pre mortem is where you know what a post mortem is, right? So when there's a, you know there's a suspicious death and they bring in the corner and they try to figure out whether or not foul play was involved. And that's the the post mortem. You figure out what caused the person to die. How?

Why? What were the terms and conditions? A pre mortem is where you stop and you imagine something's not working.

Yeah. So you're buying this new Whiz Bang investment and you think it's going to be the next best thing, best thing since sliced bread. I I'm gonna go to my maximum 10% allocation that My Portfolio will have for one investment. And I'm gonna go right up to 10%. And this is this is I think my a core holding that I'm gonna be holding for the.

Next 20 years at least.

OK, great. You can do that.

Tell me what it looks like if that investment doesn't workout because it misses multiple earnings reports because there's been a report of corporate malfeasance because of whatever.

What will you do?

And if you can imagine.

What? What? Something going wrong?

You might say, well, you might still buy it at 10% as I say, but you might say you know what? Maybe I should only put 6% of My Portfolio into this because it's maybe I am taking more company specific risk or industry risk or political risk or what have you as a result of going all in on this. So that kind of a.

Previous position.

And you said just a year ago that you could handle this?

So what are we doing here? And I think forcing people to confront their own limitations and their own prior hubris is a good way to get them to acknowledge if, if even if you don't get them to change the behavior, you get them to acknowledge, yeah, that they're, they're changing the behavior that they pre committed to. And that's worth something.

MHM.

MHM.

No, I I totally agree. It's it's a failure of imagination on the part of clients. We all have it. It's one thing to sit there and say, oh, well, the markets go down 10 or 20% and you can nod and say, Yep, I'm aware of that. You're aware and a theoretical level, but not in a practical.

Level doing that lifeboat drill that you talked about and I've used something like that in my career. I think it allows clients a better way of visualizing what that actually looks like in dollars and cents, etc. The analogy I use is it's like staging a home. OK, you know that this is all rented furniture, rented pictures, etc.

You know you should be buying for the physical structure of the house and the the location and everything.

But because the buyers have a failure of imagination, we give in to staging. And as you say, this isn't necessarily going to stop them from indulging in that misbehavior, if you will. But it will at least give them a moment to pause and think about it. And I think that itself is a huge victory, OK?

John, we're coming to the end of our podcast. So I have a few final rapid fire questions for.

So #1 professionally, what is the most important lesson you've learned over the years? I would say, and this is going to be controversial, so brace yourself, Sam. I would say that the industry is not as independent as it purports to be. There are lots of firms that say we're independent, but one of the experiences that I've had is that I write articles and sometimes firms will say, well, you can't write that.

Well, well, well, why not?

Well.

Show I would write an article saying you've got to be looking at low cost investments because you get what you don't pay for in the words of John Bogle. And if you could, you know, reduce your cost by 80 or 90 basis points, that's another way of saying you can reduce your expected return by 80 or 90 basis points without any change in the risk that is empirically robust.

Well, we've known it for 30 years, but when you try to say it to the public, the industry, which of course makes its money by using active management, will find some excuse to not allow you to say it and and still sanctimoniously insist to the world that the that the industry is independent. So it's it's not as independent as you think it is.

Interesting.

What is 1 practical tip you would offer listeners keen on applying your insights when you?

Are speaking to your advisor.

I think you should.

Find the courage to ask for proof. So when the advisor says I think you should do.

This.

Why is a fair question and and then asking, you know, a second and a third time and and why is that? And is there evidence that supports that? So I did that with my second book Stand up to the financial services industry.

Me. I put about 30 different 30 or 35 different questions in the book to help people.

Ask those questions. It's it's a real problem here in Canada. First off, we're very polite. We don't like to ask questions, we just. But secondly, many people work with an advisor because they don't really know what questions to ask. So I I tell them what questions to ask, but then the third thing that I do is I say, and these are the answers you should be looking for. They should bind with. It won't be verbatim.

MMM.

But this is what you should look for, because people a don't wanna ask, don't know what to ask and even if they.

Passed wouldn't be able to discern if if they were being *********** in the answer they were getting, or if they were getting something which was viable and and robust. So I think for investors to have a better relationship with their advisor, no one cares more about it than than them their. It's their money they have every right to ask and they should try to hold the advisor accountable to explain what's being.

And by the way, you should also try to explain what you own, understand what you own at any rate. So why this product? Why this strategy? Help me to.

Dan.

Why? Why? Why we don't do it this way? Why don't we use that product and hopefully the advisor will be able to give you an advance with an answer that gives you comfort so that you can move forward with confidence so that you can take his or her advice next time when.

When the going gets tough.

That's a great point and I would say the corollary that you implied in there is obviously the advisor should be ready for those types of questions and have that evidence and be proactive in terms.

Providing that evidence, et cetera. So if the client isn't going to ask the questions that they're providing, the answers in the data. In any case, I think that having a more educated client or investor can only be helpful in the longer run.

We strongly agree. So the other thing that I would add if a lot of your listeners are going to be pretty smart and a lot of your advisers that listen are gonna be pretty smart. What they might want to do if they want to become more informed with regard to behavioral, behavioral, economics and and the advice that you give is you should maybe read two or three books about it if you're interested. If you're just want to read for fun.

You could you could. You could think of.

A book from Dan Ariely's predictably irrational. There are three, three more really good books that I would recommend thinking fast and slow by Daniel Kahneman, a Nobel laureate misbehaving by Richard Thaler, a Nobel laureate, and and irrational exuberance by by Robert Schiller, a Nobel Laurian. So I think if you want to read.

I know.

Books from people who who really understand personal finance and who could bring it home, and one of the things I really love about those books is these guys are really not only are they very, very smart, they're very compelling as writers. It's easy to read.

It's fun. It's sort of like a John Grisham novel. Like, it doesn't have to be really, really onerous. And if you are interested, I think it's the sort of thing that it's you can read and actually have fun reading it.

This is great and I echo all of those book recommendations that you made. They are great.

John, this has been fantastic. If people want to find out more about you or your approach or your podcast, where do they?

Go. You can send me an e-mail. I'm just in the middle of getting a a website built so I don't have a website right now. So First off, the podcast is called Make better wealth decisions.

And you can reach me via e-mail at Jade, Gooey at designed securities CA so designed with an Ed securities dot CE. I should say awesome.

Awesome, John. Thank you for joining us today on the future Ready Advisor Podcast.

Hi. Pleasure, Sam. Thanks for having.

In this episode, I talked with John, the Gooey about the optimism bias and the financial advisory industry.

My three key takeaways from this episode are #1 the optimism bias, and financial decision making. John highlighted the optimism bias as a common pitfall where individuals believe negative events such as market crashes or personal setbacks won't happen to them this mindset.

Can lead to poor financial planning and risk management, making it crucial for advisers to challenge such assumption.

#2 the challenge of setting realistic expectations, financial advisors often promise high returns to attract clients, but John emphasizes the importance of managing expectations realistically.

With lower projected returns on investments, advisors need to focus on delivering value through tax optimization, estate planning and behavioral coaching rather than chasing unrealistic performance.

#3 the role of technology and evidence based advice technology is a valuable tool in helping advisers assess risk tolerance and capacity more accurately. John advocates for a more evidence based approach to financial advising, noting that misguided beliefs in the industry, such as the reliance on past performance.

Can lead to poor decisions, he encourages. Advisers and clients alike to question assumptions and seek proof in their financial strategies.

You've been listening to the future Ready advisor. If you enjoyed the show, please leave a review on Apple Podcasts or a rating on Spotify, or share your feedback wherever you listen. Be sure to follow the podcast so you never miss an episode. For more insights on how to keep your practice future ready, visit.

Www.samsivarajan.com you can find the link on the show notes. There you'll find free tools and resources along with exclusive bonus content from these podcasts. Thanks for tuning in and I look forward to sharing more strategies with you in the next episode.