Several of the many famous lines from Francis Ford Coppola's iconic film "The Godfather" relate to the idea that business needs often demand ugly personal actions. This concept is actually attributed to Otto Berman, an accountant for organized crime figures nearly a century ago who was killed during an attempted hit by Lucky Luciano on Dutch Schultz.
So when the Consigliere (Robert Duvall) thinks the Godfather's (Marlon Brando's) oldest son Sonny (James Caan) is acting rashly, he says: "This is business, not personal." When the youngest son and future Godfather Michael (Al Pacino) insists that his older brother has it wrong: "It's not personal, Sonny. It's strictly business."
Another mobster (Al Lettieri) justifies the Godfather's attempted murder similarly: "I am sorry. What happened to your father was business. I have much respect for your father. But your father, his thinking is old-fashioned. You must understand why I had to do that." And when the traitor Tessio (Abe Vigoda) recognizes that he has been made and will be executed, he asks that a message concerning his betrayal be sent to the new young Godfather. "Tell Mike it was only business. I always liked him."
But in Nora and Delia Ephron's romantic comedy "You've Got Mail," when Kathleen Kelly (Meg Ryan) gets that same excuse ("It wasn't personal") from Joe Fox (Tom Hanks) for putting her store out of business, she offers a brilliant rejoinder. "What is that supposed to mean? I'm so sick of that. All that means is that it wasn't personal to you. But it was personal to me. It's personal to a lot of people. And what is so wrong with being personal anyway? … Because whatever else anything is, it ought to begin by being personal."
Whatever else anything is, it ought to begin by being personal. And so it should, especially when it comes to financial advice. Truly personal advice meets clients where they actually are rather than where they say they are, where we assume them to be, where some hypothetical clients in that situation might be, or where business demands might otherwise wish them to be.
For example, research discloses that clients are frequently more risk-averse than they say or than our (often cursory) risk tolerance questionnaires and models reveal. Perhaps worse, risk tolerance isn't stable over time; it tends to change when things get rocky. Every advisor with even a modicum of experience has had clients with portfolios with which they were very satisfied and which were appropriately aggressive, provided sufficient liquidity and demonstrated adequate diversification — but only until they weren't anymore.
Truly personal advice will try to weigh what is said, what is meant, and how those things may change over time in providing financial services. That's an impossible task, of course, but one which needs to be attempted anyway and routinely revisited.
Not Always Best
Considering a broader scenario may make things clearer. As I have noted many times, most recently just last month, retirees should use guaranteed income vehicles much more often than they do. As the great Peter Bernstein made clear, when the R-squared of a portfolio is less than 1.00, the key and controlling factor is the consequence of being wrong. Thus the potential of being destitute and vulnerable at the worst possible time should control the retirement planning process.
"Best practice" demands we advocate for more guaranteed income solutions. And so we should. But it's also clear that most clients won't go for it. They generally prefer near-term control and opportunity to a longer-term guarantee that they won't outlive their money.
Instead, by far the most popular retirement income model calls for systematic withdrawals from portfolios, the most famous expression of which is the controversial "4% rule," which sets that figure, adjusted for inflation, as what is alleged to be a "safe" annual withdrawal rate. The idea that 4% annual retirement withdrawals, adjusted for inflation, are anything like "safe" is obviously false, of course, even if and when retirees manage themselves, their investments and their spending well (which is hardly a sure thing).
