For most financial advisors, the “ideal” client is one who simply delegates all decisions to the financial advisor. Delegator clients tend to allow the advisor to manage everything, and do so in a manner that lets the advisor’s expertise really shape the client’s financial outcomes.
Yet a new research study on delegation suggests that in reality, clients may not be delegating to advisors simply to let them deliver their expertise as efficiently as possible. Nor is it simply about delegating to save the time it would otherwise take to manage their own financial affairs. Instead, it turns out that the primary reason we delegate is so that we can absolve ourselves of the guilt and responsibility for a bad outcome. In other words, it’s all about having someone else to blame – i.e., the advisor.
However, from the advisor’s perspective, this is not necessarily a good thing. Because especially when it comes to managing a portfolio – or aiding clients with a goal that relies on market returns – the reality is that market outcomes, and the inevitable bear market that arises from time to time, is entirely outside the advisor’s control. And woe to the advisor who takes responsibility for bear markets they can’t necessarily avoid.
Of course, the reality is that the buck doesn’t have to stop with the financial advisor. In fact, whether it’s adopting a passive approach and blaming “the markets” themselves for the outcome, or hiring a third-party asset manager (whether as a mutual fund manager or a separately managed account) who can then be fired if results are poor, financial advisors have already adopted a wide range of approaches to avoid – or at least diffuse – the responsibility and blame for an unfortunate financial outcome.
Nonetheless, the reality remains that delegation may be less about finding expertise, and more about simply finding someone with the authority to accept blame and responsibility. Which suggests that financial advisors might even consider refining their marketing message, if the goal is to appeal to delegators, and recognizing the role we play in taking on at least some of the weight of responsibility. As long as the advisor remains cognizant of where to draw the line, to avoid being outright blamed, fired, or even sued, when the next bear market comes along!
