I heard a phrase recently: “Magazine architect”. It’s a derisive term architects use for their colleagues who design buildings that look beautiful, grace magazine covers, and win awards, but lack functionality for the tenants. The same is true for financial professionals. If you are looking for practical advice, beware hiring an artist whose goal is to be praised.
"Beautiful" financial advice is often complex, sounds sophisticated, and may be designed to generate high fees for advisors. In contrast, "practical" advice is often simple, boring, and may not sound as exciting, but it is effective in meeting an individual's financial goals. An example of practical advice is investing in low-cost index funds.
The Danger of Advice That "Sounds Good". People are often drawn to advice that sounds good because it promises a secret or a shortcut to wealth. However, this type of advice is often the most dangerous in the long run. Avoid chasing "hot" investments and instead focus on a more measured and sensible approach.
The Importance of Personalised Advice. There is no one-size-fits-all solution in finance. Financial advice that is beneficial for one person could be detrimental to another. Because of these individual differences, there is a tendency to gravitate towards advice that sounds the most intelligent, rather than what is most practical for a specific person's situation.
Advisor Incentives vs. Client Needs. There is a potential conflict of interest where financial professionals may be more motivated by their own career advancement and compensation than by the actual needs of their clients. This can lead them to recommend "beautiful" but unsuitable financial products.
The Beauty of Simplicity. Morgan Housel, reveals that his own personal finances are simple and "boring." They are not designed to win awards but are practical and effective for his family's needs. This highlights the idea that there is a certain "beauty" in practicality and simplicity.
Focus on Timeless Principles. Rather than trying to predict future market trends, which is nearly impossible, focus on the aspects of human behavior and finance that do not change. Understanding timeless principles like greed, fear, and risk will serve investors better in the long run.