#239 Transcript

Episode details

SUMMARY KEYWORDS

phonology, behavioral finance, called, new zealand, business, fraser, australia, portfolio construction, biases, people, financial planning practice, understand, bit, life insurance, run, ethics, advisor, clients, research, investment

SPEAKERS

Graham Rich, Fraser Jack, Clayton Daniel

 

Fraser Jack 

Welcome to the x y advisor podcast. A global community of financial advisors sharing and learning with one another to drive the positive evolution of financial advice. To get involved, go to x y advisor.com. Or simply download the x y advisor.

 

Clayton Daniel 

This episode is proudly sponsored by integrity your partner for life integrity recently launched an exclusive research paper to help advisors understand how to attract and retain new clients. They believe their role in the industry is bigger than just providing products they want to help create a sustainable industry. Educate clients and support advisors personally in their business. You can get a copy of the report and learn more about integrity if you visit integrity live.com.au forward slash x y

 

Fraser Jack 

Welcome back to the xy advisor podcast I’m Fraser Jack and today I’m joined by Graham rich welcome Graham kiora Fraser, how are we today? Very well. Thank you. When am I one of my fellow Kiwis coming coming at you. And in fact, you’re just one of my fellow Kiwis. One of the people who from the south of wintered Otago University, one of the people from the south of the country. I’m hoping you’re a Highlander supporter as well.

 

Graham Rich 

No mate. I’m a Crusaders supporter. And and have been from the inception of the Crusaders. So that shows how old I am I was around way before the Crusaders started.

 

Fraser Jack 

The guy there you go. Now you’re Of course running. Well, you’re the you’re the CEO, the NGO, the Dean of a organization called portfolio construction forum. 20 give us a quick overview of that.

 

Graham Rich 

Well, I should also give a quick qualification. I’ve lived in Australia for over 25 years. So I still have kids grandkids, all the family in New Zealand apart from my wife and myself, but I have a really strong affinity in the Australian marketplace. And and so going to your question portfolio construction forum is a specialist and independent provider of a whole raft of continuing education services CPD services. We call it postgraduate education content. In other words, what we don’t do is training to help individuals become financial advisors or become involved in the investment space. But once they are involved, they’ve met the regulatory requirements or the the basic education requirements. Our businesses, somewhat unique in Australia, New Zealand and we have New Zealand clients as well as Australian clients somewhat unique because we focus on a whole array of specialist content in the investment space, helping people do a better job of building quality investment portfolios, or interpreting and helping their clients understand investment portfolios, that that’s our business.

 

Fraser Jack 

Well, that’s the sort of two main areas of that business isn’t there?

 

Graham Rich 

There are we we are responsible in the Asia Pacific for a certification called certified Investment Management analyst, which is openly for the pointy heads. It’s it’s for young, young advisors who really have a deep focus on technical aspects and what it develop their skills as really strong Investment Advisors. So certified Investment Management analyst and we run a program then called the SEMA society, which is for Sema certificants. That’s quite a technical program. And we then have another special interest group called the phonology college and we may talk about phonology a little bit on the way through Fraser, but phonology is this mongrel word, half fin, behavioral finance, and half ology investor psychology. So that’s phonology it just seems to be saying two words. Which are four words, I guess. And and so phonology colleges, for those who are really keen to keep developing behavioral finance skills and investor psychology skills, so they’re better at connecting between the investing pieces and the invest or pieces, the client pieces. So those are the two things we do same as society. And phonology college are the two kind of schools that we run inside portfolio construction forum.

 

Fraser Jack 

Yeah, fantastic. And we’re probably you’re absolutely right. We will dig a little bit deeper into this phonology college, because phonology is a word Have you made this word up, didn’t you?

 

Graham Rich 

Well, I stole it. And that’s I mean, I started a business called Morningstar. Before that, it was called FPGA research. And one of the key things to understand about research is it’s essentially theft with a kind of wrapper around it. Because research is all about poking around everywhere else, gathering stuff and packaging it up and saying, here’s some research. So I started a research business in 1983, which ended up being called Morningstar when I sold it to them in 1999. And so having finished at Morningstar 2001 portfolio construction forum started and this phonology space, is a word that came from a bloke in the US called dick Wagner, who was one of the founders of the Financial Planning Association in the US. He’s passed away now a number of years, and he was always on about how do we make the concept of investment advice connect with investors? So I’m the one that came up with the idea of well, if I interpret phonology, the two words that connect with me are behavioral finance, the fin and investor psychology, they’re ology. So that’s, I made that bit up. You’re right. It’s a mongrel word, though. It’s a bit like webcast or podcast. They are all what are called portmanteau words, they’re smashing words that Microsoft is another one motel is another one of these kind of manga realized words, which come together and make it easy for Kiwis, especially instead of saying four words. We can just say one. Yeah, fantastic. Love it.

 

Fraser Jack 

Love it. Love it. Now, obviously, you mentioned you started up a business, that research business that later was purchased by Morningstar. But before that, let’s go back a bit further. You were around again, as we sort of mentioned you you grew up in New Zealand. You were one, you started your investment portfolio? Well, and certainly when it comes to products at the age of 14, it wasn’t. It wasn’t like you left school and

 

Graham Rich 

I had a I had a paper round. And so I had a significant income stream, obviously, every morning, mostly my father, I was the kid of a couple who eloped from South Africa moved to New Zealand. I was born in Auckland, and Dad, dad and mum, but dad particularly had a really strong work ethic. And got me into this paper round that I started about nine years old, 14 years old, I had an income stream and dad had his a&p agent meet with me. And I remember that distinctly because the ANP agent met with me at his request to dads with dad’s approval, dad left the room and left me to it. And I ended up buying a whole of life policy, which I I have to say I was incredibly proud of, I remember distinctly telling my mates at school, that I had a life insurance policy. I was really proud of it $50 a year. And so I started that at the age of 14, which for those of you who want to calculate it, that that out was about 1968 so I was I was pleased to have the beginning of understanding investment stuff. The fellow who sold it to me explained what was going on I remember distinctly meeting with him in our little two bedroom house. So that was my beginning experience that I think Fraser influenced my future career.

 

Fraser Jack 

Yes, absolutely. 100% agree with that the old our whole of life policy half and you know, small amount of investment in a bit of life insurance in it. And then of course when you when went to university, we sort of talked about that but then afterwards you sort of dive straight into the industry as a as a fully qualified or when I say qualified, you had a degree in in these started in financial advice industry.

 

Graham Rich 

I look i i i just did what I did. I didn’t kind of think of how significant it was. But when I look back now, I think it probably was significant because in in 1975, I was 21 years of age, I’d finished a degree at University of Otago in psychology. And I took my first job as I thought of it. I didn’t realize that I was I didn’t have a job at all. I’d started in a self employed role as a life insurance agent working under contract as a sole agent to Nara Jr. Life Insurance society. Now most people probably never heard of that now because it’s disappeared, turned out to be called a Viva. And then the life insurance part I think in Australia was bought ultimately by I’ve never been MLC. But I started as a life insurance agent. I was the first life insurance agent who had a degree working for Nora union at least. And secondly, I was by far the youngest ever employed 21 years of age. But I still think in feet and inches, Fraser, I’m six foot four. I was before I started shrinking, I guess, I’m six foot four. And I’ve, you know, always kind of looked a bit older than I really am. And, and so at 21, I kind of could hold myself reasonably well. And nobody said, well, that’s awfully young. And I got into it, thoroughly enjoyed my role and began in the financial services industry through life insurance became became a sales manager. By the time I was 24, became a South Island manager for New Zealand. By the time I was 26. National marketing manager by the time I was 27, and then left and started my own business, which is what turned out to be the Morningstar business on one side and a financial advisory firm on the other. So I’ve been my career has been and I hark back to this life insurance policy that I bought and say, you know, whatever reason I had an affinity to this stuff.

 

Fraser Jack 

Yeah, fantastic. In your career, I describe your career as something that the current xy advisor community is going through, you know, qualified, coming up coming through working for a business for some time starting their own business, they are talk to me about starting your first financial planning business.

 

Graham Rich 

In 1980, I had a national management responsibility for March. And 1980, was the beginning of the as it was called, in New Zealand, at least the investment linked life insurance, kind of movement, where life, whole life type stuff, and down and type stuff started splitting apart. And here’s the investment piece. And that really captured my imagination. I have to say it, it, I had a younger brother who worked for me in a financial planning practice that he owned. He passed away when he was 33 years old, he’d been two years in the business of running a financial planning practice in New Zealand. And he had a huge amount of life insurance, which he only would have taken as a consequence of the role that I got him involved with. So I want to put a stake in the ground and say, I have a fundamental commitment to the role that life insurance plays. And I have personal experience in the fact that my brother’s wife raised a four year old and a three, four year old and a two year old through without having to work because of the significant amount of life insurance yet. So let me put that stake in the ground first. But not withstanding that conviction of the role that life insurance plays my passion was around investment stuff. And so in the development of this unbundled life insurance movement, some in the US called it universal life. unbundled is what it was ending up being called in New Zealand To be honest, I don’t know what it was called in Australia. But it’s called unbundled. Yeah, I’ve

 

Fraser Jack 

heard it described here as unbundled as well.

 

Graham Rich 

Yeah. And that was the splitting up of life insurance into the component parts. And in many respects, that was the beginning of the demise of the traditional life insurance agent. And so in the very early 80s 8182, I had a national marketing role as part of what I had responsibility for. For Northridge. I was still young back and in my mid 20s. And, and so I went on a study tour to the US for five weeks, looking at trends in the development of, of financial services, universal life, investment advice, and so on. I became a member of what was then called the International Association for financial planning the pre the successor to the Financial Planning Association, as it’s now called in the US as well as here. I started the Financial Planning Association of New Zealand, which happened to be called i fP and I’m still a life member of that, I guess you become a life member for life. But that that’s what really started my interest in The financial planning or the financial advice or the investment advice world. So I came back to Norwich and said, this is the way we ought to evolve. And the fellow who was the head at the time of Norwich was a Scot. He since passed away, so I couldn’t be more rude, probably. But he could not see what I was on about. Because my argument was, we ought to stop having life agents and start having financial advisors. He was like, No, no, we don’t do that. So literally, I said, in 1982. Well, in that case, I’ll do it myself. And so I left Norwich, in at the end of 1982, and the beginning of 1983, I started a business called financial planning group in Christchurch. And it was, as it happened, the first financial planning, independent financial planning practice in New Zealand, there were financial planning practices in Australia at the time, but very few, like on the one hand, you could count them. And so I started the first financial planning practice. And the rest kind of is history, the few few other businesses I’ve started and sold, including that financial planning practice, I’m super proud to say Fraser, sorry for rambling on. But that financial planning practice is still in existence today, after me having sold it, and I’m really, really proud of that, because it shows the longevity of the financial advice, profession, if you like from from my start of 83.

 

Fraser Jack 

Yeah, fantastic. And it’s always nice when somebody says it can’t be done. And then you did it and do it. And and it’s and it’s lasted a long time as well. So back then you also started the research business. And this is the sort of, to me, this is a bit of a trend you’ve got, you know, the financial planning the belly to belly conversations with clients, you’re still helping in that way, with what you’re doing now. But also you had this research business for the as you say that the the pointy heads?

 

Graham Rich 

Yeah, I started a business. So financial planning group was one business I started and just to show you that, that, you know, I perhaps sound cocky. When you look back at the time, you never were cocky. So I started on the first of April 1983, because I thought it was a joke. And filed. That’s what I’d say. I started at the same time, a company that was called FPG financial planning group research, and that was the research business. And those two businesses were the first two businesses I started. In due course, I I started three or four other businesses on the way through, but every one of those businesses was about providing support services, to financial advice, and to financial advisors. In due course, I sold the financial advisory business because of what I perceived as the conflict of running an advisory business as well as offering services to other financial advisory businesses. So the research business is what won out. And that’s essentially because my passion was around service provision to advisors, training, advisors, and so on and so forth. So there’s a whole bunch of other things I started little little businesses or grow prospered, and I sold and they carried on.

 

Fraser Jack 

Yep, fantastic. And tell us about your move to Australia then.

 

Graham Rich 

So the research business prospered to the point that in 19, about 1988 89 through 1990, I extended the research business and began had some staff in Australia. So I was traveling a lot from New Zealand to Australia growing the research business. grew it to the point that I ended up moving here in the mid 1990s. And, and kind of flip the business inside out. So I sold off the two or three other little businesses I’d started and advisor training business and advisor software business. I sold those off, they are both still operating they absorbed into other bigger businesses. I’d sold the advisor the advice business quite a bit earlier than that. So here this research business was my passion. By mid 90s. It had grown in Australia to the point that I decide to move over here 95 moved over here and flipped it so the Australian Business became the principal corporate with the subsidiaries being New Zealand based subsidiaries. And then by the end of the 90s 1999. Right in fact before the.com crash in the US. I sold the business first of April as it turned out 1999 To Morningstar us and the Australian Business of FPGA research changed its name the Morningstar Australasia for Australia and New Zealand, and was the first international expansion of Morningstar us. So they had me as an experiment. I certainly had them as an experiment as well. And we worked our way through trying to establish a business that was the Morningstar way of doing things, but built on what FPGA research had evolved by that point for 17 or 18 years.

 

Fraser Jack 

Yeah, fantastic. Never. This is really fascinating, because you as you said that the the Morningstar business was only in the US at the time. Well, how did you then find such a business to come and buy your, you know, your little research business over the other side of the world when that wasn’t something that they did?

 

Graham Rich 

Well, that’s that’s another interesting question. There’s a lady called Ruth Richardson, and some people may have heard of her, Ruth Richardson was what Australians would call the treasurer for the New Zealand government. She was what New Zealand’s call the Minister of Finance. And she happened to have her electorate in the Christchurch area. And when she retired from politics, I asked her if she would be my chair. And so I formed an independent board of directors. I didn’t need to I own the business. But I formed an independent board of directors. That Board of Directors was chaired by Ruth Richardson. And we set up a strategic plan and the strategic plan recognized that we were not going to succeed as a research business in New Zealand without a strong connection, externally and globally. And so that’s what if you like precipitated me moving across to Australia, but the the agenda and moving to Australia was to grow Australia to the point that the Australia corporate with a New Zealand subsidiary was attractive to internationals. So I, I visited every year to the US from 1983 on 92. In fact, on every year, I spent time in the US, and always about September. So I had built up a relationship with three or four fund research companies in the US, Lipper was one. There was another firm called value track. There was another firm called Standard and Poor’s some of you may have heard of, and this firm called Morningstar. So I went and did a special visit to the US to go and pitch to these four groups to say, here’s what we do. I reckon this opportunity because we we own the research space in fund research in Australia and New Zealand FPGA research, we’ve got 10,000 funds on our database, blah, blah, blah, blah, blah. What about talking to us? Well, Morningstar said no. And then maybe three months later, they came back and said, actually, can we talk? And that took maybe six or nine months. And eventually, the deal was done, and took effect when April 99. So it was a long protracted process that began with me pitching to four different groups. Well, fantastic. So

 

Fraser Jack 

that was a lot of hard work. It wasn’t just about the pitch. It was about the advisory board. It was about setting up some some governance and structure and there was a lot of a lot of relationships leaning on the relationships that you’d made in the US. Look,

 

Graham Rich 

honestly, I I don’t I very rarely talk about this. So it’s, it’s a bit of a privilege. Thank you, Fraser. Next why but it’s also exhausting, I think about because I it was it was a huge amount of work. But I kind of had my eye on the goal. And I had this lady called Ruth Richardson who became it became a joint venture 51% owned by me for my business and 49% owned by Morningstar Inc. We formed this new company, Morningstar Australasia, which was owned as more or less 5050. And the independent chair was Ruth Richardson. So she was kind of she was my mentor, and a fearless, whip cracker. About half my height, maybe five foot and I’m six foot four. And so it needed it needed her drive. I’m I’m a driven character, but the value of having an external director and director set is immeasurable. It was exhausting. But, but there we go. That was that was

 

Fraser Jack 

certainly the great outcome. So I think thanks for sharing that story. As we sort of fast forward now, I guess to the business that you’ve got now, we mentioned at the beginning, the portfolio construction form and the two major parts to the SEMA crma Society and also the phonology college. Let’s let’s dive into the phonology, college side joining give us a bit of an overview of what that is and how that works. Sure,

 

Graham Rich 

if I may phrase it, let me take half a second to give some context of that so so the phonology college is the special interest group that is focused particularly on the individual investor, individual client facing financial advisor community. And, and even more those who are financial advisors who are actively interested in growing their knowledge and this skills and their competence in client engagement, if you like in the investment space. Now, that isn’t all that surprising for me to be interested in that if you kind of wind back to the the two or three comments I’ve made on the way through I’ve got a psychology degree, I started a financial advisory firm, I started as a financial advisor, I mean that it’s kind of like you can take take the boy out of that, but you can’t take that out of the boy and so I have a deep seated passion around the role that financial advice plays I have no parents openly of individual of investors, individual Australians trying to do their own thing in the investment world. And and I also have a really strong conviction around the role that professional management of investment plays. And that’s the bit I think that the ANP policy connected me with my time with Norwich connected me with this unbundling connected me with. So if you if you kind of draw this thread through where I’ve been the end of that, as much as I say, I love the technicalities, and I focus on investment stuff. And so the SEMA society is a really important piece of what we do. In a lot of ways, my love of the role that financial advice plays is what has backed into the establishment of the phonology college. So the phonology colleges, this bundle of support services for financial advisors who are focused on investment to help them do a better job connecting investing with investors. That’s what phonology college is all about.

 

Fraser Jack 

Yeah, fantastic. And if we break down, as we mentioned before, it’s a it’s a word that’s made up of two things. Behavioral Finance being the first part, talk to me about how you were How would you describe that to most?

 

Graham Rich 

Well, so at the heart of financial advice is core principles of economics, core principles of Finance. And finance, in and of itself, has got this set of principles that are based around what you could call conventional finance, or classical finance, some people would call it and conventional finance and classical finance essentially says everybody is rational, and everybody behaves in a rational way. And that’s the whole basis of finance theory. But what we all know intuitively, if not through formal training is actually normal, is not rational, normal is completely irrational. And that is what behavioral finance is about. But behavioral finance, by itself, is, in fact, a finance discipline that helps you understand what are the biases that people have. And we describe five types of biases, we might touch on that in a bit. But what are the biases that people have that move them away from being rational, and everybody has them, I have them, you have them. And there’s five broad types of biases. And then those biases are what ended up informing the beliefs that we have. And and Fraser, you and I haven’t talked, but I suspect some of our beliefs that we have, you have an I have will have a commonality because of the culture of New Zealand, influencing how we grew up. And then some of our biases will be influenced further by the culture of Australia because we’re both lived here for a good period of time. So understanding our biases is critical to understanding how behavioral finance influences what we do, and then ultimately what we believe. But behavioral finance by itself is just more theory is just more detail in the finance discipline. You’ve then got to turn that theory into practical effect and that’s what investor psychology is about. But let me stop there.

 

Fraser Jack 

Yeah, fair enough. Well, we’ll get into their Visser that their practical, as I always say, you know, the plan itself has nothing If it’s not implemented so that we’ll get into that in a second, let’s dig deep into these biases, because I also love them and follow them as well. Let’s start with the first one of somebody’s values.

 

Graham Rich 

Hmm, yeah, yeah, yeah, well, we’ve categorized biases into this group of five, we call them the Big Five bias types, as distinct from the Big Five personalities, the big five bias types that ultimately affect our personality. They ultimately affect our beliefs, and values, as the first one is really our individual judgment of purpose of what we hold deeply in life. And it’s influenced by our personal ethics. And doesn’t there’s an ability to be able to frame that up and to be able to understand what are the values we hold deeply. And and my encouragement would be to all of our listeners is to take to pause and take time to formally understand what values you hold deeply. And there are lots of tools and services that will help appraise that we we provide an example of that, but but there’s a whole raft of things that can help us understand what are the values we hold, and, and maybe some of our listeners don’t yet have kids don’t yet have family, but I reckon unless each of us have clarity around the values we hold deeply, our ability be able to influence people around us for good, is impaired, and especially if we’ve got kids bringing kids up, I think knowing our own values is really critical. And then ultimately, in terms of giving advice, knowing our own values is critical, before we can understand the values of our clients. Yeah, I

 

Fraser Jack 

agree, I think understanding how you can elicit your own values is really important. It also helps you be able to, you know, think about what your client’s values might be. And I always, I love the saying that, you know, you sort of you don’t really know if you’re providing value to your client and to the understand what their values are, and then you can relate back to the business. And and the next one is you sort of meant that mentioned that that is influenced by was around ethics.

 

Graham Rich 

Yeah. And of course, in the fussier world, we we have this harping on about ethics. And that’s not unreasonable at all. You know, there’s a reason why the in conclusion with fussier, whatever we think of it says, we need to have a core foundation of understanding of ethics. ethics is is an interesting topic. It’s it’s kind of moral principles of right and wrong. And those two are able to be dissected and learned and understood, because they’re different for different people, that framework is different for different people. And that is a biased type in the sense that some people have an ethical framework that isn’t necessarily wrong. It’s just different to the ethical framework that others have. And so those differences in ethical framework are going to end up biasing the way we end up concluding our belief set. So values are an influence. They are, in turn influenced by ethics, ethics is another influence set as another bias type.

 

Fraser Jack 

Yeah, exactly. And I was I think of ethics is more of a group thing as well. These that, you know, that the the ethics that’s acceptable, and financial advisors, is the ethics of the group not necessarily thinks of the individual, whereas values can be very individualized.

 

Graham Rich 

Sure, sure. But you nonetheless, you know, that the ethical foundation needs to be owned by the individual and then expressed in a group environment where you’ve got shared values and shared ethics. That’s where you’ll coalesce In fact, there’s a there’s a term I often repeat, and that is that, you know, community is nothing other than and it’s a big nothing but nothing other than a group of people who have shared values and shared ethics. And if you have shared values and shared ethics, you’ll become a collective community. So I would suspect that x y is not just about age, it’s also about shared values, shared ethics. And that’s that’s a core piece, a core tenet of why this group that you’re an important part of our collect together.

 

Fraser Jack 

Yep, I couldn’t agree more. Takes takes us to the third bias, which is a as you sort of mentioned, cultural,

 

Graham Rich 

I touched on that a little bit. So values, biases, ethical biases, cultural biases. I mean, we know I spent time A number of years ago running study tours as part of portfolio construction for them to the BRIC economies as they were emerging in the in the Early 2000s, Brazil, Russia, India, China, and the cultural influences on for example, the Chinese population compared to the Russian population compared to the Indian population committed the Brazilian population quite different. And similarly, when you synthesize the multi cultural environment, that is Australia, there are cultural threads, that mean that some of those inside Australia, for example, or inside New Zealand, for example, some of those individuals have a certain bias type from their cultural heritage from the, from the the immigrants who came to Australia came to New Zealand, and some have another. And so understanding those cultural biases is is really critical. And, and for those of you who never lived in another country, you might not fully appreciate that. If you haven’t integrated a lot with other cultures, other ethnic groups, you might not appreciate that a lot, that the little bit that I can understand is coming from New Zealand to Australia and seeing the cultural differences because there are significant cultural differences. I do a lot of work with the wayside chapel in Australia. And we have a very strong indigenous program as a part of that. And you look at these cultural differences. They are significant, they create bias. bias is not a word that is a bad word. It’s simply saying, let’s recognize that we have different perspectives that in that making us different, and that’s part of the tapestry of life. So yes, cultural biases.

 

Fraser Jack 

Yeah, absolutely. In Australia being a melting pot of different cultures, it’s really important one. So number four is cognitive. So essentially, it’s the, you know, the financial literacy conversation, how much does my client know and understand? Where am I going to pitch this? Where am I going to enter to the compensation

 

Graham Rich 

there’s a really, and most people think of behavioral finance, if I could suggest Fraser as just being about cognitive biases. So there’s, there’s identified something like 160 cognitive biases, and that’s just how we’re kind of wired as individuals how our brain is, is wired up. And and the different perceptions we have the way we make judgments the way we reason things. And so you know, Fraser Jack versus Graham rich will have different cognitive influences or biases in just the way we go about making decisions. And, and so understanding those cognitive biases is critical. And we we, you know, hear lots of things, talking about the different biases that our cognitive biases, what I’m putting to our listeners today is that cognitive biases are only one type of bias in behavioral finance values, ethical, cultural, and cognitive. And the last one of emotional biases are all equally important, but affect how we make decisions in quite different ways and then meld together to make our personality.

 

Fraser Jack 

Oh, yeah. And you mentioned the last one being emotional, which is generally how a lot of people start making decisions or that first initial gut idea thought and of course, that comes back to a lot of the past and history and whether they’ve been hurt before injured or, or they, you know, all those types of things. so emotional. We know that people make decisions emotionally and when it comes to financial decision, they should be making them rationally.

 

Graham Rich 

Yeah, look, absolutely they there’s a saying, I remember from, I don’t know where, but years back, all of us make decisions based on emotion. But then ultimately, backed up with logic, backed up with some reasoning backed up with some cognitive process. And that’s why there’s this term called buyer’s remorse, because you buy on emotion. That’s why the, you know, the, the chocolates are by the counter, when you go to checkout because you make the emotional decision, but then you regret it later. Because you’ve kind of thought it through. And so, you know, I made that decision on an emotional basis. And so our role in giving financial advice needs to recognize these five types of biases and how they influence because we have a duty to understand not only our own biases, including our own emotional makeup and the way we emote, I mean, I’m, I can kind of run at the mouth because the listeners haven’t figured. But we need to figure out how we individually emote and how our clients, emote, and react and then how that emotional stuff connects with the logic stuff. So you’re completely correct. When you say crazy that the decisions that people make based on emotion, our clients amongst them, and how we as advisors, or you as advisors look to influence your clients to make decisions needs to be a measure of emotional relevance, but also logic relevance, cognitive relevance,

 

Fraser Jack 

yep, fantastic. And then in sometimes people make emotional decisions, and then they they invent cognitive information to back it, just to make them feel better. But that probably leads us directly into the the Mr. Psychology part of the equation, when we start talking about the, you know, the cost psychology, actually now believing in that what we’re doing is the right thing thing for them and implementing it and getting getting involved in that process now that they understand why they’re doing what they’re doing.

 

Graham Rich 

Yeah, I like to say that, that conventional finance we talked about is what investors should do. That’s the theory. Behavioral Finance is what investors actually do. That’s the kind of normal person with all these biases we’ve talked about, for example, investor psychology is about what investors could do with some coaching with some behavior change, that is appropriate behavior change, it’s, it’s helping take the behavioral finance and turn it into a practical outcome of here are the things that you need to change, here are the consequences if you don’t change. So it’s, it’s the engagement relationship, it’s the practical application of conventional finance and behavioral finance, in the relationship with the client. And that’s why I really like this notion of phonology being part behavioral finance is having competence around the core knowledge pieces, those five bias types, and so on, building up your knowledge there, but also building up your skill in being able to engage with clients through that. Investor psychology, set of activities through skills development in engaging with clients and understanding yourself. So this is the sets and reps

 

Fraser Jack 

conversation, right? The actual doing the work creating new habits, forming new habits becoming actually transforming into something different.

 

Graham Rich 

That’s right, in a in a in a maybe physical activity, since it’s kind of understanding eg, what is lactic acid? And how does that how what, you know, how does lactic acid form? Yeah, so that’s kind of the behavioral finance side. And then the investor psychology side is now I need to know how to call down how to manage my behavior in my exercise regime. So I cope with lactic acid, I know what it is that’s coming. And I know how to cope with it and manage it. I know how to manage my behavior. So it’s, that’s why the two are critical. If all we do is learn behavioral finance stuff, all we’ve got is a head pack full of our now I understand this five bars types. Well, what the hell does that mean, when it comes to your practicing? Well, you know, is about lactic acid, you don’t know about how to actually manage it in a practical sense.

 

Fraser Jack 

Yeah. Fantastic. So in, in keeping with that theme, we’ve kind of just described the theory behind what the phonology colleges, but the practical side of it is broken down into sort of, you’ve got sort of six main parts of that as well. So let’s in the theory of exactly what we were just saying, let’s talk about the 16 parts of that so that you sort of start with a few webinars or zoom in as I think you’d like to call them.

 

Graham Rich 

Yeah. I like kind of quirky words. And so we don’t we don’t have webinars, we have seminars. Yeah. And oh, it started zooming with with the, okay, Zoomer. And so the phonology college, Fraser, is a program that’s got a whole array of different tools and services and courses and shorter education pieces, longer education pieces, and it starts with a self assessment that is complimentary, called the phonology benchmarking indices, or the FBI. And that’s shows kind of how quickly I am because the guy who heads the FBI research I call agent Hampshire. His name’s Rob, but I like calling him agent Hampshire, because he’s in charge of the FBI. And phonology benchmarking indices is a self assessment tool to allow, it’s only accessible by practicing financial advisors. And it’s designed to help a financial advisor understand the gaps in a sense of their knowledge through self assessment, across a whole array of issues in the phonology, space, behavioral finance, investor psychology space, so it’s a self assessment tool that allows financial advisors to say okay, let me get a handle on where I’m at at the moment. And then it ends up mapping to Subsequent suggestions for continuing education personal professional development in the phonology space. So inside phonology, college is this array of things, you can access those things without being part of an ology college. But to get the composite value out of it, the phonology benchmarking indices is the framework that allows you to capitalize and maximise on what’s inside phonology college. And then there’s a whole bunch of things that you only get if you’ve done the FBI, including complimentary zoom and as and such like that. Building the special interest group engagement building the community to use the word I had before in the phonology space.

 

Fraser Jack 

Yep, and Desi. I do I do love quirky words as well. By the way, I think the others m&s is a great thing, right for for exumas. Wise him as baby boomers. Thank you. Now the with the FBI, we might get into a little bit more in a second, but I wanted to touch on the fact that you’ve got some accreditations in there, as well as a physical summit.

 

Graham Rich 

We do. The way portfolio construction Forum has evolved all of its programs is to distinguish between a set of hybrid programs Now, a lot of a lot of organizations, universities, etc. Run hybrid programs. Now, the hybrid programs, the form runs are a little bit different in the sense that they are designed to be an in studio audience. So every program we run has, in effect, a TV studio, we have an in studio audience, and then we have a whole array of connected boardrooms or groups. So it tends to be our lowest preference to have those involved with our hybrid programs sitting in their own office by themselves. That doesn’t foster community, it doesn’t foster the kind of interaction that’s necessary. So we have a Sydney based studio, which can hold a couple of 100 people. And then we have a set of board rooms that we connect people with. And some of them are advisory groups who say, okay, we’re in Port Macquarie, we’re in Cannes, we’re in, you know, in New Zealand, we’ve got a group in Singapore who now meet. And they collect together in a boardroom or in an office, office room with somewhere between half a dozen and 10, or 12. There’s two or three of these remote groups that have had 20 or 30 people in a hotel room, in a kind of seminar room. And, and so that’s how we run a hybrid program. So I really encourage any of you participating in what we call phonology summit. to not think of it if you’re not able to attend the studio, as something that you’re going to be stuck away in your own office, but rather something that we are taking active steps to make sure you are part of a small group indirection session. So that’s the hybrid programs we run. Then we have some zooming hours, which are in fact, where you could meet as a group, but they’re just a short two hour burst. We run those once a month. And so the phonology, zoom in ours, then we have some courses that are individual self study. So one of them we call B phi and practice so B phi is the short term for behavioral finance. It’s kind of separated out the behavioral finance piece. So we have about a 15 hour or so, B phi and practice program. We have another program that’s investor psychology and practice and investor psychology and practices got a small amount of lecture stuff and a majority of stuff is masterclass activity. So that’s that’s kind of a quick burst across what’s inside phonology college.

 

Fraser Jack 

Yeah, fantastic. Now let’s get into the FBI piece of it. Why is why is benchmarking such an important piece of this puzzle? Well,

 

Graham Rich 

one of the things phrase that is implicit but ends up not being explicit in for example, all the regulatory requirements, the setting out of a learning plan, an education plan, it’s all very well you just as an adviser saying, Okay, well, in the next period of time, I’m going to pack this, this, this and this, I think I’ll do that. I’ll go to three conferences. I’ll do this. I’ll do that. I’ll do the next thing. But how do you know they actually fit with what your gaps are? Yes, you want to focus on some things that are interesting, but you also want to make sure that you manage it. exposed weaknesses known weaknesses? Or alternatively, that you are overtly disclosing This is an area I’m weakened, but how do you know that you’re weak? How do you know you’re strong? How do you have this, it’s like a fitness test. It’s like going for a for a med, it’s like going to the Institute of Sport you get in. But before you get in, or you go to the army before you get it, they’re gonna have a whole set of tests, brain scans, and blah, blah, blah, to say, Okay, let’s benchmark were you up to compared to what we need to get to where we want to go. And in a sense, it’s practicing what the advisor preaches by saying, Well, how much are you going to invest in yourself, benchmarking yourself against best practice across a whole array of things? That’s what the phonology benchmarking indices are about? It’s it and I really like it called the FBI. I really like the FBI, because it is doing the deep investigation into, okay, where

 

Clayton Daniel 

are you?

 

Graham Rich 

What’s your status? Where are your weaknesses? Where are your strengths? What are your gaps, and then helping you figure out, Okay, what are the things you need to do to backfill and to set out a learning plan that’s got some structure to it, rather than just sort of some guesswork or some character in the licensee that says, I reckon you could do this, that and the next thing, it’s a bit weak? Well, what’s the proof? What’s the evidence that shows that’s where you’re weak? That’s where you’re strong. That’s what the FBI does. Yeah. Fantastic. So

 

Fraser Jack 

in normal CBD world, it’s around saying, oh, let’s set up a plan for everybody. But the API is really designed that set up an individualized learning plan that that is completely structured to where that person is at the time.

 

Graham Rich 

Well, that’s right. And then the nice cherry on the top, Fraser is you get some CPD points for doing the FBI, so you kind of can get which the forum manages a CPD program. And so it means you can get CPD for learning how to get CPD. So I shouldn’t say that too loud. But it’s totally legitimate. You are self assessment is is a valid activity in learning terms. So you get CPD for doing an assessment

 

Fraser Jack 

and testing and so after the assessment, then you can focus on the areas that you’re going to grow the most. There, you mentioned that, that you do look after CPD as well how does that work?

 

Graham Rich 

So portfolio construction forum manages a curriculum of content, we’ve talked about that. And we curated into a whole set of different programs. We’ve kind of talked about that, that ends up with the SEMA society and the phonology college. But ultimately, there’s an absolutely fundamental requirement for everybody to both have CPD hours tracked. But there’s also a passion that people have to see, well, how am I going? How much have I done here? How much have I done there? It’s the same as you know, the rugby players or the footy players having this little bleeper on the back of the neck in New Jersey, not embedded, that they run around when it says what you’ve run here, you run it? Well, that’s the CPD thing. So we have an accreditation program it’s connected with, we have a team of people who manage accreditation, the Financial Planning Association recognize it. We have when we manage accreditation, we manage it across 20 different designations that’s unique. I’m not aware of any other organization that map’s one accreditation learning activity to 20 different designations be that IFA, FPA SMSF Association, persea, asik, the whole shebang, financial markets authority in New Zealand. I’d be like the way I’m keeping on plugging New Zealand on the way through this. I want to I want to get some more x y members in New Zealand for you.

 

Fraser Jack 

Let’s do it. Let’s do

 

Graham Rich 

so we’ve got we’ve got a battle of New Zealanders who come to phonology college, so we should tell them about this. Anyway, we manage that accreditation, and then it drops into a reporting portal called my C. And inside my see it’s got your learning plan. It’s got all your stuff, all the stuff you’ve done, you can add your own content in there if you want. And then if you want to export it to another thing that your licensee says you must report it into this or that, but you’ve got managed for you your own CPD accreditation record. You’ve you’ve put in your own content if you want to manually you’ve got content from the forum content from phonology, college content from our partners who are education partners. So there’s a whole raft of fun companies and such like who run their own programs that we accredit. It cross links to FBA if you’re a member of FBA, and you need to report to them. So that’s called my CV. So a core part of what we do is accreditation management. And that’s very different. From our if you like education content that we run that is our own like is an inside phonology college.

 

Fraser Jack 

Yeah Fantastic. Well there’s a lot going on obviously. What have you got coming up though? What’s what any plans or changes for the future?

 

Graham Rich 

Look after all this talk I was thinking Hannah rest for a while. We have we’ve got two or three things we run a monthly zoom and our next one is 25th of June. Happy to tell you what that is. It’s got some more phonology content in it. We’ve got a fella called Herman Brody. He’s an exceptional communicator based out of Birmingham in the UK. I’ve heard doesn’t listen to this, but you wouldn’t think that much came out of Birmingham. Although How many of you games? Yeah, uh, yeah, Birmingham. netball was there and also wasn’t the Peaky Blinders. Has anybody ever seen that? Sorry. This is just amazing. I think that was up in the Birmingham area was in

 

Fraser Jack 

Birmingham. You’re

 

Graham Rich 

anyway, Herrmann is not at all like the bloke from Peaky Blinders. He is an exceptional communicator and has got a specialty in behavioral finance. So he is the he is the lecturer for the beefier and practice learning programs certificate program. So he’s one of the presenters. And then we’ve got Professor Ron Byrd is another. So those that’s the next zoom m&r in August, we have a program that is called strategies conference, which is investment strategies. In October, we have phonology summit, the 16th of October, I believe it is. So we have a constant array of things just rolling through focused on some aspect of investing a chunk of it, phonology, some of it investment markets. We run a program in February called market summit, which is a hybrid program. We run a program called research roundtable every month, which is a deep dive into an investment strategy. So there’s a lot of stuff going on frozen.

 

Fraser Jack 

Yeah, there certainly is an appeal. When I find a bit more about that at all, what’s the best way for them to find out,

 

Graham Rich 

we have a URL that ends with.edu.au or in New zealand.ac dot n Zed, so academic dot New Zealand or education dot Australia. So it’s portfolio construction forum, big long word. The word forum is in there, it makes it longer, but it’s meant to convey community. So portfolio construction forum.edu.au or.ac dot eight Zed. That’s how you find out stuff. Or, you know, bang me, bang me an email. I’m very happy to respond to anybody. I’m on LinkedIn, LinkedIn with me, very happy. To be honest, LinkedIn is where I connect with most people in a quick, quick message. So find me on LinkedIn, Graham rich, and connect with me and I’ll let you know what the stuff is. That’s perhaps easy. We put out a lot of stuff through LinkedIn. And yeah, that’s that’s the stuff Fraser.

 

Fraser Jack 

Oh, fantastic. Thank you very much, Greg, for coming on telling us your story and all of the amazing work you’re doing at the moment and continue to do so I

 

Graham Rich 

really appreciate it. Fraser, I’m delighted. I mean, I I know I do talk a bit but I love what I do. And I really, really enjoy engagement with the advisor community in whatever way. We’ve got a few kind of quirky, discreet a distinct ways we do things but delighted to be connecting with your audience. And thanks so much for the invitation.

 

Fraser Jack 

Thank you. Well, there you have it another episode of the Expert Advisor podcast. I’m Fraser Jack, and I’m joined by Emily Blanche, get I am Hey, Fraser. How’s it going on? Wonderful, thank you for asking that I feel this is a good time of the week, we do the shout outs and and we get to chat out some really cool stuff that’s going on in the community. So let’s do it.

 

 

Let’s do it. Okay, today’s show that shout out I should say goes to the ethics committee. So they have put together a new determination. So it was around a couple who have separated but have an SMSF. And is the advisor still able to be an advisor for both of the couples as acting for the SMSF. So quite a bit of background. They really went into detail and really died, dissected this ethical situation and came up with their determination. And I really enjoyed this one because this is a topic that comes up quite regularly on the platform is how can you handle those situations when you have a couple that are separating? So yep, shout out to the ethics committee. And just a reminder to anyone who is facing an ethical dilemma, you can go to X Y advisor.com forward slash ethics and submit that ethics dilemma and get a peer reviewed determination to help you guide your direction and provide some support. So shout out to the ethics committee. And if you are facing ethical dilemma, highly recommend jumping on and seeking some help.

 

Fraser Jack 

Fantastic and if you’re interested in finding out about the results of that jump on again, have a look and there’ll be more results posted as they come out.

You can get a transcript of this podcast here