Better Personal Planning By Understanding Adam Smith

“The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.”Adam Smith, Theory of Moral Sentiments

ameliorateto make or become better, more bearable, or more satisfactory; improve.

The challenges of advising individuals is not that different than leading groups of individuals like governments.  Central planners and hired individual planners have similar incentives when working with individuals.  An advisor may attempt to rule clients like one moves chess pieces around a board forcing clients to endure more risk than is necessary to meet an objective, save more than is necessary, or purchase something that may not be of value.  Usually, this strategy is packaged as “doing the right thing” for the client.  In addition, there are many rules and situations that are far from ideal.  For example, when planning for a younger person’s retirement income, how should the advisor factor in Social Security income?  If you understand the challenges of fiat currency, is this something you factor into your planning?

I suggest we consider the quote above as a source for our answer.  While Smith is not directly addressing personal planning, the framework to recognize and address our limitations is articulated well.  In many ways, recognizing that we did not make the rules, our position is to filter options based on individual goals, and our expertise is to help the individuals make better informed decisions based on the what is known.  Our humble knowledge that as the future is revealed or individuals’ desires change, we place individuals in positions to change as quickly as life does.

When individuals hire the advisor, they are looking for answers to their challenges.  If a personal advisor does his work properly, there is never a reason to force an individual to take action.  Action, for the individual, should be clear enough.

Recognizing our strengths and limitations, hopefully, leads to greater happiness for all involved.


About Christopher Hessenflow

Christopher Hessenflow is a financial planner in the Chicago area. He works with all sorts of people who are much more interesting than he is. He enjoys his career which lends him time to think and, sometimes, be creative. Chip was born bald.
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