Managing wealth through a microscope not a telescope

David Kitai  00:00:11 

Hello and welcome to a very special episode of WP TV. My name is David Kitai. Senior Editor at WP. In June, we hosted the 10th annual WP awards celebrating the best and brightest in the wealth management industry. Today, we are lucky to be joined by one of our excellence awardees for Canadian advisor of the year Shafik Hirani, Senior Investment Advisor at Shafik Hirani's Private Wealth Management of Alliant Capital Partners, Shafik welcome to WP TV.  

Shafik Hirani  00:00:40 

Thank you, sir.  

David Kitai  00:00:41 

And congratulations on being an excellence awardee. 

Shafik Hirani  00:00:43 

I appreciate that it's an honor.  

David Kitai  00:00:45 

So let's get right into this should be why do you think you were named and Excellence Award for Canadian advisor of the year? 

Shafik Hirani  00:00:54 

That's a loaded question. I I hate sounding pretentious. So, you know, I I'd have to guess a lot of it has got to do with our philosophies and how they differentiate themselves from the traditional financial planning. And, you know, we've been doing it 30 years. I have a lot of extra curricular stuff I've done in my past, like teaching at the university, the certified financial planning, designation along with volunteering on boards, like advocates, as the Vice President, the Canadian Association of financial planners, I think, you know, I hate bragging, you know, the only thing I like to brag about is my humility. I think it's an honor, I can't really say much more than that, I'm really humbled and it's, it's legitimately an honor, thank you David. 

David Kitai  00:01:46 

Well, no, it's our pleasure, and you mentioned the differentiation, and that you take a different approach. So I want to get into that. What in your view makes your approach different from from what you see across most of the industry?  

Shafik Hirani  00:01:59 

Oh, I don't even know where to start. Uh, you know, for the I've been doing this about 30 years. And for the first 20, I worked at a big company, you know, a big publicly traded $10 billion market cap company. And the philosophy was that you would have to teach your clients, what they taught you, which is, you know, looking at maxing out your RRSPs, paying down your mortgage, you know, doing the traditional approach to financial planning to attain wealth. And I think that gets ingrained upon us because the bigger companies have lawyers and are also regulated. And the last thing they want is a client complaint where you have given contradicting advice. So I think that becomes a challenge when you know, it's cows following the herd mentality. And I think to break away from that, I think some of the things that might make a difference is realizing that, you know, instead of the traditional approach, maybe instead of looking externally, we should look internally, looking externally means the person with the larger telescope wins the person that can see the macroeconomic conditions, the geopolitical climate, and its impacts on the capital markets, which is great, the further you can see out as important, but sometimes when it comes to attaining affluence or money, a person really needs to start with the microscope, not the telescope, you need to start looking at the person in the mirror. And I think that's where our approach begins to start looking at our impotence towards affluence, our, our philosophies, our ego, are our barriers to decision making. 

David Kitai  00:03:43 

That's fascinating. And would you characterize it as a behavioral approach? Or what? How, you know, people talk a little bit about just dealing with those sorts of client behavior pieces, but is it or is it more kind of on the on the personal financial side, where it kind of characterizes 

Shafik Hirani  00:03:59 

100% behavioral psychology. And, you know, my degrees of course, I have an undergrad in finance, and you know, from an East Indian culture, you, you get good grades, and you know, but I think, as we, as I begin to grow in the industry, I learned very quickly that our psychology makes an impact on our decisions in life. And so the behavioral finance is, you know, Aristotle said it best he said, We are the architects of our own demands. And I think he meant Who do I have to protect me from me? And so, behavioral psychology is, if I were to look at the affluent model versus the masses, I really find a correlation and affluence between the right psychological attributes. People get there to different ways, whether it be by leveraging real estate businesses, but they don't get there. From what I've seen by what we are trained in the traditional financial planning approaches. Don't get there by maxing out their RRSPs and pay Another mortgage, even though for 20 years, I was told that's the path. I've never seen anybody independently affluent by doing what I was told. So that breach in my opinion comes from predominantly having the right behavioral finance and the right psychology. 

David Kitai  00:05:17 

That is, I'd really find it fascinating. And it maybe leads nicely into into the next question, which is, what are the challenges you now see clients facing? And how are you working to help them overcome those challenges? 

Shafik Hirani  00:05:32 

It's tough being a client of the industry, especially with a lack of a lack of financial literacy. And so the challenges clients face is their own programming towards decision making. And sometimes if we are driving into a fog, Dave, we get anxiety, we feel pain, because we cannot see what's on the other side of that fog. The same thing applies to financial investing, you know, if I don't have the ability to understand the vagueness or the uncertainty, then I will boil everything down to the lowest common denominator, which is GIC rates. Or worse, I will get paralysis by analysis and lean towards indecision like a frog in lukewarm water where you slowly increase the temperature, I will experience a comfort zone that impedes my success.  

David Kitai  00:06:28 

How do you snap clients out of that comfort zone? How do you how do you prompt them to whether it's learn the right language to articulate what they're feeling? Or, you know, just take the right actions? But how do you how do you stop them out of these kinds of bad habits? 

Shafik Hirani  00:06:43 

Yeah, that is such a good question. You know, I don't know, I feel that a lot of that comes not from igniting the left side of our brain, I feel a lot of it doesn't come from, if you look at the physiology of our brain, we have a left hemisphere and a right hemisphere, there's two temples, there's a simple lobe in the back in the frontal lobe. And the left brain tends to cause paralysis by analysis, because it's a lot of math and logic and writing and language. So I think if you can work on ways to ignite the right brain, where decisions get made, you know, where our creativity side is, you know, I took psychology and university as well. And in psychology, they call it the lizard brain or the undeveloped brain. And they glorified this left brain like it matters. But you know what, in the right brain, there is something called the amygdala. And that makes decisions based on other attributes other than math and logic, it makes decision based on Well, I mean, intuition in is what they call them, women got fields, what they call in men, but it's really pattern recognition. So invoke a decision making in a client, you have to one realize, explain their own psychology to them, and then you have to enhance their financial literacy. And then you have to help them go through that fog, because you can't build a puzzle, you know, without a picture that box. So they need to see where they're going in life. And that helps. 

David Kitai  00:08:07 

Probably, this is me, misinterpreting Freud, who's probably been debunked at this point. But it seems like maybe, you know, financial education is all about super ego. And we talk about it in terms of this is this is the top level, the highest level of thinking and, and in some ways, what you're saying is actually no advisors should be looking at the they should be looking at what is the base fear, drive desire in a person, and that will actually maybe more accurately inform good behavior and good financial decisions? If if sort of channeled in the correct directions?  

Shafik Hirani  00:08:41 

Wow, David, that you're speaking my language right now. And so yeah, you know, in 1895, Pavlov first wins this Nobel Prize about what's called stimulus response psychology where you'd feed a bunch of dogs and sell dogs would salivate upon ringing a bell Freud came in 1905. And his approach was called psychoanalysis. And with psychoanalysis, he drew an analogy to an iceberg where our ego is the tip of the iceberg. But our Id like you're saying is the bottom of the iceberg. But the problem is the water. And the water is called our super ego. And when it comes to money, our super ego has developed what he called self defense mechanisms. One of them is called blame. One's called denial, the other is called justification. And our defense mechanisms can be barriers to our own success when it comes to money. I know we're getting a little bit deep and yes, it was debunked. You know, instead of fear and greed, it turns out that we're more motivated by pain and pleasure. And so you know, there are as a material amount of impotence to our success. We need to understand ourselves better in order to get to a certain point of affluence. It's just the way it is. 

David Kitai  00:09:55 

So, what's funny is, you know, you've brought in a lot of nuance, a lot of depth A lot of just thoughtful understanding of concepts that aren't always related to finances and don't boil down easily into 10x, your returns on an email subject line. But at the same time, you have to communicate with clients in an era of, you know, headline grabbing titles, and extreme overstimulation and too much information. And it's rolling on Tik Tok and all that other horrible stuff. So how do you approach it? How do you integrate this level of nuanced thinking into a communication environment, that doesn't leave a lot of space for that? 

Shafik Hirani  00:10:35 

Yeah, you know, the noise hurts, it hurts clients, it hurts advisors. And with the proliferation of that noise, you have to understand it's not going to stop it, if anything, it's going to become more pervasive. And I think the way to get from point A to point B, is not to work from point A to point B. It's in some vague roundabout way, it's to work backwards, it's called backwards induction. And I think what that does is it removes some of the anxiety and the pain people feel in the current moment. And it outlines a clear path towards attaining their goals. And if you can, begin with the end in mind, that is a big psychological process. Now, don't get me wrong, clients still are influenced by the social media, they are still influenced by the the flavor of the month, whether it be pot stocks, or Bitcoin or, and they will run to it like school, like school kids playing soccer. And the challenging thing about watching school kids playing soccer is yes, one or two may get to the ball, but by the time to the pack, get to the ball, the balls over here. And so it's about communicating in a way that clients understand the reality of their current financial situation and where they're heading in life. And, and helping them make decisions to their best interest. And if they, you know, if they drink the water, then great if they if they don't, then you know, that's on them.  

David Kitai  00:12:07 

Shifting tone just a little bit. You know, a lot of what you're talking about is, you know, somewhat revolutionary within the business. But it's also something that there's echoes of it that I've heard from other advisors, behavioral advice is becoming much more commonplace. We're seeing a lot of these ideas being worked in and, and, you know, the financial services industry as a whole has done a great job of integrating other fields. So what are some changes that you now see coming in financial services? That could be regulatory, that it couldn't be just thought process that could be researched? Whatever? And how are you kind of working at it to help manage some of those changes?  

Shafik Hirani  00:12:42 

Yeah, I think the new paradigm in financial planning started a long time ago. You know, when I started, there was a The Wealthy Barber, and it was our Bible, and you know, you know, dollar cost averaging. And not saying any of that stuff is wrong. But then, you know, a plethora of other books about how to actually attain wealth versus not to go poor, came up. And people started talking about maybe, instead of building the pyramids, why, like the Egyptians did your whole life, you had to learn how to build tall. One example would be maybe people should stop thinking about themselves, like people. Companies have something called a weighted average cost of capital, if I'm going to maximize my, my share price, I need a debt equity ratio or weighted, why don't people do that? Why don't clients have a price earnings ratio or value themselves differently than their, their balance sheet their net worth? You know, I think, if we do look at what some of the upcoming changes in the industry are, it is going to start to look at people more as companies and treating themselves more as companies than people did historically. 

David Kitai  00:14:00 

Okay, that's a fascinating kind of concept. And I feel like they want to go into that. But we are coming a little bit close to the time we have limited for this interview. So I will just as a final question asked, What do you think other advisors should consider if they want to emulate your approach, you take a very unique approach here, and you've laid it out pretty well. But if other advisors is sort of like, look, I want to be a little bit more lecture fee. What are some steps they can start to take? 

Shafik Hirani  00:14:27 

To make change, you need to break habits. And sometimes I came from a world and a lot of people don't understand the financial services industry, but the financial services industry is broken down into two employment type contracts and one they call it master servant and the other they call it principal agent. And Master servant is if I worked for another firm, the firm would tell me what to sell the firm would tell me how to behave. The firm would give me a software package and a questionnaire to fill out for the client. And I think to what I mean did change about a decade ago to run my own independent financial advisory practice. So he told me what to recommend, I was very objective. Now, of course, that comes with a lot of autonomy, but it also comes with your own liability, you have to pay your own staff, you have to pay your own office, you have to, you know, it's it's a different approach towards being self employed. I think if you're going to be a new, or if you're trying to emulate a practice, I think it begins with breaking those chains. And I believe it break you have to break the chains of classical conditioning on how we are taught traditional financial planning applies and imposes on our clients. I think that would be the very first step and that comes with financial literacy into behavioral psychology. 

David Kitai  00:15:44 

Now, that's a fascinating agenda on and really interesting to kind of take us from a starting point of just celebrating excellence in the wealth industry to Breaking Chains, breaking habits, some some revolutionary ideas that that are really kind of cool to dig into. So with that, unfortunately, we are running out of time for this interview, but all I can really say should be just thank you so much for taking the time and sharing some of these ideas with me today. 

Shafik Hirani  00:16:09 

Yeah, David. Thank you too, man. I'm legit honored. This is excellent. And I am really appreciative of your time as well. 

David Kitai  00:16:15 

It's a pleasure. And thank you to all of our viewers. On behalf of WP TV. I've been David Kitai. Have a great rest of your day.