We must take responsibility for following the advice we receive

In his classic book, The Richest Man in Babylon (first published in 1926), George S. Clason delivers financial wisdom using a collection of parables, set thousands of years ago in the heyday of ancient Babylon. The richest man, Arkad, imparts his wisdom to the young men, advising them only to trust the knowledge of experts in the subject they need help with.

Arkad uses the example of taking a brickmaker’s advice on jewellery.

“Why trust the knowledge of a brickmaker about jewels? … Advice is one thing that is freely given away but watch you only take what is worth having. He who takes advice about his savings from one who is inexperienced in such matters, shall pay with his savings for proving the falsity of their opinions.”

Nearly 100 years later, British philosopher Julian Baggini says that so much of the younger generation’s decisions are based on information they get from the internet. When questioned about this, they often even admit they cannot be sure whether they’ve got their facts right.

Unfounded, ungrounded advice is but an opinion. We are often motivated to make ill-informed decisions by what psychologists call “the availability bias”, where we attribute value to information simply because it is recent and available. Remember, every bad idea usually starts as a good idea.

In the present climate, as in all crises, people have more fears about what to do rather than what not to do. Some actions have short-term consequences, while others have long-term ones. For example, a 25-year-old who withdraws from their superannuation now may not experience the implications of this for 50 years. When they do retire and look at what super they have to fund their retirement, they will receive a shock. Another more tragic example is people who are taking misguided action to ward off COVID-19. Some have gone blind and even died from ingesting alcohol or chemicals they were mistakenly told could help.

When we take advice on any important matter, we need to satisfy ourselves that the person giving us the advice is experienced and can be trusted. If there is any doubt, get a second opinion. If I went to a doctor tomorrow, even one I trusted, and he told me glibly that I had to have a leg amputated, I would go and get a second opinion, and perhaps a third.

When it comes to money, most good professional advisers will give you options, not prescriptions, so you are aware of any risks. Understanding your philosophy about money – what you will do for it, what you won’t do for it, what you will do with it and what you won’t do with it – helps filter opinions and advice so that most of it ends up in the trash basket. In business planning, when we reach a decision, we often ask the question: “If this goes wrong, what is the question we should have asked at the beginning to prevent it from going wrong?”

Opinions we receive through the media are typically from people who have no skin in our game. We need to question our decision making as follows:

  • What could be the unintended consequences of implementing this advice?
  • Am I making a decision with an “availability bias”?
  • What evidence do I have that the person giving me the advice is qualified to do so?
  • If there is something in it for them (such as a fee or commission), the question to ask is not whether I trust them, but how do I know they can be trusted?

I have more than 40 years’ experience as a chartered accountant and business owner. If you need advice on how to grow your professional practice, email me at bryan@bryanworn.com.