Imagine a man in his fifties. He’s got some money to invest. What does he do? He’s got to either take a risk with it on the markets and/or bonds, or he can ‘play it safe’ by keeping it in cash.
Author Ed Mitchell PhD
Date 24th August 2017
But we know doing nothing and keeping it in the bank can erode the value of his money through inflation. On the other hand, investing on the markets is tricky, as he wants to lend some money to lend to his daughter in five years to buy a house, so he can’t let his investment fall significantly during that timeframe. He also wants a comfortable retirement, so needs significant long-term gains. What should he do? It’s not an easy problem.
Now imagine the same man in his fifties. He’s got an abnormal result back for his prostate test. He can do nothing, and though this ‘watch and wait’ approach may turn out well and he won’t develop cancer, there’s always a risk he will. He could have an operation to biopsy it and prove it one way or another, but there are risks of infection and bleeding. In five years’ time he may have developed a cancer that needs an operation, with possible side effects of incontinence and impotence. What should he do? It’s not an easy problem.
In both cases the man needs a guide to help him through the decision-making minefield. In the first case, it’s a financial adviser. In the second, of course, it’s a doctor. I’m a doctor, though I studied experimental psychology before I went to medical school. And it was at medical school that I became fascinated with the process of consent, which underlines everything we do in medicine.
In the case of the man with the prostate problem, the doctor has to obtain his consent to any biopsy or operation, and even in the case of doing nothing. In medicine, it’s called informed consent – and one view is that the patient has to understand everything about the proposed procedures and options to give proper consent. The man will have to sign a form before any procedure, but will he understand all the options and all the risks involved? It’s very unlikely, unless he happens to be a professor of urology. Of course, in reality, patients can’t be expected to understand everything about the risks and likelihoods of all the possible outcomes: indeed, doctors are notoriously poor at interpreting test results and helping patients to give informed consent.
At the other end of the scale is the ‘paternalistic view’ – that patients should just trust their doctors. I’ve often heard the phrase “I’ll do what you think is best, doc.” But that’s not good enough. My response is to take them through a journey to understand the risks and benefits of what’s being proposed, and then to make a decision about what to do together. It’s got a name in medicine: shared decision-making.
The same is true of financial planning. In the past, people just trusted financial planners to do the right thing. Now that’s not good enough. We have to determine how much risk people want to take with their money, and more importantly, whether the proposed investments are suitable for them; what are their goals and time horizons for investing? What is their capacity to bear losses? Financial regulators have come down hard on companies who haven’t done the right thing with investors’ money; just as medical regulators come down hard on physicians who don’t do the right thing for their patients’ health.
In essence, financial planners are gaining informed consent for investing their clients’ money. And that’s no small thing. When I founded Oxford Risk, I envisaged that we could support people to give that informed consent. Health and money are critical things in life, and deserve similar scrutiny. Whenever a doctor does anything for a patient, that patient needs to know, as best can be assessed and communicated, the risks and benefits of what the doctor is doing. And when a financial planner advises a client, the client needs to know, as best can be assessed and communicated, the risks and benefits of what they are proposing. Financial planning tools such as those offered by Oxford Risk are an important step in achieving that goal. Patients and investors deserve the best advice, and financial advisers are the doctors of their profession.
 “Do Doctors Understand Test Results?” http://www.bbc.co.uk/news/magazine-28166019