Young Upstarts

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[Interview] Wayne B. Titus III, CPA/PFS, AIFA, Author Of “The Entrepreneur’s Guide To Financial Well-Being”

These are tricky times for entrepreneurs indeed — and it’s tempting to resort to doing everything as the pressure mounts to stay afloat. But financial well-being has to be a lot more than a knee-jerk response. The key is developing a strategic perspective, and resisting that DIY reflex. More than ever before, entrepreneurs need to make the right decisions for long-term survival, and be clear on objectives that go beyond a bandaid approach.

In his new book, “The Entrepreneur’s Guide to Financial Well-Being“,Wayne B. Titus III, CPA/PFS, AIFA lays out the best course of action for entrepreneurs today. Titus is the founder of AMDG Financial and AMDG Business Advisory Services, and has years of experience at two major accounting firms working with Fortune 50 clients. He recently sat down with Young Upstarts to share his insights about entrepreneurship — and how to get it right.

Here is some of our conversation:

First, talk a little bit about yourself and your career: how did you get to where you are today?

I come from an entrepreneurial family and was exposed to entrepreneurship early on in my life. My father owned a Cadillac/Oldsmobile dealership when I was growing up, and I started working for him when I was eight years old ­­— washing cars. Eventually I became a mechanic’s apprentice, then a salesman when I was 17. Later, I moved to the finance and insurance department, and eventually became sales manager and general manager.

I decided to become a CPA after watching my dad receive poor business advice from his accountant. When I left the corporate world to start my own business, it was because I wanted a chance to make a significant impact on people’s lives. I could see that a need exists to help families and small businesses integrate their tax, financial and investment strategies, which is something that most financial advisers don’t do for their clients. I decided to focus on that when I created AMDG Financial, my advisory firm, and AMDG Business Advisory Services, my tax and accounting practice.

What prompted you to write this book for entrepreneurs — does it stem from your own experience helping clients make better financial decisions?

It does stem from my experience, but also from my desire to touch the lives of more people with information that can help them find an adviser who understands the unique needs of entrepreneurs. Most entrepreneurs are very passionate about their businesses, but often, they don’t have the financial background or knowledge ­­— or even the time ­­— to think about making important financial decisions that can help them scale their businesses and plan for their individual financial goals. My goal with the book is to help entrepreneurs realize that they don’t know what they don’t know, and to provide a guide to help them find and create a beneficial relationship with a holistic financial adviser.

Can you explain what you mean by emotional behaviors when it comes to investing? How can entrepreneurs avoid them?

A great recent example is the market’s reaction to the coronavirus. When investors became concerned about how the global supply chain might be affected by COVID-19, an immediate reaction was to sell off everything and get out of the market. I heard from a number of clients who were ready to abandon their investment strategies because they were scared. But a knee-jerk reaction like that couldn’t be more wrong, because in effect, you’d be selling when prices are low, and attempting to get back in when prices have rebounded ­­— the exact opposite of the principle of smart investing. This emotional behavior is the basis for a discipline within behavioral economics called behavioral finance. Behavioral finance seeks to understand why people make certain financial choices, and how their choices affect the markets.

Can you talk about three of the most common blind spots you’ve seen as a financial advisor?

The most common one I see is something called “recency bias.” Recency bias occurs when an investor tends to weigh recent events more heavily than earlier events. So, in the case of the coronavirus, an investor might have given more weight to a more recent headline about the disease’s impact on the global supply chain than on earlier headlines comparing the coronavirus to other diseases. When I talk to my clients, I try to encourage them to evaluate long-term trends, instead of reacting to the headlines.

Another common blind spot is something called “loss aversion.” Loss aversion occurs when an investor would rather avoid a loss than achieve an equivalent gain. For example, in one experiment, behavioral economists asked a group to participate in a coin flip. They explained that if the coin came up tails, the group would lose $100, but if it came up heads, the group would win $200. Based on the group’s response, the researchers concluded that people would need to gain approximately twice what they were willing to lose before they would even play the game! If you look at this in the context of investing, it may be tempting to move out of the markets to avoid losing money than it would be to stay in the market to potentially gain more money.

A third blind spot is something called “confirmation bias.” That’s when we invest in a company or fund we like, and then, to help us justify our decision, we’re constantly seeking information or news to help reinforce what we believe about that investment. I encourage clients to play the devil’s advocate when making a decision about an investment. It’s better to have multiple viewpoints than just the ones that make you feel good.

Do you think your field of financial advising is immune to bias, and if not, how do you keep that bias from affecting the advisor-client relationship?

If you’re human, you’re susceptible to bias ­­— and advisers are just as susceptible as our clients. A study by SEI last year found that advisers ranked “overconfidence” and “regret avoidance” as their top weaknesses, and I have no doubt there are other biases at work, too. We need to be accountability partners with our clients, so we can check each other from time to time. I view myself as being “on the journey” with my clients toward their financial well-being, and part of that journey involves collaboration. It’s important for both the client and the adviser to be engaged, to question assumptions, and to point out perceived biases.

Why do you think so many investors fall short of the mark when it comes to returns? Is it luck, or is it human error, or both?

Emotional biases play a huge role in preventing investors from realizing better returns. A company called DALBAR has been studying this for more than 25 years, and it finds that investors shoot themselves in the foot by decreasing their exposure during times of market volatility, and then losing even more by being out of the market when it begins to rebound. Emotional investors sell low and buy high, and that’s not a winning strategy.

What advice would you give an entrepreneur who is trying to create a better financial strategy for the long-term?

First, find a holistic adviser who understands your business and your personal needs. Entrepreneurs are notorious DIYers who feel like they need to take everything on themselves. With the right adviser by their sides, though, they not only get the benefit of expertise they may not have; they also get the peace of mind of knowing they have a plan in place and someone to guide them along the way.

Small business owners and entrepreneurs often have a do-it-myself mindset: they are literally the backstop for every person and function in their company. Do you think this approach gets in the way of sound financial planning?

Absolutely. Entrepreneurs tend to be self-reliant, but the downfall is that they may not know what they don’t know when it comes to their finances, and they may be working with an adviser whose style doesn’t work for them. Some advisers take a paternalistic approach to working with clients ­­— telling them what to do without any give and take in the process. Some entrepreneurs, who like to be disruptors, may not want to sit back and take direction. Advisers with an informative approach tend to be more compliance-oriented, and they may not surface some issues, like tax planning, for example, that are important to the entrepreneur. I find that entrepreneurs respond the best to an interpretive adviser ­­— someone who not only informs the client but also helps them interpret the information to make the best decision for their situation.

What are the most important objectives for every entrepreneur in terms of creating a financial strategy?  

It may sound simple, but the most important objective should be determining what you want to achieve. As Stephen Covey said, begin with the end in mind. If you don’t know, there’s no way to develop a plan to get you there. If you do know, then you can create a strategy to support where you want to go. In my opinion, any financial strategy must be supported by an investment strategy and the impact of tax planning. Most people don’t consider taxes, which can erode wealth if not planned properly. Highly successful entrepreneurs may have a 10-year business plan, but often, that plan doesn’t consider how they will manage their finances. I often tell my clients that it’s not about the money they earn in the market ­­— it’s about how much of the money you keep after taxes.

Let’s turn to the current economic climate: we’re seeing profound impacts on the global markets. Small businesses have a lot to lose and little margin for error. How can entrepreneurs protect themselves?  

I’ll tell you the story of one entrepreneur I know ­­— my 15-year-old niece. She sells needlepoint canvases and she has them painted in China. She recently discovered, as many entrepreneurs are right now, that when you have a single source for your supply channel, your business is at risk. Entrepreneurs need to make sure they have redundancy and succession built into their business plans. They also need to be diversified, so that if one part of the business takes a tumble, it can be propped up by other parts of the business.

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Daniel Goh is the founder and chief editor of Young | Upstarts, as well as an F&B entrepreneur. Daniel has a background in public relations, and is interested in issues in entrepreneurship, small business, marketing, public relations and the online space. He can be reached at daniel [at] youngupstarts [dot] com.

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