If you’ve been an advisor for more than a few years, you know that experts are bad at predicting the future. In his 2010 book, Future Babble, Dan Gardner looks back at numerous experts’ predictions and notes how terribly wrong many of them were. For example, in 2008, experts predicted that oil would hit $200 a barrel but were shocked when it dropped to $30 a few months later. In 1967, experts predicted that the USSR would have one of the fastest-growing economies by the year 2000. Of course, the USSR no longer existed in 2000 and hadn’t for some time.
Economics, politics and sports are notoriously difficult disciplines in which to make predictions. However, because these facets of life are really important to us, we ask experts for their opinions even though there’s compelling evidence that such predictions are seldom accurate or even helpful.
Interestingly, there are some areas in which experts can make helpful predictions, and one of those areas is very important for you as a client-facing financial advisor.
What’s Going on Here?
Complexity theory tells us that some systems are so dynamically interconnected that we cannot hope to measure them and determine specific outcomes. For example, while we can ascertain the general direction of the capital markets and even the likelihood of a particular business model’s ability to grow positively, it’s impossible to drill down and make accurate predictions about short-term investment results. The same is true in sports: any NFL team can beat another NFL team, an observation thoroughly tested and confirmed during the 2020 season!
Importantly, some complex systems do allow us to make useful predictions about the future. One of these is the study of human population growth. When I was in high school (a long time ago), I was disturbed by dire predictions about overpopulation. Based on historic measurements, it seemed clear that we were only a few decades away from starvation and the geopolitical instability that would ensue. I imagined and dreaded a bleak future. Those feelings ran deep: many people still believe that the earth is being overrun by too many humans.
Had nothing changed over the past 40 years, those predictions may have come true. But something did change, and we can now see clearly that population explosion won’t continue. In fact, growth has been slowing for decades, and we will likely see population growth nearly stop in this century. According to an analysis by the Pew Research Center of data from the United Nations Department of Economic and Social Affairs, by 2100, the world’s population will peak at 10.9 billion and grow at an annual rate of only 0.1%.1
What changed? As Hans Rosling reminds us in his 2018 book, Factfulness: Ten Reasons We’re Wrong About the World—and Why Things Are Better Than You Think, “As billions of people left extreme poverty, most of them decided to have fewer children. They no longer needed large families for child labor on the small family farm. And they no longer needed extra children as insurance against child mortality.” This dramatic drop in the number of babies around the world is expected to continue as more and more people are lifted out of poverty. Rosling reveals that this same pattern of improvement is happening globally across many areas of life.
What Does This Have to Do with Being a Financial Advisor?
Improving global conditions have caused a shift in value systems. This is different in the US than in more impoverished areas. The US already has very low population growth because the economic system lifted virtually everyone out of extreme poverty decades ago. We are seeing an increased sensitivity about the world’s well-being and a rapidly growing desire to invest assets in ways that have a positive impact on people and the planet.
Most advisors are familiar with psychologist Abraham Maslow’s hierarchy of needs. Maslow observed that a human being’s values mature as the person’s life improves. In the US, as economic conditions continue to improve, we should see an explosive growth of interest in investing for positive impact, known as environmental, social and governance (ESG) investing. From a psychological perspective, this can be understood as a widespread shift in values about investing from a narrow, self-centered focus of “Will I be okay?” to a more expansive concern of “Will we be okay?”
This has significant implications for client-facing financial advisors who need to meet their clients at their emotional point of need. To stay relevant to those uniquely successful clients whose value systems are evolving, it will be important to talk about ESG investments wisely and to provide thoughtful advice about investments that align with the clients’ values. To compete effectively, advisors will need to learn to recognize clients whose values have evolved toward a big-picture mind-set. Advisors must proactively articulate how investments can be an expression of their clients’ value systems just as effectively as the decisions that they make in other areas of their lives.
Importantly, to remain relevant and competitive, client-facing advisors need to recognize the inevitability of these developments and create a thoughtful and well-informed point of view about ESG investing. For more information, ask your AllianceBernstein wholesaler for the AB Advisor Institute’s What If You Could Talk to Anyone About ESG Investing? and The ESG Investing Checklist.
For more resources from the AB Advisor Institute visit http://alliancebernstein.com/go/abai.
1 Anthony Cilluffo and Neil G. Ruiz, “World’s Population Is Projected to Nearly Stop Growing by the End of the Century,” Pewresearch.org (June 17, 2019)
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.