Book Review: Money, Meaning, and Mindsets

Money, Meaning, and Mindsets: Radical Reform for the Investment Industry. 2017. Jim Ware, CFA, Keith Robinson, and Michael Falk, CFA.

Why do people invest? What is the purpose of the investment industry? Why do people want to work in the industry? These questions are not customarily discussed by investment professionals, but the industry needs to consider them as the investment landscape changes. In Money, Meaning, and Mindsets: Radical Reform for the Investment Industry, Jim Ware, CFA, Keith Robinson, and Michael Falk, CFA, of Focus Consulting Group (FCG) attempt to answer these questions by taking an unconventional look at the investment business. The book represents a complete departure from others that analyze the industry.

Most books aimed at reforming the investment industry focus on passive investing because of its lower costs relative to active investing. This book argues that active management continues to have a vital role.

The book further differentiates itself by adopting a behavioral approach to the field of investment management. The authors do not concentrate on the usual menu of investor errors, however, such as loss aversion, framing, and mental accounting. They focus, instead, on the emotional aspects that drive investors’ decisions, as well as the emotional needs of employees in the industry. Thus, they consider such matters as happiness and personal satisfaction, rather than amassing wealth, as goals of investors. They argue that individuals do not invest simply to make money but as a means of funding activities that are important to them, such as financing a child’s education, buying a home, or supporting a favorite charity.

Addressing the issue of employees, Ware, Robinson, and Falk delve deeply into the reasons people choose to work in the investment industry and the ways in which generational goals have evolved over time. A small sample survey comparing baby boomers with millennials reveals contrasts in employee values. According to the authors, understanding these changes in attitudes can be critical to investment firms as they compete with other industries for the best and brightest from the next generation. The changing generational attitudes require new approaches to firm leadership as well as new ways to discuss finances with clients.

To establish the innovations the investment industry should consider, the authors use Maslow’s hierarchy-of-needs model as a basis for understanding behavior. The theory, which was put forth by psychologist Abraham Maslow in the 1943 paper “A Theory of Human Motivation,” hypothesizes that individuals are motivated by deficiency needs and growth needs. Ware and his co-authors couple Maslow’s work with Clare Graves’s spiral dynamics model (SDM) of cultural evolution to delve further.¹ To support many of the authors’ hypotheses, the book presents several surveys and case studies from FCG’s work with corporate clients. The surveys, while far from providing hard statistical evidence, do provide a glimpse into the mindset of some of FCG’s clients.

Many of the problems in investment management stem from its competitive nature and the personalities who are attracted to it. Although many firms will claim that customer satisfaction ranks at the top of their goals, the authors’ research indicates that this is not truly the case. Much of FCG’s work consists of moving the mindset of firms from the traditional win/lose thinking to a win/win/win/win solution (a win for the clients, employees, owners, and society). The authors point out that, unlike rational individuals in a textbook setting, many clients are not generally concerned about investment benchmarks. Many care more about knowing that they will be financially secure in the future.

Initially, the book can be a difficult read. The authors continually refer to different personality traits through the color-coded schemes presented by the SDM, which can be confusing until the reader becomes familiar with the terminology. However, once the reader becomes accustomed to the approach, the point of the book becomes clear. The SDM proposes that mindsets evolve over time as conditions warrant. Using this model together with Maslow’s hierarchy enables the authors to explain how the investment industry developed and how it is evolving.

Money, Meaning, and Mindsets challenges the investment profession to rethink the way it views clients and employees. History tells us that changing conventional wisdom can be extremely difficult. Individuals hold on to longstanding beliefs. Many of the ideas we accept today as fact — such as the earth orbiting the sun, the necessity of doctors washing their hands before examining patients, or the notion that individuals do not always behave in a rational manner as far as economics are concerned — were either ignored or widely criticized when they were first proposed. So, today, some practitioners may find it difficult to relate the work of Ware, Robinson, and Falk to the investment field, but in time, this approach may come to be accepted as the standard way of conducting business.

Ronald L. Moy, CFA

Ronald L. Moy, CFA, is associate professor of finance at Tobin College of Business, St. John’s University, Staten Island, New York.