Tuesday Email: The Cost of Certainty

Happy Tuesday!

Every Tuesday I'd like to offer strategies for the week ahead and a thought to fuel your action.

When you propose a new billing model to your team, their brains light up the same way our ancestors' did when they got separated from the tribe.

One was life or death. The other is a spreadsheet change.

Yet we treat them identically.

I experienced this exact feeling a few weeks back.

I was getting frustrated with the negotiations we were having with a technology platform we were piloting and wanting to move to an enterprise solution.

As this frustration bubbled up, I found an alternative option. Same core capabilities, a few extra features and a better pricing structure.

Financially, the move was logical and obvious.

The challenge though was this weight of invested political, human capital.

We had been talking about the pilot technology with our teams, put it on firm wide slide decks and started to build processes around it.

And as I talked with one of my partners about my challenges and my thought process for switching to the new vendor, I found myself battling my partner's ancestral reactions.

The conversation moved from what logically made sense financially to statements around “already being 3 months into the pilot, the current comfort of the team, that the change costs aren’t worth it now, but maybe we revisit in a year.”

As I listened, I watched the fear cross their face. The same fear our ancestors felt standing alone on the savanna.

Their fear was of being left alone in a vast land ready to be taken by any animal in the vicinity.

And given the fear, I accepted what I continuously write about. The cost of certainty.

I choose to not fight the battle and lean in to the comfort of a known, mediocre solution over the discomfort of a potentially better unknown one.

We stuck with that inferior option.

And that failure, my failure, is what this weeks newsletter is really about.

Here’s what I’ve learned as I’ve built a wealthtech company, conducted national studies on client preferences, and watching firms navigate the past 15 years of change: advisors don’t lack innovative ability.

Every advisor I know and have talked to has ideas.

They see what’s changing and the speed at which things are changing.

And they know what could be different.

Here’s the thing: advisors don’t lack creativity or innovativeness.

Our industry has calcified not because we are unimaginative, but rather because the mandate of our job is to protect capital.

People come to us to not lose money.

Growth is nice. Preservation is non-negotiable.

With this mentality ingrained in us since day one of our professional career, we began treating innovation the same way we treat investment risk. As something to be minimized rather than managed.

Many point to the risk aversion focus of our business as the problem.

It’s not.

The root problem is that we have become hyper-sensitized to a specific loss that has nothing to do with our clients’ outcomes.

In the ancestral environment, separation from the tribe meant death. In the modern RIA, proposing a new billing model triggers the same brain response. Our brains literally cannot tell the difference between these threats.

Take a second to think about why we all fear loss in our firms. Potential regulatory fines, yeah. The potential of client litigation, maybe.

But the real fear stems from something simpler: a client leaving hurts drastically more than gaining a new client feels good.

Research on loss aversion says that losing hurts twice as much as equivalent gains feel good. But ask any advisor and they’ll tell you it feels like five times. Maybe ten! That’s not an exaggeration; it’s the reality of what it feels like to lose a client.

Gaining a client creates short-lived satisfaction.

Losing a client creates an ongoing narrative of what-ifs that plays on repeat in your head.

Losing, in really anything, makes us question our value. We feel rejected. And it taps into the the fundamental need to be accepted, to be chosen.

And it is the desire to avoid this exact feeling that we build our businesses and our cultures around avoiding anything that might trigger that feeling.

The idea of new billing? Well we may have to tell our clients, which could “poke the bear” and have them leave.

AI-driven planning? Wait, will that make clients question our value and look elsewhere and leave?

There is this funny conundrum that has been created. We are confusing protecting our clients with protecting ourselves from the feeling of being rejected.

We’ve convinced ourselves they’re the same thing. They are not.

We’ve created a culture where learning threatens our identity.

We are “smart people.”

People come to us for answers.

Our credibility, heck our business, is built on knowing things.

Which makes admitting we don’t know something a threat to the foundation of why clients trust us.

This leads to avoiding learning new things. Instead we double down on what we already know.

We avoid incorporating new models because that admits that the models we had been using may be incomplete.

We resist AI tools (and crypto) because understanding them requires acknowledging our ignorance.

All of this leads to us waiting for all of these new approaches to become certain before we try them or incorporate them.

And we say it’s to protect the clients, but in reality it’s to protect our foundation.

Here’s the trap though, which we all know, but struggle to incorporate: what made us smart in 2015, using a financial planning software, isn’t what will make us valuable in 2026, when clients expect real-time tax optimization and AI-driven scenario planning.

The world keeps moving.

Stanford psychologist Carol Dweck calls this the difference between a fixed mindset ('my value comes from what I already know') and a growth mindset ('my value comes from what I'm capable of learning').

Employees in growth-mindset companies are 47% more likely to see their colleagues as trustworthy and 65% more likely to say the company supports risk-taking.

My dad started our firm 30 years ago.

I watched him navigate the tech boom and bust and then the 2008 crisis and all the mini tantrums in between.

He lost clients during those periods. Many would point to performance, but that wasn’t the real reason. It was because fear makes people move.

I don’t recall the names of the clients who departed. But I do remember him talking about the clients who stayed.

One widow who called during the worst of 2008 asking if she should sell everything. And how dad just listened to her fear before gently walking her back from the ledge.

Or that business owner who rolled over his $7 million 401k in early 2010 because dad was honest about what he didn’t know during the crisis. And just was there to be a guide, not a know it all.

The clients who stayed weren’t the ones who never questioned or who had blind trust.

They were the ones who saw dad navigate the uncertainty honestly.

Looking back at those moments, I don’t think my dad thought of what he did as innovation.

But the ability to refuse to pretend to have certainty in an uncertain time, that was the real frontier.

And the only way to stay relevant is to keep learning, to always be curious. Both of which requires being comfortable looking ignorant for a bit. Asking that dumb question. Saying “I don’t know.”

Every innovative, impactful and meaningful leader I have studied has this in common. They are insatiably curious and extremely comfortable in not knowing.

A risk averse mindset drives a desire for consensus.

We want to know that something will work before we commit. And if we don’t have that comfort, then we want to be sure we are not alone in making a wrong decision, so we look to ensure we have everyone’s honest backing.

The challenge with this mentality is that one risk averse person can hold the veto card to accelerating an opportunity.

Even if the majority of the team says yes to an innovation, the pace of adoption will be throttled by whoever is most uncomfortable.

So what does the solution to this problem look like?

Jeff Bezos solved this with two words: "Disagree and Commit."

In his 2016 shareholder letter, he described disagreeing with a team's plan for an Amazon Studios original.

Instead of blocking it or demanding analysis until they reached consensus, he told them: "I disagree and commit and hope it becomes the most watched thing we've ever made."

It’s ok to disagree or to even be fearful. But as a leader, once the decision is made, you commit fully to making it work.

No passive resistance. No creating a scoreboard.

Full support.

Bezos also distinguishes between "Day 1" companies, those obsessed with customer outcomes and speed. And "Day 2" companies, those obsessed with process and precedent.

Most mature RIAs are firmly Day 2.

We're managing compliance checklists rather than reinventing client experience.

That brings me back to my technology decision.

We're not in Day 2 because we lack resources or creativity.

We're in Day 2 because we've lost the ability to ask: if today were Day 1 of this firm, what would we do?

If our survival depended on making a move right now, what would we try?

What’s the smallest action we can take to learn, instead of waiting for the perfect moment? That’s the Day 1 mentality. It’s not taking unnecessary risk. It’s taking steps to learn as opposed to waiting for the perfect outcome.

It’s always easier to wait for the future, thinking it will be different than the present, but we all know the future is just the present at a different time.

Google has an even more radical approach.

Their “X” division, the Moonshot Factory, reverses the idea of the sunk cost fallacy entirely.

Most firms spend years and thousands of dollars trying to make legacy systems work simply because they've already invested in them.

We pour more money into the bad decision, then battle and work and commit more, then eventually end up frustrated at the lack of ROI.

Instead of allowing their team to do this, Google X incentivized them to quit projects.

When a team at X identified a fatal flaw in a project, they shut it down immediately.

And then they got a bonus.

Astro Teller, who runs X, calls this ‘celebrating intelligent failure.’ The team that killed the project gets treated as heroes for saving Google millions.

Quitting isn't failure. Continuing something that doesn't work is failure.

I think about this when I talk to firms stuck in the trap that I experienced internally a few weeks ago.

We continually confuse commitment with wisdom. That changing course makes our initial decision wrong. Thus we must double down to prove we were right.

We wait to make that hard decision, hoping something will change.

And the reality is that the only thing that changes is that the hard decision now becomes harder and we waste time in between because we are consumed with the issue at hand that should have been ended.

When we had three users learning the mediocre software, switching would have been mildly annoying.

When we have thirty users and six months of data in the system, switching will be a nightmare.

The decision doesn't get easier. We just get more trapped.

The Blockbuster-Netflix story tends to be overused.

But here’s what everyone misses: Blockbuster’s leadership wasn’t blind. Reid Hastings literally pitched them on buying Netflix in 2000.

They said no. Not because they were dumb. They were just addicted to the certainty of their late-fee revenue model. And anything new was too uncertain.

Netflix built a culture that tolerated ambiguity.

The subscription model was new, uncertain, and unproven. The capital cost of streaming infrastructure was massive long before it generated a dollar of profit. They were investing heavily in something completely unknown.

But they had a belief it was the right direction, and they were willing to live with not knowing if it would work.

Many RIAs today are Blockbuster, addicted to the certainty of the 1% AUM model and reliant on the generation that has money right now.

We dismiss subscription models, AI-driven planning models or alternative revenue opportunities. They seem uncertain, less profitable today and incompatible with the business model we know.

We’re right that they’re uncertain. We’re wrong that uncertainty is something to avoid.

Much of the push back I get when I talk through this topic is around the regulators not letting us experiment.

I know what you’re thinking: ‘But Matt, the SEC won’t let us.’

Here’s the reality: the ‘Department of No’ mentality isn’t a legal requirement. It’s a symptom of our certainty culture.

But advisors fear that experimenting with AI or new technology will trigger fines, when the reality is that failing to leverage tools that improve client outcomes might eventually be the greater regulatory risk.

We have to disclose what we're doing and why.

That disclosure requirement is actually the pathway to experimentation, not the barrier.

You want to test a new AI planning tool?

Find five clients who'd benefit most.

Explain what you're trying, what data will be used, how you'll protect them, what the expected outcome is. Get their written opt-in. Run the pilot. And then share the results.

I think so many of us want to innovate without telling our clients.

But here’s the thing: bringing clients into innovation doesn’t weaken trust. It deepens it.

Because here’s what actually weakens trust: pretending we have certainty when we don't. Turning our heads to the new reality, hoping the old one remains.

The final barrier to all of this though is the one we all tend to avoid: we don’t make time.

We go to conferences.

We read newsletters (like this one, thank you!).

We watch videos.

We collect ideas like souvenirs.

Then we get back to the office and return to the exact same patterns we had before.

We don't create space to explore. We don't separate exploration from execution.

So innovation becomes this overwhelming thing that's always happening but never gets done.

There’s this aspect of hyperbolic discounting at play. What’s urgent today feels infinitely more important than what’s impactful over the next twelve months.

So we push off the meaningful work today, telling ourselves we will get to it. And then focus on what is going to give us results right now.

We know this from every failed New Year’s resolution: we don’t change unless we change the system.

For me, mornings are my time to explore. Afternoons are for executions.

That works for me. Your system will be different.

Don’t build entire businesses on an idea. Test the idea in a small way that makes it easy for you to exit the idea.

Then build on the information your gain from that experiment.

For example, you may want to build a retainer model in your business to attract adult children of your clients.

Don’t rewrite your ADV. Don’t launch a website.

Create a one-page PDF. Offer it to 5 clients.

If they hate it, you’re out one hour of work. If they love it, you’ve learned something valuable.

There's a concept in evolutionary biology called "punctuated equilibrium"—long periods of stability interrupted by sudden, rapid change.

I think we're in one of those punctuation marks.

But I also think this isn't temporary.

The rate of change we're experiencing won't slow down. It's going to accelerate.

It's going to compound.

When you're in a period of punctuated equilibrium, certainty culture, the thing that worked for decades of stability, becomes the thing that kills you.

I'm still thinking about that technology conversation with my peer.

About the moment I gave into an inferior choice simply because we'd already started down that path.

About how easy it was to confuse sunk cost with commitment.

The thing I keep coming back to is this: I didn't lack information.

I had all the data I needed.

Better product, better price, minimal switching cost at that stage.

What I lacked was conviction to overcome the veto card.

And I think that's where most of us are.

Risk aversion kills innovation because it treats the unknown as a threat to be avoided rather than a frontier to be explored.

The firms that survive the next decade won't be the ones with the lowest error rates.

They’ll be the ones with the highest learning rates.

They'll be the ones who learned to navigate uncertainty honestly.

The best is ahead!

-Matt