This article was originally published June 2016
I am sure we have all come across “motivational” sayings about learning from our mistakes. And there are many out there that would say how we go about dealing with them makes a huge difference to the end result, for both the person who made the mistake and the person who was wronged (for lack of a better word).
So what I am about to say is certainly not my original thinking, but is a comment on what happens in my world.
What mistakes can I make?
I see two main types of mistakes that are possible.
1. Incorrectly buying or selling an investment.
This has happened on several occasions (maybe 5 over 15 years that I can recall) and can be summed up as “admin errors”. Actions like buying something twice because the first transaction was not recorded in my database correctly, or when instructing to buy or sell via a website I have entered an incorrect amount, number or percentage (or the site glitched mid-transaction). These mistakes have usually been corrected with little effort or cost. If the client was disadvantaged I have absorbed the cost by reducing my fee the next time they were invoiced.
There has been one costly mistake of this type. I asked a stockbroker to SELL a share, but they BOUGHT it instead. I did not pick up this mistake for two days, so when it was corrected the price had moved and the client was out-of-pocket several thousand dollars. The mistake — I did not email the broker my instruction like I normally would, instead I called. The outcome — the broker and I split the difference so we both lost but the client didn’t. Who was at fault? I am sure I said sell, the broker is sure he heard buy.
2. Actioning advice that results in a tax liability.
Thankfully, this has only happened twice in 15 years. And in both cases I can say “admin error” was partly to blame, along with me just not being extra diligent while checking. In one situation when advising on how much to contribute to super, I went back over the history of the client’s super fund and could track past contributions. But I missed the fine print on a very small transaction around 3 years before. On face value, I thought I knew what it meant but I should have dug deeper to spot that what was on the statement was not the full story.
In the other situation, I organised a super rollover without ensuring a specific form was lodged in order to claim a tax deduction on previous contributions. I made sure the right thing was done for the husband, but not the wife. Why? Because I assumed something had already been done but it had not. A single question to the fund would have prevented the error.
Both of these mistake could have been avoided by thinking just a little bit deeper and double checking. Both mistakes resulted in several thousand dollars worth of tax payable that could have been avoided.
Wearing the consequences
In all the cases referred to above, where the client has been financially disadvantaged, it was remedied with a reimbursement of the quantifiable loss. In some cases, a third party certainly did contribute to the mistake, but ultimately I am the person responsible. My concern is certainly more for the client and not the cost to me. No one wants to make a mistake.
What is not a mistake?
It is important to note that making a bad decision, which results in a bad outcome, is different to making a mistake.
If I am weighing up one idea over another, for example choosing which investment to invest in or deciding to exit an investment, then because I cannot predict the future the decision might, in hindsight, turn out to be a bad one. I made a choice to hold more cash for clients over the last year or so — that was a good decision. I decided to exit most listed property investments over the same period — that was a bad decision.
I am very accepting of the reality of my job — advisers always run the risk of making decisions which may result in lost earnings or lost capital for clients.
Learning from my mistakes
The moral of this story — while mistakes are generally avoidable, every now and then some paperwork or timing quirks can strike despite the best intentions.
This article is the opinion of the writer and does not consider the circumstances of any individual. This document has been prepared by Peter Keogh (Authorised Representative No. 253538 of Paragem Pty Ltd AFSL 297276) and is intended to be a general overview of the subject matter. The document is not intended to be comprehensive and should not be relied upon as such. We have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document. No responsibility is accepted by Peter Keogh, Paragem or its officers.