Brett Davidson: Good Decision Making Creates Exponential Value

Octo Members
1 June 2020

A short read.

Have you read Ray Dalio’s book, Principles? There are some great ideas contained in it.

One of my favourite ideas from the book is what Dalio calls second and third-order issues, and they can arise whenever we’re facing a decision. Yet most of us tend to consider only the first-order issues.

I’m paraphrasing, but his simple example is:

He then goes on to apply this principle to business decision-making. When you start considering the second and third-order issues up-front before making a decision, you make better decisions.

Here’s an example I thought of in relation to this principle that I see in financial planning businesses:

The Stand-Alone Fact-Finding Meeting

As part of the advice process we teach in our Uncover Your Business Potential programmes (Live and Online), we recommend doing any formal fact-finding as a stand-alone second meeting or collecting data from clients online. Yet lots of advisers and businesses still try to do their fact-finding at the first meeting.

Why do we recommend formal fact-finding be separated from your first meeting?

Because of the second and third-order issues.

A good first meeting has one objective; to engage the client with their own challenges and to have them say ‘yes’ to doing some further work with you (assuming you want to work with them).

In that first meeting, you will be asking interesting questions to achieve that outcome. And although you might well discover lots of factual information in that process, the information you gather is a happy by-product of your first meeting; it’s not the focus.

If the client elects to engage with you and agrees to pay a fee for your advice, you can then collect (or finish collecting) the hard data you need at a second meeting face-to-face, online, or via email or telephone.

The first-order issue is time and this is the issue most advisers focus on when they decide to collect the fact-finding information as part of their first meeting process. They believe it saves the time required for that second meeting.

However, the second-order issue that’s not considered, is thoroughness or attention to detail. By separating the first meeting and the second fact-finding meeting, you can focus on getting every single piece of information that you need in the fact-finding process. It’s hard to do that properly in the first meeting because your goal is to create engagement. Questions like, “What’s your full name?”, “What’s your date of birth?”, “What’s your address?” etc are not engaging or interesting questions.

The third-order issue is the impact on the rest of your team as they prepare the client’s advice.

In my experience, 90% of problems in your back office are actually caused by not having all the data that you and your team need to prepare full and complete advice. Solve the data collection problem and you shorten your delivery times, reduce your team’s annoyance and frustration, and improve the quality of the advice you give. Yet these third-order issues rarely get considered by advisers.

Can you see how, when you consider the second and third-order issues in this example, taking some extra time to do the fact-finding properly or taking it online so it’s even more client-friendly makes perfect sense?

However, when you only look at the first-order issue, time, making the extra effort makes no sense, and leads to a poor decision with serious consequences.

Good Decision Making Pays

Faulty decision-making focused only on first order issues put limits on your growth. As I saw in a recent US survey of advice firms, the industry-leading firms are growing at just under 15% pa, while the rest of the industry is growing at just 3.7% pa.

If you can grow at 15% pa, you will double the size of your business every 5 years. If you grow at 3.7% pa it will take you nearly 20 years to do the same.

What’s the cost of that?

It doesn’t bear thinking about.

Good decision-making creates exponential value for you and your business. So be sure to consider second and third-order issues up-front. When you do that, you’re much more likely to make better decisions.

Let me know how you go.

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Brett Davidson

Brett Davidson the founder of Uncover Your Business Potential, a coaching and mentoring programme for the owners of financial planning firms.

This is a contributed article for which we are very grateful.



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