Delegate or Abdicate? Do You Know the Difference?
How often have you heard that the hallmark of a great manager is knowing how to delegate? Or that the key to success in any sphere is to lean into your personal expertise, and outsource the rest? To quote the fictional Dirty Harry, “A man’s got to know his limitations.”
It is natural to apply this concept to your personal finance life, and in many cases, that is a very sound tactic. (Need I remind you of the ample evidence that individual stock-picking trails passive index investing?) But at what point does delegation turn into an abdication of responsibility?
Do you know what your investment manager does…and why?
When you have funds to invest, particularly outside of a workplace retirement plan, many people feel most comfortable working with an investment professional. That’s fine if:
You have clearly communicated all of your goals and values, not just the vague desire to make money.
You understand the “why” behind the investment choices that are being made on your behalf.
You are fully aware of the risks in your portfolio. Not just how much money you could lose, but what factors in the economic environment could cause your portfolio to lose value.
You are clear on what you are paying for the services of your investment manager.
On the other hand, if you have merely pushed your poker chips across the table and said, “Take care of it,” you are no longer a wise delegator; you are an abdicator.
How do you know which one you are? A simple test would be to reflect back on the last time you reviewed your quarterly statement and saw that your balance had dropped considerably. Who or what did you blame? The economy? Your investment preferences? If your mind goes straight to your investment manager being at fault, you may be an abdicator. Consider the possibility that there is a misalignment between what you thought s/he should be doing and what they, in fact, did.
The worst case scenario is that you have done all of the good things above, fully communicating with your investment manager, and your wishes have not been respected. If you are a delegator, you will know this pretty quickly. You trust, but you verify. If you are an abdicator, your story may be more similar to the tales of celebrities bankrupted by unscrupulous management.
My credit is wrecked. Fix it.
This comes in two flavors: bad and worse. “Bad” is when a person, overwhelmed with credit card and/or medical debt, rushes to the arms of a debt management plan without addressing the factors that led to their situation. “Worse” is engaging a so-called “credit repair company” to “fix” your credit score. In both cases, the root of the problem is failing to take ownership, relying on a quick fix instead of the harder work of addressing the root causes of the situation.
It is understandable, of course. It is incredibly stressful and perhaps even humiliating to dodge calls from debt collectors. These are very strong emotions. If someone comes along and says that they can magically lift that burden, who among us would not grab that opportunity?
The problem is that, quite frankly, it often just doesn’t work. Debt management plans succeed only when you are able to complete the multi-year plan. Many people do not, perhaps half or more. Too frequently, the monthly payment to the debt management firm (which includes their fee) is unaffordable over any extended length of time.
As far as “credit repair” goes, here is the bottom line up front: there is nothing that the companies can do for you that you cannot achieve on your own, for free. The reason why I vehemently hate the use of credit repair firms (aside from the very high level of outright fraud in the industry) is that they rely on the struggling debtor not understanding how credit and debt collection work and being so traumatized by their situation that they are not interested in finding out. They are predators.
If you are struggling with debt, as tempting as it may be to offload the problem to someone else, the power to improve the situation lies entirely with you. As much as you would like to completely abdicate responsibility for dealing with this situation, it is simply impossible. But you can be that great manager that I mentioned at the beginning. You can use your delegation skills by bringing in an outside perspective with unbiased expertise in money matters. You may even confide in a friend or family member with whom you feel comfortable and who has knowledge in this area. You can seek out reputable information about your rights from sources such as the Consumer Financial Protection Bureau (CFPB) and the National Consumer Law Center (NCLC).
So, what’s the difference, then?
The difference between delegating and abdicating is control. When you delegate a task of any kind, you are still retaining the responsibility for its successful completion. You are using your power and your knowledge to bring in expertise so that you can do your job better. And while in the very short run, abdicating may feel like a relief, it usually isn’t too long before you start to wonder what is going on behind the scenes of which you are unaware. Am I going to repeat myself? Yes, I am: knowledge is power.
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