Oftentimes, individuals seek out the services of a financial planner because their lives have become increasingly complex, and they need help to get organized, simplify, or at least just ‘make sense’ of their situation and what to do next. However, some clients don’t even realize just how complex their finances and lives have really become, and therefore may not fully appreciate the extent their financial advisor actually works to create a comprehensive financial plan that simplifies their situation in an easy-to-understand narrative and manageable to-do list.
In our 34th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about how many financial advisors feel compelled to illuminate the complexity in a client’s financial plan as a means of justifying their value, and whether the ability to simplify complexity, especially as pertaining to the client’s investment portfolio, is really what defines an advisor’s value in the first place. Because while clients do find value in the solutions their financial advisors bring to them, for many clients, it is their advisor’s ability to understand who they themselves are and the goals they are trying to achieve (and why) that is even more important than coming up with solutions themselves. And so in many instances, the fear that offering a simple solution to a complex problem may end out encouraging a client to take a do-it-yourself approach (and thus losing the client in the process) is generally misplaced, because helping clients to simplify is still a tremendous value unto itself.
Even so, there are many financial advisors who have encountered prospects who already had well-diversified portfolios that need little, if any, adjustments, sometimes prompting them to question themselves and what value they can actually provide to a client who seems to already have their investments in good order. These situations can be opportunities for the advisor to reflect around their own value proposition outside of portfolio design (e.g., all of the elements aside from investment management involved in a truly holistic financial planning process), and how they might best present their services to clients. As while the value in knowledge and technical details is unmistakable, there is also a huge value proposition in an advisor’s ability to help their clients identify and clarify their goals, and then to help them manage their behaviors and the use of their capital to achieve those goals.
Another common question facing advisors is how much complexity they actually should share with their clients, which depends on where the client may lie on the ‘complexity curve’ of understanding how complex their lives actually are. As for many clients who are far along on the complexity curve are fully aware of how much their lives are embroiled in complexity (though their concern is not so much in understanding that complexity, but just in getting help to manage the complexity), other clients who are at the initial stages along the complexity curve are completely unaware that their situations are anything but simple, and don’t understand the effort it takes to bring some real simplicity back to their financial situations (and thus the actual value their advisors provide to them). These ‘early-curve’ clients may benefit from their advisor sharing the level of detail involved in developing their financial plan, thereby moving farther along the complexity curve… not as a ‘scare tactic’ to reveal how complicated their lives actually are, but just as a way to walk them through the rough terrain that must be traveled to get from their current situation to a workable, simpler outcome.
Ultimately, the key point is that financial advisors have the freedom to delve into varying levels of complexity for their clients, depending on how much the client needs (or wants) to understand and participate in. And by asking simple questions at the start of the relationship to identify why the client sought an advisor in the first place and how the client believes an advisor can help them with their goals, an advisor can leverage how they share complexity as a means to further strengthen their relationship with their clients.
- Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety
- Markets Plunge. Economies Stall. Panic Spreads. It All Feels Very 2008.
- 20 Years Later, the Y2K Bug Seems Like a Joke—Because Those Behind the Scenes Took It Seriously
- Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets
- Kitces & Carl Ep 26: Talking Clients Out Of The Bunker Portfolio
- Nick Murray
Kitces & Carl Podcast Transcript
Michael: All right. Welcome, Carl.
Carl: Greetings, Michael. How are you?
Michael: Well, doing mostly okay. It’s been a little bit of a stressful few weeks. The world is in a global pandemic and it’s a little freaky right now.
Carl: Yeah. It’s super-interesting, yeah, and really crazy, really crazy. So yeah, it’s going to be interesting for us to chat a little bit about how we handle this. I’m assuming that’s where you’d like to go.
How Advisors Face Their Own Anxiety As They Reassure Their Clients During Times Of Uncertainty [00:01:27]
Michael: Yeah. We separately did a webinar recently on calming client anxiety of coronavirus. So I thought an interesting discussion today would be calming our own anxiety, right? It’s one of those things I don’t think we talk about much, this realm where markets are going crazy, the world is going crazy, I suppose like, “These are the times we make all our money. These are when we add our value, keeping clients on board, talking them off the ledge when they’re scared, when they’re anxious, when they’re freaking out.”
And nobody ever talks about what happens when we’re freaking out maybe on the inside because you can’t say that to clients because then you just freak them out even more.
I remember going through this in the tech crash, because I started my career before 9/11, and then probably even more so I remember it in the financial crisis. There were these moments of trying to keep clients invested to stay the course while the financial system was melting down, and it was hard not to have this nagging thought in the back of your head of like, “What if it is actually coming down?”
I was telling people to stay on board because we were going to get through, the system is resilient, then we’ll recover, and the economy will grow back again. But it’s hard not to have that nagging thing somewhere in the back of your head of like, “Well, unless it doesn’t.”
And these are never the same, right? History never repeats, but it always rhymes. So last time it was, “I wonder if the financial system is going to survive.” This time it’s, “I wonder what happens to all of our economies as the pandemic rolls through.”
So let me start there, because you’ve been through this journey as well. Let’s maybe start in 2008. As you were going through this with clients, did you have doubts yourself? And how do you handle them, or think about them, or process them, or just deal with them? Because we don’t get to talk about it with clients because we’re supposed to be their anchor.
Carl: Yeah, yeah. So first I think there are a couple of quick stories and then I think we can get to some really practical things we can do. So the answer is yes, I had massive doubts, which I’m sure we’ll have a chance to talk about in another episode, but I was really sort of a crushed human after I got through it.
Part of that was just my own anxiety and fear, and doubts around things, but I think we’re now starting to remember what that felt like. If you’ve been through it maybe… I didn’t know of any people actually that were saying it. Now we look back at Y2K and we’re like, “Oh, wasn’t that cute?” Right?
Michael: Yes. At the time where it was like, “Oh, my God. What if all elevators stop working because the clocks and the floor timers were tied to the wrong number of digits?” I remember this queuing up to Y2K.
Carl: Totally. Yeah. I was trying to explain this to somebody who wasn’t even born yet and they couldn’t even process it. My point is that I don’t think we’ve gotten to the point yet where we are saying 2009, 2008, 2009 were cute. People who’ve been through that still have that in their memory.
Here’s a story. I remember I had a friend; his name is Brad. Brad had built this business and he had an offer to sell it. Somebody was going to buy it from him and Brad was one of my best friends. I consider him my brother. I had seen him build this business and I had known what it did.
Just those of us who built businesses; sometimes it’s pretty intense, right? I’d seen the sacrifices he had made and he had an offer to sell it. And this was in the middle of all this going on. And he called me and said, “Carl, hey, if I sell this, how are we going to invest the money?” And I remember saying, “Man, I don’t know.” Right? I don’t know.
Michael: It was supposed to be the big moment, clients having liquidity events!
Carl: Yeah. And let me be clear. Brad was not a client. So this is a friend who I could say, “I don’t know.”
Michael: We didn’t say “advisor friend” having their own liquidity event?
Carl: No. This is a friend who wasn’t an advisor, right? He was building a different business and he was coming to me saying, “Hey, I’m… Obviously, whenever I have money, I’m going to trust you to invest it.” And I was saying, “I don’t know.”
I remember telling my wife that and my wife was like, “Well, wait. How should we invest our money?” And I was like, “I don’t know.” So where do we go from, “I don’t know?”
So this is the other story that I think is really valuable. Dan and Barbara were two clients of mine, and to make a long story short, Dan was laid off because of his age. They were downsizing and he got a buyout. That’s what we’ll call it, a buyout package. 95% percent of his net worth was in the stock of the company that he worked for when he came to me. It was a substantial amount. It was close to $2 million in the early 2000s and the stock was at $40 without getting into the details of which stock it was, but it was at like $40.
And I said, “Dan, if you’re going to become a client of mine, we’re going to sell all of that.” And Dan said, “Well, why? Because you think the stocks are going to go down.” And I said, “No, no, no. Because I don’t know. In fact, I would prepare; if we sell, it will double the day after we sell it and if we don’t sell it, it will get cut in half the day after we decide not to sell it. But that’s not why we’re doing it. We’re doing it because of our principles, right?” This is all important to the story. Dan, I said, “You can’t become a client unless we sell this and we’re going to diversify using correct portfolio design principles, not because I know about the stock.”
We sell it, and six months later that stock has gone from $40 to $3. Right? And so Dan starts calling me Santa Claus because of that. And I keep telling him like, “Dan, I didn’t know. I would have never even wished that to happen. It was just a principle, right?”
Okay. So fast forward, Dan who calls me Santa Claus through every single scary market we’ve had and he would just be like, “Carl, I don’t even care…whatever.” Scary markets. He was like Teflon from that point on. It was just like, “Whatever.” So anything we had happen between Y2K and September 11, as crazy as that was, and all that stuff just didn’t faze him.
And then he goes on a cruise in late 2008, early 2009. They leave from LA (which apparently means there were more retired folks?). They get to the first port and Dan calls me. This was with Lehman, AIG – that week. He was on a cruise that week with a bunch of other retired people and he was like, “What’s going on? Should I come home?” And I said, “No. Listen, things are pretty serious. When you get home, come meet with me. But just finish… You’re on a boat. You don’t need to jump in the water.” And he’s like, “Well, half the people are flying home from the first port.” So Dan comes home.
So the reason that all this context matters is because Dan was calling me Santa Claus, right? So this was a big deal. Dan comes home. Dan and Barbara come into my office and I took them through the scary markets conversation that you and I have talked about before. This is the point for the conversation.
I remember looking them in the face and saying, “Dan, look, we’re in a lifeboat. It makes no sense. We’ve kind of prepared for this, but remember, risk is an arbitrary concept until you experience it, right? So all the lifeboat drills in the world – they’re good, but they’re not the same as actually getting punched in the face, right? So you’re in a lifeboat. The only thing…” After taking them into the whole scary markets conversation like, “Look, it makes no sense to jump in the water. We just need to stay the course.” You guys can go review the scary markets conversation.
This is the point for this thing. I remember closing the conference room door and thinking to myself, “Oh, my gosh. I hope I’m right.” Right? So there’s an internal conversation that we need to be having that we probably do need to keep separate from clients. And in the internal conversation, we need to acknowledge that when we say that cute little phrase where we say the last four words of any great investor, “This time it’s different,” what we mean is the end is never different, meaning they always end. So far they’ve always ended.
And so we need to acknowledge two things. One, the beginning is always different. Right? The stimulus for these things is always different, enough that you feel like…
Critical Events Precipitating Client Anxiety May Always Start Differently, But They Have Always Ended The Same [00:11:05]
Michael: Right. This time it’s coronavirus pandemic. Last time it was a financial system meltdown from the mortgages. The time before that it was 9/11 and the tech boom and crash, then it was algorithm trading in ’87. It was an oil crisis in ’73. They are always different.
Carl: They’re always different.
Michael: The precipitating thing that at least sets off the chain reaction is always different and, right or wrong, the presumption is always, well, it’s going to end the same and the ending is, “We get through this, things get growing again, scary stuff eventually ends, and then we move on.”
But as you said, there’s this lingering thing, right? Clients have this lingering doubt, “Okay. But what if it actually is different?” And right or wrong, true or false, we’ll see. That seed gets planted in our own heads as advisors, like, ”Oh, my gosh. What if it is different this time?”
Carl: Yeah, yeah. And I think there are a couple things that are super important. One is that the beginning is always different enough to make you feel like it’s unprecedented. We’ve never seen anything like this before. That’s always true.
So it feels like, yeah, in the middle of 2008 and 2009, we weren’t just talking about, “Oh, it’s scary.” We were talking about things we never heard of before, the credit default swaps and who knows? And people didn’t even know how to explain it. It’s always different. So first, we need to feel that, “Okay. This is different. It’s okay for me to be scared because this is unprecedented. We’ve never seen this before.”
Number two is the idea that it will always end. We just need to acknowledge that that little creeping doubt… We weren’t basing this off 95 years of stock market data. Right? And then you want to go back a little bit further and say, ”Oh, no. I’m not. I’m betting on the concept of capitalism.” Okay. That’s fine too, but the concept of capitalism…when we talk about the window of human history, we’re still talking about a relatively short time period.
Michael: Okay. You’re ratcheting up my fear here, Carl.
Carl: I know, I know. It’s on purpose. We need to at least acknowledge that that is uncertain, but what do we do? So here’s the solution my head. The way I go through it is believing that this time, the ending is going to be different. Even though it’s a possibility, I think acknowledging the possibility is important. Not externally, internally between us advisors, it’s important for us to go, “That feeling I’m having, I need to acknowledge that, right? I need to find a safe space to talk about it.”
But just because something is possible doesn’t mean it’s likely. Right? So the only thing left to do is live in this uncertainty and say, “Okay. How do I make a decision? I’ve got to rely on the weighty evidence of history.” It would be unreasonable to assume that this time is going to end differently because the only precedence we have that we’re making all these decisions on is that you know what? We get through these, we figure it out, and we get through them. Right?
Michael: Well, it strikes me as well. I remember particularly going through this in 2008. It was different to me when the tech crash happened and 9/11 happened. The actual stock meltdown, well, for the tech crash was fairly confined to tech. Granted, everyone was obsessed with tech and they wanted to put all their money into the Nasdaq cubes instead of broad-based portfolios.
So people got to concentrate and portfolios got hammered a lot harder. But broad-based portfolios held up quite well. Heck, small cap value even went up while all the rest of the market was melting down because it had been so neglected in the late ’90s.
Even when 9/11 happened, I felt there was this reaction in the country of, “We got hit. America is strong. We’ll bounce back.” There was such a surge of patriotism that I felt this acknowledgment, “Yes. We got hit and this may have done some economic damage, but we’re better than this. We’re stronger than this. We will power through this.” And the surge of patriotism that came to me, I never had doubts in 2001 going through 9/11, of, “Would markets be okay? Would the economy be okay?” Yes, terrorism has hit home. Our lives have changed.” We haven’t gotten away from TSA since. But there were never doubts for me in telling clients that they needed to stay the course, about staying the course.
2008 and 2009 to me felt different, right? Even as participants in the financial services industry, we were seeing things that we had never seen before. Institutions that we were accustomed to, even within the industry, were suddenly disappearing and vanishing. Organizations that had been around for a hundred-plus years were suddenly vanishing basically overnight.
I remember conversations with clients of the firm in the fall of 2008, trying to keep them on board, and all the same stuff – this too shall pass, let me pull out the charts, here’s how long it typically takes for recovery and bounce back periods – all that stuff that we try to do to anchor people. But I’ll admit for that one, that nagging fear in the back of the mind was definitely there like, “Man, I hope this is actually true because if it’s not we’re all kind of screwed here.”
The irony to me, at least with the nerdy logical rational brain that I have, frankly, was that it was kind of a comfort in some ways. It sort of reminds me of the bunker portfolio scenarios even before the coronavirus. The folks that want to buy 100% gold because they think the whole economic system is going to melt down someday for all the various reasons that they think the whole economic system is going to melt down.
There was always a piece of those scenarios of like, “So what exactly are you going to do if it really melts down? Are you going to chop the gold with your knife?” You really need guns and food storage. And even that’s only going to last you so long if literally the whole economic system has melted down.
There comes a point where I feel like you have to keep powering forward not just because the alternative is too awful to contemplate, but because there are no tools for the alternative where you’re like, “We can talk about gold as a hedge, but if you really want to blow up the entire economic system, gold ain’t going to cut it.” That actually still assumes there’s some foundation of government and systems that cares about gold and the interchangeable nature of commodities as opposed to just owning hard goods.
It’s not exactly the same, I think, for this coronavirus cycle. But the more it grows, the more it compounds, the more these discussions of sadly how many people may die, how much loss of life there will be, how much permanent harm we are doing to the economy as travel starts grinding to a halt and business starts grinding to a halt. These questions start surfacing again like, “What if we don’t come back from this?” or “What if we don’t come back in the same way that we have all the other times that terrible things play out?”
But I still keep coming back to some combination of, okay, well, we actually still have some historical precedents for this like the Spanish flu. And yes, eventually, the world did come back and it did grow again. We still get through this. We’re not quite at the 12 Monkeys level and I don’t know what the alternative would be anyway.
There comes a point where you may as well bet on the system recovering because none of our bets really matter if you think it’s not going to. It’s sort of a Pascal’s wager. Do you want to bet that God exists or not? Not to go into an entirely religious direction here, but famous philosophy wager around should you bet that God exists or not. And it essentially comes down to well, you may as well because if you’re right this is going to go well for you and if you’re wrong this is going to go really bad for you. But if God doesn’t exist, you’re not giving up much by betting he does. So you may as well go for it.
I feel like there’s a similar thing that comes forward, but even that to me still leaves this lingering doubt. It means that we’re sort of assuming this blind confidence for ourselves. I’m going to tell clients, “You gotta keep going, it’s going to be okay,” even though I’m actually not sure deep down it’s going to be okay because I don’t know where else I could take them anyway. So we may as well keep going down this journey together and we’ll all collectively pray it works out.
Carl: But here’s the deal with that. Right? So number one, what are you going to do anyway? What are your alternatives? That’s the way I always think through it. What are my alternatives? Okay.
Number two, the only rational conclusion based on the weighty evidence of history – at least the piece of history we’re using – the only rational conclusion is that we’ll get through this. Right? And we just have to remember that humans are uniquely qualified and really good at dealing with problems right in front of their faces. Right? MacGyver bubble gum and duct tape style. We’ll figure this out. I don’t know, but we’ll figure it out. Right? We’re terrible at understanding what’s going to happen two weeks from now.
What has Nick Murray been saying? Optimism is the only realism. Being irrationally optimistic about this is the only thing to do and it’s actually that “We’ll figure it out” has been true. So I’m totally cool with assuming otherwise. If I had a bunch of data that told me that, “Oh, you know what? It actually turns out 50% of the time, we don’t figure this out.”
But so far and what I’m talking about figuring out is the capitalist system speaking broadly. I have no idea. If you own individual holdings or you’ve made bets on Bitcoin, or you bet on whatever else, gold, any individual, I have no idea. I only know how to handle this: when I’ve got a broad-based globally diversified portfolio that’s aligned with what I said was important to me. The reason my money is invested that way is because it gives me the greatest likelihood of meeting my goals based on the weighty evidence of history. That weighty evidence of history included the idea that we would have markets like this (in air quotes).
We didn’t know when, we didn’t know how, but we knew they would come and we’re not even… Where are we, 25? As we’re speaking I don’t know what the numbers, but we’ve crossed into bear market territory. But we’re not down 50. The S&P 500’s not … The Nasdaq’s not down 82 or whatever it was in 2002. Right? And I’m scared to death. I’m talking right now as if I’m not, but, of course, I am. I’m human. But this is the dialogue we have internally.
And then there’s one more piece that I think is useful for people to remember. So now let’s talk a little bit about how you would feel it out with clients. There are times when overconfidence plays a productive role, where overconfidence becomes a tool in a backpack, right? And I can’t find the reference, but somebody told me about the role, the sort of research that had been done in military science around times where you have to look people in the eyes even though you’re not sure yourself and say, “It’s going to be okay.”
I’ve been in places like that in the woods in some of the adventures that I do. I’ve been in places where I was, “I’m not sure exactly this is going to work out.” I was the leader. I couldn’t look at the other people and go, “I’m not sure this is going to work out.” I had to look at them and say, “I know you’re freezing. I know you’re cold. I know that’s a really scary place to go, but listen to me. We’ve got to go there.” Right?
So, Dan and Barbara, that’s what I had to do in that meeting. I had to say, “Okay, look. I’m not sure. We’re in uncharted territory. I can acknowledge that. This field is crazy, but Dan and Barbara, I can’t think of anything better to do. We built this portfolio based on your values and goals. We’re broadly diversified. We followed all those principles. We got low-cost investments. The investments are working like we expected them to work in this environment. Right? There’s nothing broken there. There’s no fraud. I can’t think of anything we should do differently,” and then I have to walk out and go, “Oh, gosh. I hope I’m right.” Right? That’s all we can do.
If there’s something better to do, tell me, but I can’t think of something better to do. And we might be wrong. But to assume we’re wrong would be to deny the weighty evidence of history. How about that?
How Advisors Can Use (Rational) Overconfidence As A Powerful Tool For Effective Leadership During Difficult Times [00:25:21]
Michael: It’s an interesting point of just how we talk about these as behavioral biases, all the negative implications of behavioral biases, which overconfidence is always one of the big ones that’s out there. But yeah, I think you sort of indirectly make a good point. There’s a reason why this behavior got naturally selected for that, right? If it was actually counterproductive to our survival, the people that carry that trait tend not to survive. There’s a reason this is honed for us and I think you make a good point. Right?
Take it out of modern environments and back to our roots just a few thousand years ago. Almost everything in the world was scary uncertainty. We didn’t know how anything worked and every day was just survival mode with the herd, right, with fellow humans, where someone was the leader leading the herd. And you needed a confident leader, and the leader may or may not have actually known what was going on. But someone has to lead and you have to lead confidently or people don’t follow. Right? It’s one of the first things you discover. I still remember as a parent early on, learning that lesson that if you see your child fall and get hurt and you rush them upset that they got hurt, they just get more upset because they see you’re upset.
If you want to calm a child when they’ve gotten hurt, when something’s happened, you have to be calm and exude the calmness, and they feed off your calmness. And it helps to settle them down even if you’re still thinking about it in your head like, “Oh, my God. Did you just break a bone?” How about, “Is she hurt? What just happened?” Right? All those thoughts are rushing in your head as a parent, but you have to exude the confidence because it helps the other side even when you have the doubts or the worries in your head.
I think there’s a striking similarity; there’s a striking parallel here to me. It’s just recognizing that it’s okay to be confident. It’s okay to be overconfident. It’s okay to be irrationally overconfident sometimes. And you can still recognize that you might be wrong in the back of your head. Right? We don’t know these things. We don’t know the future. I cannot unequivocally know that this time won’t be different and if it will end the way it was kind of differently leading in. But at the end, I’ve got a role to play in trying to transfer that confidence to my client, which means even if I’ve got doubts, I need to carry the overconfidence. That’s part of the burden we bear.
Carl: Hey, Michael, one quick thing I just want to point out is it’s not irrational overconfidence that we’re talking about, right? Because we’ve already said the story; so yes, it’s overconfidence…
Michael: It’s rational overconfidence.
Carl: We’re not talking about a leader who’s going to take the whole world down in flames. I don’t want you to run with me off a cliff. What I’m saying here, based on everything I have, the course of action here is still uncertain, which is me acknowledging the reality of uncertainty internally and then saying, “We don’t know.”
And in the face of that uncertainty, this is a little different than a critical care doctor that looks at somebody knowing that person is going to die, but saying, “You’re going to be fine. You’re going to be fine.” Right? This is different than that in the sense of this is a critical care doctor that’s more like, “Well, this is touch and go. I don’t know how the situation is going to work exactly, but I’ve been through this a couple times before. And I think there’s an 85%, 90%, 95% chance that if we get this person in the hospital quick enough they’ll survive.”
They’re not going to talk to the patient, and say, “I think there’s an 85% chance that you’ll be okay… But there’s still a 15% chance you’re going to die.” They’re not going to say that. They’re going to look at you in the eyes… This is what we’re talking about here, right? This is rational overconfidence. They’re going to look at you in the eyes and go, “You’re going to be okay. Stay with me. We got you.” Right? That’s rational overconfidence. I don’t even know if it’s the correct way to say it, but that feels different to me than like, “Follow me. We’re going.” It feels different to me than “Braveheart” – against all odds and it will happen to work out. Well, if this were against all odds, we would be making a different decision right now.
How Advisors Can Deal With Lingering Doubts Even While Reassuring Clients [00:30:05]
Michael: So I like the framing of rational overconfidence. But I guess as we wrap up, the one other question I’d put back to you, Carl, is just how do you handle, how do you process, how do you quell the doubtful thoughts that still sit in the back of your mind as you’re trying to have that conversation with clients?
I think some of us, maybe more than others, but all of us, at some point, still come back to the thought of, “Man, I hope I’m right about this, but I’m not sure.”
Carl: Here’s the tool I wish I would have used in 2008 a little more explicitly. I was doing it in my head, but I didn’t realize I was doing it. And it’s what I do now. Write yourself an argument. Pretend like you’ve got to convince a court, a jury, of the position you’ve taken. Get it written out; it should just be one page, right, with a Sharpie even. That’s the level of resolution I’m talking about.
So you just go through like, “Here’s how I’ve made this decision that the best course of action right now…” You’re dealing with a complex adaptive system, right? It’s changing. New information’s becoming available. So you’re going to have to keep updating this thing.
But I think you write out, “Here are the principles. Based on the weighty evidence of history, da-da-da-da-a. I recognize that this time the beginning was different.” And at the end, you come up with this conclusion that, “Based on all of these facts, the only reasonable thing I can think to do is to stay the course because of all of this.”
Then if you have that written down, keep pulling it out, right? Just use it as a touchstone because what happens is you swirl and you lose track of what you’re even swirling about. And then you can go, “Wait, I’ve already made this decision” You can pull that document and go, “Is there any new information that requires me to change what’s on this document?” Because if you keep that touchstone there and keep going back, you’ll catch yourself. You’re going to still do it 50 times a day. Right? You’re going to wake up early and see how Tokyo opened or whatever. Right?
But if we can get to the point where we can take ourselves back to breathe at a touchstone, the things that we can control are on a piece of paper and then we have to let go of the rest. That’s it. Right? That’s all I’ve got. I’ve been thinking about this for a decade. That’s all I’ve got.
Michael: Yeah. And for me, I think it really comes back to this fundamental challenge. I don’t know what the alternative is that I would plan for anyways. There comes a point where there is no Plan B. Right? Markets may go down, they may go down a lot, and they may go down a lot, a lot. Some people may die. A lot of people may die. The economy may go down some. The economy may go down a lot. Heck, take it back to the Great Depression when the market crashed almost 89% from top to bottom – and we aren’t even that bad yet. We’ve had such horrible stuff, but at some point, humans move on and adapt. The system adapts. We start growing again. We move on to new opportunities and new highs because if the whole system just fundamentally breaks, I don’t know how else to plan for that anyways. And not to be totally morbid about it.
It’s amazing how adaptive the system can be even in the face of horrible, horrible stuff that has happened historically. But there comes a point where I feel like you have to power on with that belief, with that rational overconfidence framework, because I don’t have a solution for the alternative, “What if the entire system stops functioning?”
Carl: Look, I know we have to wrap up, but here’s one mental framework I use, around that exact thing. I would literally get down and say, “Okay. Great. Let’s go that path.” Right? So then you go down the guns and butter path, really. If we go that path – I used to have this conversation with clients. “Let’s just explore this together.” Right? “If we go down that path, what would be the reasonable portfolio? What would be our conclusion portfolio?” So let’s just go with guns and butter. My clients would say cigarettes and powdered chocolate. Somebody said powdered chocolate. She’s like, ”That way I can trade with all of you people who just have powdered milk; it tastes so gross.”
Anyway, guns and butter; then the framework I used was, “Okay. Guns and butter would be the appropriate portfolio in that environment.” And then the question that I found really helpful to myself was what percentage of the time in the history that we’re dealing with, modern markets history, what percentage of the time has guns and butter been the appropriate portfolio? Zero? Maybe if you’ve dealt with days? Like, “Oh, yeah. I could pick out a few days where it would have been…” But mainly it’s zero. Do I want to make a bet on zero?
That’s how I would get that. I realize the odds. Maybe it’s 5%. Do you want to make a bet on 5% or 95%? In the end that’s where we get to be rationally overconfident. Just the odds are in your favor of saying what you said, which I think we’ve got to remember. It’s unbelievable how good humans can be at adapting and making something work, at figuring things out. We’ve gone through way crazier stuff and we don’t even know what the role of the massive amount of news, social media, the stable market we’ve had, politics, and nationalism. And you mix all that in and it’s, “We’ll figure it out. We’ll figure it out.” So anyway, that’s all I got for you.
Michael: The takeaway to me: it’s okay to be rationally overconfident. It’s the reality of our role in trying to lead clients that sometimes as a leader, you have to express a rational level of overconfidence, even if there are some nagging doubts in the back of your mind, and it’s okay to have the doubts.
That doesn’t make you a bad advisor or a lesser advisor. You can acknowledge the doubts and recognize that you have them. And then do what you need to do to help move clients forward.
Carl: Yeah. I’m fine. I know we’ll record another episode about this probably, but just on that little note, just find a place where it’s safe for you to have those doubts. Right? Whether that’s a paid place or a friend, you gotta have a place that’s safe to have those doubts where you can just go, “I don’t know.”
Talk it through. Hug it out. Well, don’t hug it out right now. Air hug it out and then get back to being irrationally overconfident because we need you. Right? We need you, and the people need you. So thanks, Michael.
Michael: Thank you, Carl.
***Editor’s Note: Can’t get enough of Kitces & Carl? Neither can we, which is why we’ve released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
- Oliver Wendell Holmes, Sr.
- John Bogle
- Kitces & Carl Ep 15: Why Are We So Afraid To Just Listen
- Simple Financial Solutions Often Beat the Complex Ones, by Carl Richards, New York Times
- Dimensional Fund Advisors – Mutual Funds
Kitces & Carl Podcast Transcript
Michael: Greetings, Carl.
Carl: Well, hello, Michael. How are you?
Michael: I’m doing well. I’m doing well. Another day in home office life. That seems to be our reality these days.
Carl: Yeah, amazing. Amazing.
Michael: I’m definitely an introvert, but as someone that does enjoy the conference speaking world and getting out and talking to advisors, I do miss a little bit of the opportunities to get out and talk to everyone in our advisor world. I feel like we’re all supplementing with more social media communication, which is something, but not quite the same.
Carl: Yeah, for sure. For sure. I agree, it’s going to be fun when we can see people in real life again, for sure.
Michael: Yes, yes. Well, I know you had queued up as we were getting ready for this episode of now putting out to Twitter like, “Kitces & Carl episode coming up. What do you all want to talk about or hear us talk about?” Because usually, I would ask people when we’re at conferences. We’re not at conferences, so we don’t get to ask people directly. So were there…what did you hear back that struck a chord most with you of things we can be talking about today?
Carl: Yeah. Well, first, I think Greg Davies’s suggestion that we talk about swimming in cold water was a good one. But then I realized that would just be me talking and you shaking your head. So outside of that one, Scott on Twitter asked, I thought a really good question, which I get asked a lot about why do advisors or planners feel the need to make…well, he asked specifically, “Why do they feel the need to make the portfolio and the investment process so complicated?”
I think we can broaden that even generally, like why do we feel the need to make things so complicated? It happens to be one of my favorite subjects. So I thought that would be fun to talk about. So, I’m actually super-interested before because I have a hunch that people might know my answer about making things complicated.
But before I jump on it, what would you say to that? How would you answer Scott’s question? Why do we feel the need to make things so complicated?
Why Advisors Feel A Need To Make Things So Complicated [00:03:21]
Michael: I think it’s because, at the end of the day, the nature of being in the advice business is that you live in complexity. I think it’s what we all get trained for. It’s the old-school disturbing track. “Mr. Client, you think your life is really simple, but let me tell you about all the problems that you didn’t even realize you have,” right? Disturbing tracks and sales talk.
Like, “I’m going to come up with disturbing tracks of all these complex problems that you didn’t realize that you have that you actually do have, that I’m going to tell you about, scare you about, and then it’s going to turn out I’m the person that can solve it. And let me come in and solve that problem for you.”
And I don’t even mean to knock that. That is true in many situations. People don’t even realize the amount of complexity that actually does live in their lives that may need an advisor to come in and help. Like, “Oh, you think your family situation is simple? Okay. Well, actually, let me tell you about how you’re setting up your estate plan for a disaster because you’ve got a business, you can’t split it amongst your kids. And here are all these family squabbles that are going to happen.”
A lot of the time, I think there is more complexity than people sometimes realize. And one of the most straightforward ways that we demonstrate value as advisors is, “Your life is more complex than you realize. I can help you solve this complexity. Here is my solution,” which just thrives in the complexity domain, right? If your life was simple and it could remain simple, you probably don’t need me, I think, is what sits in our heads deep down.
So when that’s the mindset, and that’s what we’re trained into, I think it’s naturally where we go. Anybody who comes to the table needing help with simple issues, one of the first things we end out doing is complexifying it (I don’t know if that’s a word, but I’m going to make that a word, alright?) And not because we’re trying to confuse or obfuscate or anything, it’s just like, if I’m going to add value, I’ve got to show you that the situation is more complex than what you understand it to be today so that I can add value in those complexity points, because if it was that simple, you might not need me in the first place.
So does that resonate? Do you even agree with that as a premise for why we get paid for advice? That we live in these points of complexity? Before we get into investment portfolio complexity in particular, because I do think there’s a little bit of a different angle there. But as kind of a base case, do you think that’s valid as to why we are here as advisors and the value we provide?
Carl: Well, okay. So I think we’ve got to…to me, we’ve got to separate a couple of things. One is like, if we’re explaining why we do it, why we make things complex, I think that’s valid, right? I’ve thought a lot about this. I think there are two primary reasons. Well, I think there’s actually three.
One, we don’t…and this is the part that I want to circle back to in terms of you asking me if I think it’s valid. Number one, I think we’ve misunderstood our value. And that’s the part I want to circle back to. I want to hold that for a minute. But two, I think either it’s an old sales tactic that we didn’t know, which you pointed to. I always think about it as, we’ve been trained to dig a pit, throw clients into it, and then look down and say, “Hey, I’m the only one with a rope.” Right? So that. But more…
Michael: Yes, but that’s the bad version. I want to at least…take us to the good version.
Carl: I agree. I agree.
Michael: But yeah, there is a little of that, like, I’m going to dig a hole, throw you into the hole, toss you a rope and say, “See, I’m the only one that can save you.” There’s a little of that sometimes.
Carl: That’s the disturbing sort of track, right? But then I think there’s a less…as you pointed out, I think most of the people listening to this…that’s maybe the industry as a whole, but most of the people listening to this show are probably more likely the second version, which is, it just naturally happens as you’re human, and you move along in your career, you tend to move towards more and more complicated problems. Clients have more complicated problems. You learn more.
As you get more experienced…you see this in all areas. You see this with attorneys, you see this with accountants. So that just sort of naturally happens that way. It’s like a garden that a few weeds grow. And without checking yourself, you don’t realize how complex you’ve become in terms of the language you’re using. And you’re not even…you’re not intentionally doing it.
Then if you get videoed or…you actually listen to you, you go, “Wow, I didn’t realize I was using…” You don’t even realize you’re doing it. I think that’s…the people listening to this are probably more, I would bet 99% in that camp, where it’s just sort of this thing that kind of happens and… And here’s the thing…
Michael: People’s lives get more complex. At some point, it’s so complex that they need some help. And so it’s like, yeah, that’s why you call me, right? If your life is simple, do your thing. When your life gets complex, call me, and I can help. I’m an advisor. That’s what I do. I help people with the complexity that they can’t get through on their own.
Carl: Yeah. But here’s the thing I think is misplaced. And that is, that statement does not assume that the client wants me to speak to them or make things complex. I think the fundamental…the root of this problem is misunderstanding that we are not in the solutions business, we’re in the problem understanding business.
I know we have to provide solutions later, obviously, yes, of course. But first, the massive value we do is in listening, clarifying, and getting clear about A, the current situation, and B, where somebody wants to go, and C, their behavior along the way, right? And so I think the misplaced…where it becomes misplaced, in particular, I see this in the investment piece, is we think that if we make it simple, then people won’t pay for it. Like if I make it simple, they would do it on their own.
And I remember when I had my first…and, yeah, there’s a couple advisors that love to tell this story, a couple of the folks from the sort of evidence-based community that you and I have both been parts of. They love to tell the story about when I had…I had a client once who had like $3 million or $4 million with me, and we had it in 17 different mutual funds, right, and it was like sliced and diced down perfectly, beautifully constructed portfolio with exactly the right allocation, small and value and international and all that stuff. And we went to do some tax-loss harvesting, and the suggestion was to put it into…the particular company that I used a lot was Dimensional, and Dimensional had one of their Global Allocation funds. So we were going to tax-loss harvest out of this 17-fund portfolio. We were going to buy the Global Allocation fund and sit there.
And then the assumption was we were going to trade back. But I was like, “Wait, this automatically rebalances. Yes, we might be missing out. I give you that you, there’s probably like 1% of the optimization you could do, maybe you’re missing out on, but I…” And so I just stayed there. And I had this client with $3 million or $4 million with 1 fund in their portfolio.
And, of course, I had to explain. And the way I explained it is I printed out the 2-inch-thick, basically, prospectus, right? Because it had like 14,000 holdings. I printed that out, and I just dropped it on the desk once and said, “Hey, look, we’re broadly diversified.” But my point here is that client loved it. And so then I started doing it for as many clients as I could. And I realized the solution can be simple, super-simple if the client feels thrilled. It’s the diagnosis that’s complex.
How Advisors Can Frame Their Value Proposition For Clients Who Don’t Need Portfolio Solutions [00:11:59]
Michael: Well, but then what happens if you’ve got a prospect who comes in, Carl, and they’ve already got a batch of a couple of Vanguard Total Market funds? Is just that like, “Hey, looks like a solid, well-diversified portfolio. I was going to tell you to buy these anyways. Looks like we can’t work together. Have a nice life?”
Carl: No. Well, so first of all, if that was true, you would have an obligation to tell them that. Second, if that’s what you think your value is, you’d also have an obligation to tell them that. But I don’t think that’s a real advisor value.
I think you could say, “Let’s get really clear about where you are today.” First of all, I’ve never had that happen. I’ve never had somebody come in with a…they raise their hand and…because I can’t make you come see me, right? So if you raise your hand and say you want to come see me, there must be some reason you want to. So I’ve never had that happen. But if it did and I uncovered it, it was like, wow, the portfolio is built really well, I don’t think we need to make…there’s a few…I can’t believe how many times I did say this.
“You’ve done an amazing job with this. There are a few small tweaks around the edges that we can make. And you and I both know that small tweaks made over long periods of time make a massive difference. And that’s what I’m here for.” But mostly that’s like the prescription, right? And you and I both know from going to the doctor, the prescriptions are…the prescription is the simple part, the part that was hard is the diagnosis part.
The other thing I will make clear is sometimes you do need to drop clients right into the middle of the complexity pile so that they can understand. Because I did see some people occasionally take what I’m saying a little bit too far. And it’s a drawing, right? They’re simplistic. Then there’s that big ball of yarn, which we call complexity. And on the other side of complexity is a thing called elegant simplicity, and that Oliver Wendell Holmes quote that “I wouldn’t give a fig,” which is such a great quote, it includes fig, “I wouldn’t give a fig for the simplicity on this side of complexity, but I’d give my right arm for the simplicity on the other side.”
So occasionally, I think that’s something that happens in our minds, we’re confusing simplistic, which isn’t valuable, with simplicity. And occasionally we get clients who make that mistake, and we need to drop them, sometimes pretty aggressively, right in the middle of the pile of complexity and go, “Oh, that’s cute that you think you know that.” I would never use exact language. But that’s sort of…like, “That’s cute that you think that this is really simple, but let me walk you through the 20 years of work that it took to get to this side.” Right? But that doesn’t mean that the solution can’t still be simple.
Michael: There are two things that strike me about this, which I think just really do very quickly get to the true heart, the true core of the value of what we do, it is, as you were saying, it’s the client that comes in and already has a nice, low-cost, broadly-diversified portfolio, where you’re looking at and saying like, “Yep, this actually looks pretty good. So am I even going to be able to work with you now?” Like, what am I going to do?
I think that gets into just a good, healthy moment of reflection, maybe even an awkward point for some people who are listening, of, if the client came in with a portfolio that was already pretty well-tuned to what you typically recommend anyways and you have nothing else to say to them, then, by definition, your value is not really what you’re doing in your broad advice; your value, at the end of the day, is that portfolio thing, such that if someone doesn’t come in and need specifically the portfolio that you’re offering, that you’re selling, that you’re recommending, you may not have enough other value at the table to do it.
Which to me is distinct from…there are advisors I know out there who have very deep and broad holistic financial planning processes. They do a lot of stuff. They happen to be attached to the AUM model. The portfolio is part of what they do, but if the client came in and said, “Well, I’ve already got my portfolio stuff set up, I need help with all these other things,” you could just say, “Well, great. I don’t even need to make changes to your portfolio because you already own what we recommend. Now let’s talk about all the rest of the advice process that we’re going to do with you.”
Carl: Yeah. Let me just comment real quick on that. First, I think, as we said earlier, that very rarely happens. But if it does, I would be celebrating that. And then I think if anybody is listening and they find themselves in the place of like, that little thought experiment caused you anxiety, as Michael pointed to it, I think it’s a really good time. I just want to remind you, like, I’m telling you, if I could reach out through the camera or the podcast and grab your arm and look you in the eyes, I would be saying to you, that’s not your value.
That feeling you just had, it may be normal, but I’m pointing you…we’re pointing you to something that’s like, it’s fine that… Now, again, none of this underplays the technical…the need to be a technical rockstar, right? Like a defensible investment portfolio, a defensible investment process, a financial planning process is super-technical, but sitting on top of that is all the work we have to do around goal clarification, getting clear about goals, managing behavior for 20 years, which clients don’t come in asking for, but we all know they need, right?
And then the small little tweaks around the edges, like, yeah, building a portfolio is one thing, managing it over time is another thing, tax implications, all of those other things that we do…aside from behavior modification, all those other things we do, that’s the value.
And really underlying it is aligning your use of capital with what you said was important to you. And it’s cool that the portfolio matches that right now. Chances are if you’ve ever run into that – what luck, they didn’t know. They read an awesome John Bogle book or something and it was…
But I just want to make sure people understand that if you feel anxious about that, if you think that’s your value, it’s really, really important to do some reflection and make some changes. Because picking portfolios, designing portfolios hasn’t been valuable for 10 years, even though clients are still paying for it. And it’s going to become less and less valuable as the aligning somebody’s use of capital with what they say is important to them, and everything that comes out of that being a guide instead of the map, right?
Can Advisors Ever Oversimplify A Client’s Situation? [00:19:15]
Michael: Well, and I think there’s an extended version of this that really is the same issue on, call it on the other side of Sir Oliver Wendell Holmes’s complexity, right? It’s the client where they had a bunch of complexity, they had a big mess, you have simplified it down.
And then I think for a lot of us, we start getting that other fear of like, well, I’m going to do if at some point the client comes in, is like, “This is actually simple and straightforward enough now, I’m just going to go ahead and do this on my own on etrade.com.” Like, “Thank you for the help in getting me from a really complex mess to something simpler, but you made it simple for me. I’m good now, I’m going to move on.”
And again, I think a piece that nags down deep in our brains, either stated or otherwise, of, do I have to make sure I don’t make it so simple that they just will decide they don’t need me anymore? And it’s like a self-preservation thing that starts to kick in.
Carl: Yeah. We’ve got to talk about this because that’s a fear that I hear often. And it’s reasonable, it’s a valid fear, but I really…I have been warned my whole career about this place called “Too Simple,” right? I’ve been told, “Look, it’s like a piece of cardstock with Sharpie.” Right? I’ve been told that there’s monsters that live there. And if you go there, your career will end.
So I thought that sounded kind of fun. So I read every book I could. I hired guides. I think I live there now. And I’m telling you, the water is just behind. There’s no monsters here. And here’s the way I think it’s important to understand. I lost one client, one client, because of what you just said. I remember who they were. I can remember their names right now. I’m just not saying them, right? I remember why they said it.
And here’s the way I think you position this. I think from the beginning of a relationship, you are pointing to that land, that land. And I just started calling it the financial pornography detox program sort of as a joke in the second meeting after a client became a client, right? We’re doing all the planning work. On the way to…
Michael: This is your nice way of explaining how you’re going to unhook them from CNBC? What did you call it? The financial pornography detox program?
Carl: That’s exactly right. That’s what I would say. On the way walking them to the door, I would say, “Hey, by the way, just I don’t know if you know this, but you just entered the financial pornography detox program.” And I would smile and joke.
And then I would say, “Here’s how we’ll know when it’s over. We’ll know when it’s over because you’ll start to notice. You’ll just start to notice. It’s gentle and relaxed. It’s not a problem. You’ll just start to notice things that you used to think were really important aren’t. And you’ll start to notice that you’re not paying as much attention anymore.” So what you’re trying to do, you can do it in a lot of different ways, you’re trying to set up early on that when you get to the land that feels like everything is simple, we’ve won. “That was our goal the whole time, was to get you there. I literally want to take this plate from you. If I can get you to the point where you’re not even thinking about it anymore, I’ve just become one of the most valuable people in your life.”
So you’re trying to set that up early so when you get there, you can go, “Yeah, yeah, yeah, I know it’s super simple.”
And if you need to, and occasionally you do, and Michael, everybody listening to this loves these moments, where they’ve got to take the stereotypical engineer client through the complexity a bit. Like, “Okay, sit down for eight hours. Here we go.” Right? And a little bit of that, like, slightly sassy version of me. It’s sort of like, “Okay, I think that’s cute that you think this is really simple, but come on in, we’re going to schedule…because look, if you’re going to leave, you need to know. Like, you can go. It’s a free country.”
Michael: The fact that I made it look simple doesn’t mean it’s simple.
Carl: Yeah, yeah, come on in.
Michael: So let me open the curtain for a moment and show you how much complexity I did to make this simple, and then you can decide if you want to do simple on your own.
Carl: Right. But I think the really important part of that is let’s not treat the exception as the rule. The rule is that most people are just like, “Oh my gosh, I don’t even think about it anymore.” They just take care of it. Everybody I know right now, everybody I know, if you ask them what’s the one thing, “Oh, man, life is just so complex. My money is just so complex, I just want it simple.”
So if we can deliver on that. And then occasionally we have the stereo-…again, I’m beating up on engineers. I’m totally being stereotypical, I know. But we have the stereoty-…occasionally we have them, that we have to just lay the “oh that’s cute” little lecture on. Let’s do it, right? But for the bulk of the people, they just don’t want to worry about this. So your value is in making it as simple as possible. Even though it feels counterintuitive, that’s the value. The more I told people they could do this on their own, the more they wanted help.
Michael: It strikes me that I guess, as Sir Holmes put it, there really are kind of two ways that you end out coming at this, depending on, I’ll call like, where clients are in the complexity curve. So there are folks who have not yet had the revelation their life is complex. And so our…I was going to say our role, our path with them is that we have to start complexifying.
Like, “You don’t even realize the sharks and alligators at your feet with every step. I need to show you why your life is more complex and actually has more risks or problems than you realize. And then I’m going to help you solve them. But you genuinely do need to know, you are underestimating your complexity.” And so we take people up the curve, right? “You think your simple portfolio is fine, let me show you how you’re actually still underdiversified, how there’s some other issues, yada yada.” But obviously, showing them all the parts, and then the portfolio. And then there’s a group…
Carl: Wait, before you go to the second, let me just mention one thing. I think that’s a really beautiful model, right? And the one way to think about that is, it’s not that we’re taking anybody anywhere. It’s not that we’re digging a hole. It’s not that we’re complex, none of that. It’s literally just like, “Hey, in order to get you to a really simple place, we’re going to kind of have to go through the messy middle here. And please realize that it can even feel discouraging.”
I just literally said this to my son last night, he’s trying to make some important decisions, I’m like, “Look, to get to the answer, you’re going to have to ask for…you’re going to ask for feedback. You’re going to read reviews. You’re going to study. You’re going to have to understand nuance and edge cases. And when you’re in the middle of that, you can feel disappointing, frustrating, like maybe you’ve done the wrong thing. But it’s just, you’ve just got to learn to recognize.”
So I think using that language with clients, it’s like, “Look, we’re going to get you to a simple place, but to get there, part of the journey sometimes involves going through this sort of messy middle part where I’m going to be asking you a question. You may not know the answers, may feel frustrating, don’t worry, it’s all part of the journey. I’ve seen this hundreds of times before. We’re going to get there.” So that’s…I love that model of reframing that as a, “It’s part of the plan. We know it. I’ve done this a bunch before. Don’t worry, you’re normal. Here we go.” Right? Okay. Now, number two.
Michael: And so then, number two, you get clients who are already further down that complexity journey or further down the awareness of that journey. They are not walking around believing their lives are simple and being unaware of the complexities. They are walking around feeling like their lives are very complex, and they’re not happy about it. And they want it to get simpler, right? So in like Sir Holmes’s quote, they’re the ones who have already hit that complexity wall…
Carl: Right, in the middle of it.
Michael: …and would give their arm for simplicity on the other side. But not everybody…either not everybody is there…well, I guess if their lives are truly that simple, then we just may not have a lot that we need to add in. But there are the clients who are complex and know they’re complex, and our value is to help them get the simpler, and there are clients who are complex and don’t realize they’re complex, and we have to actually dial them up the complexity scale and show them, if only so that we can then try to help with the simplicity that comes thereafter.
But I feel like there is sort of this reflection of even just who your target clients are and what your approach is that, like, are you an advisor that helps people with complex lives to make it simpler, or are you someone who helps people who think they have simple lives solve the complexities they didn’t realize they had? And I think both are valid, although I suppose most of us, I feel like, have been trained in the “help people who think they have simple lives solve for complexities they didn’t realize they had,” because that’s basically how you get taught to sell a financial services product. “Let me tell you about all the problems you have you didn’t realize you have so I can throw you the rope.” We get trained in that end.
So when you get trained in the world of “we help people who think they have simple lives solve the complexities they didn’t realize they had,” it gives us a natural bent to complexify everything. And I feel like you are on the other end of that. You tend to live in a realm of people who already acknowledge they have complex lives and want to get them simple. And so they’re ready for simple. They’re ready to come back down that complexity slope.
But it’s not necessarily, I think, where some of us are. I think for most of us, we wouldn’t have a problem saying, “Yeah, if I get a client that’s super-complex, we’re going to help consolidate and simplify their lives.” I feel like it’s almost sort of a sales problem that we don’t always put ourselves in front of people who are struggling with complexity and want to make it simpler. We end out with people who think their lives are simple, and we’re still trying to solve for complexities they didn’t realize they had, which starts with number one, showing them why their lives are more complex than they realized, and down we go this complexity road for them and for us.
How Advisors Can Provide The Value Of Holistic Advice To Help Clients Identify And Manage Their Blind Spots [00:30:11]
Carl: Yeah, I think, though, that, with that first…with that group that doesn’t really realize it, the “oh that’s cute” group…and I don’t mean to be that sassy about. Yeah, that group that doesn’t…remember, the only reason you’re talking to that group is because they raised their hand. And I mean that even on like your email newsletter, but certainly in your office or on…if they come in to explore becoming a client in any way, they’ve made some decision that like, “Hey, I need some help with something.” And I don’t think there’s anything wrong with some language around…I would just reframe the language a bit and be like, “Look, part of my job, part of the value of what I bring is there’s a whole bunch of stuff that you don’t know that you don’t know because it’s not your job.”
I look at a basic like…I don’t know, I was going to say like an ACL repair. If you look at how that’s done, it’s relatively simple, but there’s a whole bunch of stuff that I don’t know. Same with technology. I make statements all the time to the team like, “Oh, we should just build this.” And like, “Oh, yeah, cute, Carl, that you think you just build that.” There’s a whole bunch of things.
So I think the language would be more, rather than… Because one thing I want to see more of that I’m hoping that we can do is if you follow this path, if you pull on that thread too hard, you start to feel like part of your job, your marketing job, is to teach people how sick they are, right? Like how much they have problems. And that’s no fun. And I don’t think people like to be…it’s a different version of the hole, right? Nobody likes to be thrown in a hole, and nobody likes to be taught that they’re sick.
So I think another way to do this is just simply to talk about… One of the reasons people hire you, they don’t hire you because they’re dumb, right? On the contrary, most of our clients are successful people or else they’re not even talking to you. They hire you because you’re a second set of eyes. You’re not them. Like my own life is a good example. I’m great with other people’s money, I’m terrible with my own, right? Because I have these crazy things called blind spots. And by definition, I can’t see my own.
And so the way we use that language, most people don’t walk around saying that because they don’t know, but the language is, “Look, part of what you pay me for is to know things that you don’t know you don’t know. There’s no way for you to even know.” And I used to say this all the time, like, “There are so many ways I can help you that I can’t even tell you. And there’s so many ways that I can help you that I don’t even know yet. And my job is to be there when that stuff shows up.”
So I like the model of, yeah, there are people who don’t realize how complex it is. But we need to remember they raised their hand in some form because they needed some help. You then can take them down a road of like, “Look…” I even think I would…if it were me, I would draw this like, “You’re going along this path. And as we get in here, you’re going to hit that big ball of yarn, right? And my job in there is to help you see blind spots and da, da, da, da, da.” So I think it’s super-helpful model. Thanks, Michael.
Michael: Well, and it’s one of the reasons why any prospect meeting, basically, the first question I always ask is just, “What brings you here?”
Carl: I love that question.
Michael: Why are we meeting today? You could have called any number of advisors, and you could have called them at any point in the past day, week, month, year, or decade. What brings you here right now that we’re having this conversation, exploring this advice relationship?
Carl: I love that question.
Michael: And they’ll tell you what it is, and they’ll tell you…
Carl: It’s a crazy idea.
Michael: …if it’s portfolio-related, and they’ll tell you if it’s not.
Carl: Yeah, it’s a crazy idea to ask that question, like, crazy, right? That’s why I think it’s such a great question like, how simple is it? And my favorite follow-up question is…”What brings you here today? What brought you in today?” My favorite follow-up question is, “And how do you think I could help with that?”
Carl: Only somebody like you will go, “Oh.”
Michael: All right, that is now my follow-up question. Ah.
Carl: Only somebody like you. Exactly. Like, we’re all such nerds that we’re like, “Oh, did you…?” Yeah. Because they’re going to tell you, right? So let’s not get too far off-topic because we can cover that at a whole other call. But the idea is like, yeah…
Michael: Yeah, that may be our next episode is, how do you find the value you offer when you’re otherwise making everything simple?
Carl: Yeah. Amen. Totally.
Michael: But I think, as we wrap up, just the…I like that framework, as you put it, the wonderful quote from Sir Oliver Wendell Holmes, like, “I wouldn’t give a fig for simplicity on this side of complexity, but I’d give an arm for simplicity on the other side.”
And just thinking about when…for the people you talk to, where are they on that complexity curve? Are you helping people who think they have simple lives solve complexities they didn’t realize they had, or do you help people who already have acknowledged complex lives to simplify?
But either way, I think it still gets back to that core reflection that just we all have to have when we sit down and look at ourselves in the mirror, like, if the client came in with the ideal portfolio you already typically recommend, do you have anything else to talk about? And if the answer is no, that’s the fundamental problem you’ve got to address in your business.
And likewise, if you have helped a client get their portfolio simpler and it is, you have succeeded, and they now say like, “Thanks for the help, I think I’m good here with my portfolio,” what else do you have to talk to them about? And if the answer is, “I don’t have anything else to talk to them about,” that’s the problem.
That, to me, is when you get, in the truest sense, the shift of, what happens when we start to unhinge from being focused solely on portfolios and actually into more holistic advice? Not just advice that sets them up for the portfolio we’re trying to offer them, but actually more holistic advice. But that’s a conversation for a future episode.
Carl: So good. So good. Yeah. Thanks, Michael.
Michael: Awesome. Well, thank you, Carl.
Carl: Yep. Cheers.