Developing trust is one of the most important things financial advisors can do to establish lasting relationships with their clients. For which developing a comprehensive financial plan is often an opportunity not only to deliver value as a financial advisor but to deepen client trust by demonstrating the advisor understands them in the first place. Once clients have stepped into the proverbial Cone Of Trust, though, does a client really want (or need) to review and discuss a full-blown financial plan? Or would they rather just be told, very simply, what they specifically need to do to meet their goals and solve their problems? Alternately, is it still preferable for clients to review their plan in depth so that they might better understand where they are today and how decisions they make now will affect their plan in the long run… no matter how complex or lengthy their financial plan might be (and how much trust they’ve already imbued with from their financial advisor?)?
In our 14th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards explore the various functions that a physical financial plan deliverable plays in the financial planning (and client relationship trust-building) process, share their viewpoints on how written financial plans can be used effectively to help clients, and discuss what ultimately matters most for clients, regardless of whether their financial plan is one page or requires a 2” binder and color-coded tabs.
Generally speaking, there are two (if not more) camps when it comes to the usefulness and structure of financial plans. Some advisors feel that detailed financial plans give a false sense of security by predicting future outcomes with unwarranted certainty; instead, these advisors prefer to establish trust and develop empathy without using the financial plan as a central conversation tool. Once a strong connection is formed, and they understand the client’s core issues and concerns, they often find it easy to discuss “good” behaviors the clients can follow to avoid mistakes and stay on track and do so using simple terms that apply to and make sense for the client. Interestingly, the level of trust that clients have in their advisor may often influence the degree of understanding they want/need to derive from their advisor, and/or their willingness to accept the recommendations being provided, based on the financial planning discussions they have together.
Other advisors, meanwhile, prefer to develop and discuss a detailed plan with clients and feel that their clients appreciate the clarity a good plan provides for their current financial situation, and that clients value understanding how different outcomes of important decisions considered today (such as funding education, modifying spending habits, and retiring early) will affect their overall financial picture years into the future. This is especially important because clients often fail to realize the powerful impact small changes in behavior and compounding growth can have on saving goals. Not to mention that delivering the financial plan itself can often be part of the trust-building process… as clients may not be willing to take the plan recommendations unless they’re also backed up by a thorough analysis (even if the client won’t read the analysis once they see it’s there and trust that it’s been done).
In the end, the key point is simply that advisors can use financial plans as effective tools for helping clients stay on track and make smart decisions, and that different advisors have their own distinct styles of conveying this feedback. Clients, too, are unique, and they have different preferences about how much of a full plan they want to see. Regardless of how advisors create and implement financial plans, though, clients need to be confident that their advisor is competent and that their recommendations are credible… which means either in advance of developing the plan or as part of the plan delivery process itself, it’s still essential to first establish real trust in the client relationship.
***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.
Kitces & Carl Video Transcript
Michael: Welcome, Carl.
Carl: Greetings, Michael. Super excited to see what we can get into today.
Michael: Let’s see what we can get into today. So, I thought a good starting point to get into today… so, we’ve put this out as a podcast now. It’s got this whole theme of Sharpies and spreadsheets, and you’re the draws-with-the-Sharpie guy, and I’m the spreadsheet guy that likes my big dense financial plans with all those awesome projections. And someone had pointed out to me, “It’s kind of funny you guys are doing a podcast because you’re the spreadsheet guy with these long plans, and Carl literally wrote a book called ‘The One-Page Financial Plan’,” and said, “Hey, you guys should talk about that.“ So, I thought, “Hey, let’s talk about it.“ So, I’m just going to start right out of the gate here – do you actually believe, Carl, that we should literally be delivering financial plans on one page? Was this a metaphor, or is this a very literal book title, “The One-Page Financial Plan“?
Carl: I may even push a little harder, like one page may be one page too many.
Michael: All right. Well, now you’re just throwing down. So, you’ve got to explain this. Seriously?
Carl: I got to tell you. Yeah, yeah, I will. I’m going to tell you a story first real quick. When I was in the middle of writing that book, my daughter who I believe was like 10 or 11 at the time, maybe more, yeah, maybe she was 9 or 10. I heard her talking with a friend one day because I had an office at home that I did a lot of writing in, and I heard her talking with a friend one day and her friend was like, “What does your dad do in there all day?” And my daughter was like, “Oh, he’s writing a book.” And her friend goes, “What’s the name of the book?“ And my daughter goes, “It’s called ‘The One-Page Financial Plan’.” And then there was this long pause, and her friend goes, “Why is it taking him so long!?” So good.
Why Financial Plans Can Be Worthless [02:19]
So, here’s the deal, and I think this is super fun. I couldn’t think of a better person to talk to about this, because I think financial plans are worthless, right? I think they’re worthless without the ongoing process of planning.
And I think we have built up a whole methodology around trying to sell certainty. And I know none of us would admit to that, but I think we’re trying to sell…we have become sellers of certainty. And embedded in that is kind of…I’m throwing a lot of little phrases at you at once, but there’s sort of a false sense of precision embedded in this. So, here’s where I start with this. I heard a really well-known, at least on Twitter, venture capitalist once talking about how when he gets pitch books now from companies that want funding, he likes to go straight to the projection section, tear it out, and throw it in the trash! It feels to me like other industries are learning this and we’re not learning it yet. In another conversation with a buddy of mine who runs a venture-backed tech startup, he said their business plan – so then we’ve got like business plans –their business plan is three words (I had to count them), “Suck less tomorrow.”
So, the point of all of this, and I probably am exaggerating for effect, I’ll admit that, right? But the point of all this, I think, is that embedded in a financial plan is a giant pile of guesses. We can call them assumptions or forecasts, if we want to feel better about ourselves, but there’s a giant pile of guesses. And I have actually found, I kept running into this more often with women clients than with men clients, who would almost call my bluff on this and be like, “Wait, wait, wait. You are pretending to know what our lives are going to look like for the next 20 or 30 years? Plus, you know what inflation is going to be? You know what the returns, correlations, and standard deviations of every asset class in there?” They didn’t say that, but like, “And then on top of that, you guessed on the date I’m going to die?” And so to me, it represents this huge pile of guesses that we can’t deliver on and we know we can’t deliver on. The only thing we know for sure about that financial plan is that it’s wrong, right? That’s the only thing we know for sure.
So, I’m about to toss this back to you, but what I think the tension we’re playing with here is probably best exemplified by an analogy with a pilot, right? I’ve made a habit of asking every pilot I meet if they do a detailed flight plan for every flight. And the answer, with only one exception whom I would never fly with, has always been, “Yes, detailed flight plan.” And then I ask a second question and that is, “How often does the flight go according to the plan?” And the answer is always, universally, the answer is, “Never, the flight never goes according to the plan.” So, I think that’s the tension that we’re both pointing at that would be fun to talk about, which is, “Wait, they still do the detailed flight plan, despite knowing that the flight never works out that way.” I don’t think there’s anything wrong with detailed flight plans, with detailed financial plans. I don’t think there’s anything wrong with them. I think the way we’re using them, as crutches against reality, has been misinformed.
Michael: Well, I was all ready to jump in on this, and then you basically came to me in the end. You talked to yourself all the way to doing detailed plans. So, I’m feeling pretty good right now.
Carl: I don’t do them and I didn’t do them when I had a firm. The best plans I’ve ever seen are on a yellow pad with a calculator. And I think the process of planning, to me, is about being a little less wrong. Right? Make some guesses. And I love using the words. I would encourage advisors, I’m telling you, your prospective clients have sent me these emails. I get hundreds of emails from readers of a newspaper saying, “I don’t want to go meet with a financial planner because they’re going to make me guess what my utility bills are going to be 17 and a half years from now.” Right? So, I’m encouraging you to give them permission to relax by using the word “guess” in place of “goal.” And let’s make a guess, let’s take a step forward, see what new information shows up. Make a guess, take a step forward, see what new information shows up. That’s how… literally…I would just do a one-page plan, but for advisors who like the idea of building out a detailed plan so that we know if we’re in the ballpark, we’ve got to make sure we don’t use it as a crutch.
The Real Benefit Of A Financial Plan [08:02]
Michael: So, I hear you above, not using plans as a crutch. I mean does this framing… yeah, I get it. Projecting someone’s utility bills in the 2050s is probably not the most constructive version of planning. I certainly agree. We have at least a tendency for… “false sense of precision” is probably a good way to put it. “I’ve projected your portfolio to two decimal places 37 years from now,” kind of stuff, I don’t think really holds very well. But I have to admit, I really struggle with this idea of, “Therefore, we can scrap it all and come down to a one-page plan on a yellow pad.” And I think the challenge for me is a couple of pieces. I find increasingly over the years …well, as you said, I view producing those plans less as, “Let’s do this detailed projection of what your life looks like 30 or 40 years from now,” which we don’t know and we can’t do at that level of precision.
But there’s a fundamental implication of, to me, illustrating tradeoffs. What happens in your future if you make this decision now? What happens down the road if you engage in this tradeoff versus that one? You want to drop down to a one-earner household and have a stay-at-home parent, and you’re going to earn less but save less, and what happens? Or you’re trying to decide if you’re going to pay for little Johnny to go to graduate school after he finishes college, and what does that do to your retirement? Or you’re going down the retirement road and you know at some point there’s a high risk of a market pullback and you might have to cut your spending. But it would really be helpful to know, “Are we just going to have to cut our spending by 10% and then we’ll be back on track again? Or do we have to cut by 20 or 30% to get back on track again? Can you show us something to help understand what these tradeoffs look like?”
And I don’t know how to illustrate tradeoffs basically without a spreadsheet, without doing some math. I don’t want to go to gruesome, gory levels of precision. I certainly don’t want to spend a lot of time talking about, “Here’s where you are to the seventh decimal place out 30 years from now,” because I don’t think we know it that accurately. But the crazy thing about how the numbers compound over decades is…very small changes in your trajectory have ginormous impacts out 30 years from now in a way that most people don’t understand, I find. Because nobody does compounding math in their head. I forget what the example is exactly, but if you start out from LA flying east and you’re off by one degree in your trajectory, you end up in Atlanta instead of Boston because you magnify it across the whole country with compounding. Small shifts and small tradeoffs could have greatly magnified impacts in the future. And I feel like you need to illustrate that.
Carl: Yeah. So, I think that’s a really good point that’s interesting to talk about. I think there’s a lot of things that we could dive into, because you and I have both seen that tradeoff piece used with nefarious intent.
Michael: Well, yeah I can use the tradeoff thing to scare the crap out of you about something that I want to sell you. So, I’ll at least encourage the good version of tradeoff planning, not the bad version.
Carl: Let’s take off, “sell you something,” and just say, let’s just use it as a good version. Is there a time when seeing the impact of this decision ending up in tragedy for you 20 years from now is valuable? Like, not selling you something, just saying, “Hey, look, the path you’re on right now, this is where it ends.” Have you found situations where people go, “Oh Jeez, thanks so much for telling me that, I’m going to change behavior?”
Michael: Have I had scenarios? Yes. Does everybody respond that way? Oh, heck no. Right, I can certainly think of clients that we’ve had over the years when you show them some of these projections and the path that they’re on, and either they’re just flat out in denial about their situation, or there’s other stuff that they’re not telling us. They haven’t gotten comfortable telling us yet, or they just don’t actually believe and trust the numbers. So, therefore, they don’t believe that they’re heading off the cliff kind of thing. I’ve seen scenarios where that was a problem. But yeah, I can think of scenarios where we sat down with clients and started showing them like, “Hey, here’s what happens when the kids go off to school, or when the kids finish college, and you’ve got a little more money. If you don’t go and buy a second vacation home you don’t need that much, and you just save the doggone money, you’ll actually be able to retire at 65 like you wanted.
I still remember a client couple we were sitting down with in their early 50s – they were probably 52 or 53 – and the projections essentially said they needed like $1 million to retire and they only had about $300,000. They’re looking at only 12 years to go, and they’re completely freaked out about whether this math is going to work or not. Again, because people are not so good at doing basic compounding math and seeing how this stuff multiplies out, we had to point out to them that just a modest 7 or 8% rates of return over 12 or 13 years until their retirement, would turn their $300,000 into $700,000 or $800,000. And so saving another $15,000 to $20,000 a year, just maxing their 401k and staying invested, and they would actually be on track for their million dollar portfolio and being able to retire. And they had no idea. They were essentially in the “Oh God, we need $1 million and we have $300,000 with only 12 years to go. We’re doomed, screw it. We may as well just start spending because it ain’t going to happen.” And showing them the projections and that the goal was actually in reach, because we’re so not good at doing compounding math in our head, actually brought them back to earth. They said, “Okay, I guess we actually are on track! We’re going to ramp up the 401k savings and we’re going to keep going down this path.”
Carl: I’m totally with you. Those calculations, it was on a yellow pad in about 17 seconds, right? $300,000 plus $15,000 at 7.5% – forget inflation for a little bit. Forget taxes. Are we in the ballpark? Yeah, it looks like we’re in the ballpark. Okay. How about next year you save $15,000?
Michael: But they needed to see it.
Carl: And I could show them like, “Here, let me show you on this yellow pad. Here’s where you are,” and maybe it’s because I got used to using…
Michael: But can you do that level of…like, are you going to start doing line by line compounding on your yellow pad to get them out there?
Carl: I really want to push on this because I want to make sure we understand one another because I think this is really, really important. There are complex situations where there’s absolutely a level of degree of planning needed. I should give you some context. I had a client with $25 million and another $25 million of his company’s money with me. And we’ll just call him Dave for right now. And Dave’s CFO called me one time and said, “Hey, we’d like you to run some numbers on how to best buy the tax savings; Dave wants to buy a jet.” And I said, “Hey, man, fly Southwest.” That wasn’t a good answer. That level of planning you need some spreadsheets, right? I’m talking, like that client you just talked about… I love clients with $1 million to $5 million, $300,000 to $5 million, right? And pretty simple situations.
And I used to say all the time, “Let me show you.” And we would literally just pull out copy paper, not a yellow pad, but white paper and we’d say $300,000, I plug that into my, isn’t it an HP19B or 19BII, whatever. I plug it in, hit compounding, hit for 15 years, then I would show them the end number. I’d say, “Then let’s pretend like we add $15,000 a year.” I’d show them the end number. I’d go, “If we got there and we took out 3%,” I said, “Look, these are all huge rules of thumb, but these guesses are just as good as any guess I could make.” And I would tell them. I’d look them in the eyes and say, “I can put this into the most sophisticated software in the planet.” Well, sorry, in the financial planning world. I can put this into the most sophisticated financial planning software, and the answer we get out won’t be any more certain than what we’re doing here. Now, it may look more precise and it will have more pages. So, if you’d like me to do that, if that would be helpful, I’d be happy to.
I remember Christine, I can remember her last name, I won’t say it, but I remember saying those exact words to Christine. Like, “I’m happy to do this, but I’m just telling you, at the end of both of those, we end up in the same place.” Again, given the context of a relatively simple situation that most of us deal with, right? Most of us aren’t helping people figure out the best way to lease the jet. Most of us, and for those of you who are, please, I understand, but in this sort of market most of us deal with, I think at the end of both of those scenarios, we pretty quickly get to the same place if we’re being honest. And the honest is, “It looks like if we avoid a lot of mistakes, we avoid any costly mistakes, and we behave for the next 20 years, you’re in the ballpark.” You’re in the ballpark, right? I don’t know how much more confidence I can put just because I can tell you I’m 96.7235% confident. I still have to realize, Well, what about the inputs? That confidence coming out of the Monte Carlo assessment is based on somebody having to be the assumer. We don’t know. And you know, of all people, you know really well, because you’ve done so much work on this. You just change some sequencing risk. You just change a start date or two, and the potential range of outcomes is Toronto to Miami, from L.A. So, just by changing a start date or two, and I know that’s all embedded in the number of variables runs that we run through Monte Carlo. It’s all in there.
Michael: Yes it is, thank you.
Carl: But we have to, at some point. I think we know. And again, maybe I got comfortable with this because I ran hundreds of Monte Carlo assessments for clients, and maybe this was just a matching process, a pattern recognition process, where I was like, “Oh, I’ve seen this pattern before. I can tell you what will happen if I go run that thing. It’s going to tell you we’re in the ballpark. Now, let’s behave, and next year will you please save $15,000?”
Michael: Well, look, I get that once we do this a bunch, we know what the outcomes are likely to be. I’ve certainly run the numbers enough. I’ve gotten pretty good at compounding math in my head, but my concern is from the clients’ ends. And…
Carl: This is a really good question.
Michael: I have to admit, I still struggle with this, how many people are willing to change their life trajectory because Carl showed them on a yellow pad in a minute that their financial future is completely secure if they just listen to him and what he drew on his yellow pad. You may be technically accurate, because you know your numbers and we’ve both run a zillion of these, but our clients taking on faith that their financial future is on track because you yellow padded it and convinced them.
Carl: Okay. So, complete….
Michael: So, for the podcast listeners, Carl is looking down and scribbling furiously, it’s something that I’m assuming he’s going to turn into a yellow pad illustration of this exact point.
What Ultimately Matters To Clients [21:17]
Carl: So, I think there was a word that you used there or a phrase you used there, two words, that are really important for us to just talk about. I think this is the right place to end up. Who cares how many tools you use? Because behind the scenes, often we were running financial plans, right? Often we were plugging stuff into things that would allow us to generate a one-page plan. Okay? So, let’s get to now like the client security piece, because I think that’s really the most important part of this. Forget specific tactics about what software you’re using. How do you, on the ground? I think that’s where we really have to start being more honest in our conversations with clients. You used the words, “You’re completely secure because Carl yellow padded it” – I wouldn’t use those words, no matter what I was doing. And I would just tell people, “Hey, here’s how it happens. First meeting, ask lots of really good questions. Listen, thoroughly diagnose.” We’ve talked about that before. We’ll talk about it again, I’m sure. “Go away Mr. and Mrs. Prospective Client, we’re going to work on this and we’re going to put together a financial plan.” Those words would come out of my mouth and I would say, “Oh,” and as soon as I heard financial plan, there was an asterisk in my mind that happened every…same thing with goals…As soon as I heard the word financial plan, I would say, “Oh, sorry, let me just make sure you understand. My goal, I’m not talking about a 2-inch thick doorstop. My goal will be to limit this to one page. So, when you come back, that’s my goal, is we’ll have one page to sort of review. So, give me about a week. That’s how long it’s going to take.” Right? They walk out the door, we all already know where that thing is going to end up, right? But we can’t say that because there’s an element of this that the theater is important. And the theater is only important not because we’re selling stuff, but the theater is important because we want people to act on our recommendations, right?
Michael: They need to be confident that we did the work and our recommendation is credible.
Carl: Yeah. Quick story. I’ve got a friend who’s Russian, she’s an emergency room physician, she’s Russian, and she says that’s important to understand because she’s really direct. That’s what she says, not me. And she said sometimes she walks into the waiting room and there’ll be like 20 people out there. And what she wants to say is, “How many of you want to know if you will be better, so you can go home quickly? Or how many of you want to go through the whole circus of tests and all that stuff? Because 18 of you right now, I could just tell you if you want me to.” She’s never said that. The only complaint she’s ever gotten was not that the person got better. It wasn’t about getting better or not, it was that she didn’t take me through enough tests. So there’s some theater of this that we have to acknowledge. And again, you and I know all of the readers and viewers understand this, and they’re the same way – we’re not talking about selling something. We’re talking about the theater. So yeah, “Go away, come back. It’ll take us seven days. We’ll run this through and we’ll sit down with you with one page.”
And on that document, I would just be able to look somebody in the eyes and say, “You know what? Based on everything you told us,” (review it, review it, review it), “Did we get it right?” “Yeah.” “Michael, based on everything you told us about you and your family, you’re in the ballpark. We’ve got to avoid some costly mistakes, and we have got to behave for 20 years, but you’re in the ballpark.” And, of course, I could run a 2-inch thick financial plan if you’d like me to that would give you more precise numbers, but at the end, we can’t get rid of uncertainty… I often call this reality-based financial planning, right?
Uncertainty is reality. We don’t know, so let’s focus on what we need to do over the next three years. Here we go, boom. One-page plan. Okay, “Here’s what you told me your values were. Here’s what you told me your goals were, ranked in order of riskiness, and riskiness is consequence of failure. Your goals are ranked in terms of which one would have the highest consequence of failure, and here are the steps for the next 90 days.” That’s what a one-page financial plan is. Sure, it may be backed by all that other stuff we did. You may even want to have it sitting there on the desk, because you think that’s an important part of the theater. And I’m not going to argue with you about that. You may just want to go, “Yeah, that?” Right? Like, “That thing?”
Michael: Does that come back to – you’re still producing a full plan, you just want to get down to a one-page executive summary?
Carl: That’s probably where most planners end up. But I still didn’t do it. After years of producing full plans, we sat down and we would run through some numbers, and some of the best planners I know still do that. It’s a yellow pad version of this experience. It’s on the whiteboard. It’s worked out in front of somebody like, “Look, let me walk you through how I know that you’re in the ballpark.” And I often would say, “This is a terribly unsatisfactory answer, but we believe in being honest around here, and I can’t get rid of the uncertainty about the future. No matter how many lines or projections I show you, I can’t get rid of the uncertainty.” Now, I know there’s a huge risk here. The huge risk is they’re going to go next door and somebody is going to sell them a serious pile of certainty, which is also a “lie”. (Lie in quotations, right?) It’s a myth. It’s a myth, it’s not a lie. Well, sometimes it’s a lie, but it’s a myth.
So I think there’s an element of theater here that needs to be acknowledged, and I think most financial planners run the plan. What I’m worried about with opening the plan and going through it, because we want people to feel secure, is that it’s a false security. We don’t know. And I’m worried about setting up situations, because I’ve seen so many of them; we’ve all seen this. This is particularly easy to see in life insurance planning, where you see these variable life projections. And I’ve seen a million beautiful projections, I’ve never seen one that matched reality, if the agent was even around long enough to allow that to play out. I’ve only seen broken ones. So, that’s where I’m worried. So, what do you think about using the plan…I’m going to use the word “crutch,” for protection, or maybe the better way to think about it would be using the plan as a tool to instill security so we get good behavior. Is that what you’re thinking?
Michael: I don’t think I would frame it as a tool to instill security. I think it’s just a tool to instill understanding. I think it’s a tool to instill an understanding of tradeoffs of the consequences of decisions they’re making, both bad ones and good ones. I think it’s sometimes just instilling in them an actual confidence that they can achieve the goals that they’re pursuing. Again, the clients that don’t even know they’re capable of achieving their goals because they’re just not confident in their own abilities, and when we can illustrate to them, “Yes, this is actually going to work,” they can actually fix their own behavior because you’ve given them the confidence. But at some point, you’ve got to show it. I think for a lot of them, you’ve got to prove it. Yes. There’s a small subset where I can just say, “You’re all set.” I’m like, “Oh, well, since you said it, we’ll do everything you say and here’s your $10,000 bill.”
But most clients don’t, at least for me, don’t get there that quickly. There’s a piece to me that still…I can bring my one-page executive summary, but I’ve still got to bring the proof that comes behind it. And I’ll admit, as I’ve done more planning over all the years, I used to spend a lot more time going through every single doggone page of that projection, and I don’t do that as much anymore, but we still do it. We still always do it. It’s always there, and when someone has a question, I can point to exactly where that number came from or how we got to the conclusion we got to. I’ve seen that play out for a lot of clients, that when they asked a question and I pulled the tome out, and show them here’s where that number came from. And then they’re like, “Oh, okay. Yeah, actually it’s like he knows what he’s doing. He knows where these numbers came from, this is real.” I’ve watched people’s attitudes start to shift, not because I’m trying to sell this kind of precision certainty as you’re framing it, but because we’re at least trying to show that we really did the math on these, we really know where these numbers came from, we can really show you what these tradeoffs amount to, and then you can decide what you’re going to do with that information.
Carl: I think this is actually worth talking about. It’s okay. It’s totally okay if we push back a little bit. It’s totally okay. I don’t think clients care about your solutions. I think they care about their problems. And I think if we understand their problems deeply and empathetically through a really, really thorough first meeting, and maybe even a second meeting if it takes it, to the point that someone cried. Not necessarily, but often it’s true. We deeply and empathetically understood their problems. I don’t think they care about their solutions. And one way I would just exemplify…
Michael: They came to us for a solution! If they weren’t in search of some change to their current situation, they wouldn’t up and hire us and pay us.
Carl: But once you know, here’s the deal, when you go to your emergency room doctor, this was pointed out to me by a client who was an emergency room doctor, and I was walking him through his financial plan, and he said, “Whoah.” And he said to me, “Carl, when you brought Grace, your daughter, to the emergency room a couple of weeks ago, and I was on duty there and I treated her,” And he said, “Do you remember what you left with?” And I was like, “Well, yeah, I left with Grace, which was good,” but then he said, “No, no. What else did you leave with?” And I said, “I left with this piece of paper,” And he’s like, “Well, what was on it?” I said, “I don’t know, it was a prescription. I couldn’t read it,” because you can’t, by definition, you can’t read prescriptions. So he is like, “What did you do with it?” And I said, “Well, I took it to the pharmacy and I gave it to some other scary people in white lab coats and they made me sign some document that said if Grace grew a third arm, I wouldn’t sue them or something.” Right? I filled it, I took it home and gave it to her. And he’s like, “Wait, you didn’t get a second opinion? You didn’t research the drug? You didn’t Google it? You didn’t…” I was like, “No, I didn’t,” He said, “Would you please just give me the prescription? Like just tell me what I’m supposed to do.”
And I think I’m pushing really hard here. A lot of this is me saying, “Hey, let’s see where the edge is in the industry,” and I’m okay with that. I’m just trying to pull the industry a little bit. I’m okay with that. I realize there’s plenty of room in the middle. I’m often wrong, but never ever in doubt. I’m not a zealot about any of this stuff, but I’m just making the claim that like, “Let’s just write the prescription.” What if we just thoroughly, and I learned this not only from the doctor…
Michael: I want to say, as someone who has pointed out there are a lot of bad actors in our industry who don’t give the best prescriptions, do you really want to train clients to just act on the prescription that gets handed to them by anybody in the industry who has “financial advisor” on their business card? And I don’t think consumers trust us that implicitly most of the time, which is why we have the whole song and dance with clients about trying to demonstrate our competency, our knowledge, that we’re trustworthy in the first place. Average trust of doctors, average trust of financial advisors…
Carl: I’m with you. Totally.
Michael: I don’t know that we get to just hand out prescriptions and have people act on them, and I’m not even sure I would tell the average client off the street, “Hey, just act off whatever prescription your financial advisor writes you.”
Carl: I would never tell the average client to do that, but I would tell my clients to do that.
Michael: And that doesn’t strike you as a little bit inconsistent.
Carl: Not one bit, right? If I listen through, I have no problem with my clients doing what I tell them to do.
Michael: Well, neither do I, but they don’t.
Carl: Well, that’s a completely different dialogue. But here’s another way I learned this. I think this is similar to the argument that we all used to have around portfolio design – what investment products? And I had this mentor named Gary, and Gary told me, “How are you going to get to this point where nobody will even want to know what’s in the portfolio? They won’t even care. They won’t even ask you. They’ll just do what you say.” And I was like, “No, that’s crazy. That is crazy.” And I had a client who was a forensic accountant, and I was using a mutual fund company that we’re all familiar with. I was so excited about my passive, academic approach and I thought it was the most important thing ever, it was evidence-based, and I thought all my clients hired me for that. I took this client who is a forensic accountant to lunch with a person who I had hired for marketing, because I thought for sure this marketing person was going to ask the client a bunch of questions. I thought for sure the client would say, “The investment process is amazing. They use these mutual funds as passive and they tilt towards value and small,” and blah, blah.
We’re like 20 minutes into the lunch and there’s nothing like that. Carl asked me all these questions. He knows my family, he knows where…and I interrupted. Finally, it’s like, “Hey, what about the portfolio?” He is like, “Oh, yeah, whatever.” I think more of us have gotten to that place where clients, of course, if you want to dig in, if you want to turn over every single stone of my suggestions, I will be able to back them up. Of course, I’m not saying like, “Oh, let’s just write a prescription! This will be fun.” But what I’m saying is, do the work, and then I think clients want to know that you care, that you’ve heard them deeply, and then you can say, “Here, this is the direction we’re going. Let’s do this the next 90 days and see how it goes,” right? So, in the same way that we’ve gotten clients, good clients now… and I remember having this conversation with Marty Kurtz who says like, “I don’t really even want clients to trust me.” Right? And I think for the same reason you are saying, right? But I think if we have listened really carefully, clients don’t care about our solutions, they care about their problems. If they know we understand their problems and they believe we have the technical chops to design a plan to solve those problems, they don’t necessarily have to know all the intricate details. As long as they know if they push on us and we can tell them, I don’t think they want them.
Michael: Okay. But doesn’t that take you back to, you’re going to produce the whole plan, you just don’t want to present the whole thing? You want to present a one-page executive summary to the entire plan.
Carl: Yeah. We’ve got to wrap up here because we’ve gone long, but this is a subject I think people will love. I think one thing that you said that I think is really valuable – and that technology has gotten so much easier and so much better since I was practicing, right? Like five years ago in the old days…
Michael: In the old days, in the dark ages.
Carl: …abacuses, and stuff – is the “what-if” games. The live tradeoff stuff that we can do now, we could do back then, too. It just wasn’t nearly as refined in terms of the user interface, the experience the client has, that stuff. So, let’s just wrap up with this. You have the ability, and you’re really good – and I’ve seen some amazing tools; you have, too, obviously, like some amazing tools – the ability to play live, what-if games with the client, you have the ability to do that. You do that, you sit down in the second meeting you say, “Look, here’s where you’re at. You’re in the ballpark. Here’s graphically how it looks.” You don’t need to see every projection. I wouldn’t say that to the client but know that they don’t need to see every projection, but show them graphically how it looks.
“Now, you told me about two or three different things you were thinking about. Right now, I just want to walk you through some scenarios so you can see.” You walk them through the scenarios, and then you hit save. And the important part is, from that moment on when you save, that document, that thing you just saved, is totally worthless if you don’t engage with it ongoing. And I think you and I live in this little intellectual bubble where most of the people we deal with would be like, “Of course,” but there are huge piles of the industry that are still hitting save and never coming back to that thing. I think real financial planning is done as this iterative process that’s never finished, because when you hit save, you know you’re wrong, right? We know that something’s not going to work out exactly according to that plan. So, next time we pull it back up and say, “Cool, what do we want to look at this time? How did it look? Let’s update this event. Here’s where you are now. Great.” So we’re guiding in, it’s like narrowing in all the potential range of outcomes instead of spending all the time upfront trying to be right. It’s, take a guess, iterate, take a guess, iterate, take a guess, iterate. But it’s still back to the pilot where we started. You still have the flight plan to do that.
Michael: All I heard was at the end I still get to make my plan, so I’m good.
Carl: I think where I fall out on this is just like a pilot, you need a detailed flight plan. Just know that it’s wrong and be honest and open with clients about the process. And the good news is doing that shifts it away from an event to an ongoing relationship. And that’s the good news.
Michael: Yeah, I think I fully agree there. And as I had said, I think even for me as someone that likes producing the full-length plans, the way it gets presented has certainly shifted for me from, “I’m going to walk through every page of the plan and I’ve got a whole routine about how I explain each page of the planning software output,” to something where I really do spend a lot more time on executive summaries and discussions upfront instead. But at least from my end, I don’t feel like we’re at a point where I can let go and just say, “Yup, did your whole plan on a yellow pad, here’s the answer. That’s $10,000.” Well, I just don’t have the guts to do that, perhaps…
Carl: I don’t know anybody who can say it that way.
Michael: … which is on me, but I just don’t see very many clients that are willing to trust at that level, based on not at least seeing that the depth was done at some point.
Carl: Okay. Look, I have seen this over and over, where a really good financial advisor listens really carefully to clients in a super-empathetic way, asks really good questions, and the client leaves for the first time in their lives feeling understood. First time ever. When they come back, the advisor sits down and spends the first 15 minutes at least walking through what they thought they heard. And if all of that matches, if something major has changed, then we’ve got to make some adjustments. But if all of that matches, “Yeah, yeah, yeah, that’s exactly what I said. Well, based on that, here’s what we see.” And then I’m going to use modern technology for all the cool kids.
“Based on that, here’s what we see,” and they pull up on the screen this really simple, elegant, graphical representation of the next 20 or 30 years of somebody’s life with a wide range of outcomes. “So, look, here’s about where you are. Would it be okay if we played a little tradeoff game here? You said, annual vacation, funding the kids, taking less risks. Let’s pull on some different levers here. That’s about how things look. How does that feel to you? Do you think we nailed it? Okay, great. Boom, hit save. Great. Here’s what I think we need to do in the next 90 days.” I’ve seen that over and over and over, right? They didn’t need to go into any more detail than that. And I could do that same thing on a yellow pad with a few more calculations, right? But we took the space between the first and second meeting to run the plan and then to walk them through. It’s much different than, “Here. Look at my 2-inch plan. Look how smart I am. You can trust me.” A client says, “Oh my gosh, Michael, for the first time I’ve been heard. Whatever you tell me to do, as long as it matches what you just told me, I want to do that.”
I’ve seen that. I’ve seen it, right? And of course, these are from technically competent, sharp professionals, or else I don’t think that works. If you try to fake that, well, we all know there are people who can and do successfully fake that. Fraudulent, hucksters that should be selling shoes are in jail. But for the people we’re talking to, hopefully, they’re competent technical professionals who also are listening really carefully and understanding empathetically. So much we could talk about, but we’ve got to wrap up.
Michael: We’ve go to wrap up, yup.
Carl: We can talk about in this one.
Michael: Any other final takeaways as we close here?
Carl: No, other than I think we’re really close to being on the same page, right? It’s that you can do it all on the yellow pad and charge $10,000 for it.
Carl: Just kidding! Perfect. Thanks, Michael.
Michael: All right. Thank you, Carl.