Life After Full-time Work Blog

And why it frustrates me when all that’s mentioned is how those investments are doing

Recently my friend and fellow author Mike Drak drew my attention to a LinkedIn post by Susan Williams, founder of Booming Encore. It referred to an article she had written entitled “Dear Financial Planners and Advisors: Retirement Planning Isn’t Just About the Numbers – It’s About the Person.” I replied: “That’s so right! Life is about so much more than money! I recall drafting a couple of blog posts a few years ago along these lines, but never got around to publishing them. Now you’ve inspired me to look for them … Thanks for raising this fundamentally important perspective.”

I searched, and I eventually found those drafts (dating back to 2013). Much further back than I thought, and really an article rather than draft blog posts, because that was long before I started this form of writing. Anyway, I took that draft article and have transformed it into this blog post.

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Mostly, what financial planners and advisors know about and talk about is investing, so they keep pounding on abstract things like investment philosophy, and translating outcomes into basis points, and hope that subtle distinctions will help gain them clients and increase client confidence. You can’t get blood out of that stone.

To financial planners and advisors, I say: try answering a frustrated prospect or client who tells you this:

(1) I’m NOT an investor seeking financial outcomes from my advisor. I’m a human being wanting to live comfortably and enjoyably in my retirement years. Most of all, I want advice on my journey, NOT a financial or investment outcome. So thinking of yourself solely as my investment advisor, as the entire premise of our relationship, is too limiting for the relationship to be a satisfactory one, from my perspective. And I’ll spread my money around until I find someone who deals with me on my holistic terms.

(2) Don’t ask me for my financial or investment goal. I don’t have one. It’s the only world you know, so you’re making me speak your language. I’d much rather have you speak my language. It’s what you say you want to do, anyway, so you’re going to have to pay more than lip service to it.

(3) Don’t measure your success or failure with reference to your language. Measure it via what you help me achieve in my world, enabling me to support my desired standard of living (and the standard of living of my future generations, via my estate goals). Those are my only expectations of you. And if you can’t speak my language – well, no wonder all of you sound exactly the same to me. Even when you’re not speaking jargon, all those fine distinctions between you and your competitors are meaningless to me.

(4) The only risk that means anything to me is the risk of having to reduce my standard of living. Translate that any way you want. I have no confidence that my goal will be achieved unless you can translate your investment achievements into my lifestyle achievements.

(5) By the way, you keep talking about “alpha” and “active management”. I understand (from conversations I’ve had, and things I’ve found on the internet) that you can help me get to my goals much more easily and with much greater certainty if you focus on other financial issues, like the tax treatment of asset returns (I have both taxable and tax-exempt assets), longevity protection (which I understand will eventually become a much bigger financial risk to me than investing in equities), and so on.

(6) I look forward to an engaged conversation with you.  I’m engaged.  Are you willing to engage with me, IN MY WORLD RATHER THAN IN YOURS? (Yes, I’m angry.)

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I think it would be relatively easy to get a client or prospect engaged if an advisor were to start, not with an investment philosophy, but with a life philosophy, something along the following lines.

(1) Most of my clients tend to think of wealth, not as an end in itself, but as a means to an end. The end itself is living happily, that is, living in a desired lifestyle, leaving something for future generations, and insuring against things that are mostly beyond personal control (like health outcomes, and either an exceptionally long or an exceptionally short lifespan).

(2) They want their wealth deployed to enable two broad kinds of outcomes: they want to survive, and they want to thrive. Surviving means establishing a base that enables life to continue and not come to a sudden and premature stop or decline, either physically or financially. Thriving is much more exciting, and means doing what you desire. But it’s first necessary to put the surviving stuff in place; with that peace of mind, it gives pleasure to focus on thriving.

(3) Retirees in particular tend to be much more risk-averse than those still working. Their wealth accumulation days are over, for most of them, and so losing it is something they can’t make up via working harder or longer. Most of all, they fear having to suddenly, and prematurely, cut back their lifestyle. “The stock market went down this year, so next year you’re going to have to cut back” – that’s a terrible conversation. What we discuss, therefore, is setting in place enough in safe assets to protect their lifestyle for perhaps five years. (The length of time varies across clients, depending on their temperament and vulnerability.) That way, if the market does go down, they have five years to hope that it recovers, and even if it ultimately doesn’t they also have five years to gradually decide what to give up. (That’s the best we can do. If we had a crystal ball, we’d avoid markets just before they declined, but that damn ball is just so elusive. Goodness, we’re beginning to wonder if it even exists! Just kidding ….)

(4) We actually report to our retiree clients on how secure their future lifestyle is. Permit us this one bit of jargon: we re-calculate their “personal funded ratio” every year. That’s the ratio of how much they have, compared with how much they need. Above 100% is good, below 100% may need action. The fact of re-examining it every year is reassuring to our clients. It’s particularly helpful in connection with that five-year window of safety. What’s more, after a while they get an intuitive idea of how much (or how little) a market downturn is likely to affect their personal funded ratio. That too is enormously reassuring. And it totally changes our conversations. Unlike other financial advisors, we don’t lead off with a review of the markets. We lead off with the security of your lifestyle. What happened to markets is then just a part of the explanation of why your personal funded ratio changes.

(5) For clients younger than 50, we find that their post-retirement lifestyle is too far away for planning to be meaningful. So we do two things for them. First, we focus on wealth accumulation. Second, just to encourage an income mindset, we project the likely income they can generate at some retirement age that we discuss with them, given their current wealth and projected future savings. We express this as a percentage of their current income, and take into account things like C/QPP [or Social Security, or whatever is relevant to that country], to give them an early idea of where they are likely to get to. After age 50, we start to look at that percentage replacement rate more carefully, also examining how future savings are likely to change, taking into account mortgage arrangements and children’s education.

(6) We add value in other financial ways too. For example, when you’re drawing down your wealth in order to spend it on your lifestyle, it makes a big difference whether, and when, and to what extent, you take money from taxable or tax-exempt assets, or from one class of assets or another. We advise on that. It’s just as important as our investment advice. We also advise on estate planning and other financial aspects. Let’s talk about those things later. Today is just about our life philosophy and our investment philosophy.

(7) By the way, some people have life ambitions that are far too grandiose to be supported by their wealth. Putting five years of their lifestyle into safe assets takes up far too much of their assets for the rest to support their ambitions much beyond five years. It’s not something we like doing, but sometimes we have to tell a client or prospect that that’s the case. Better say it today, than pretend that everything looks good, and run away before the disaster happens.

(8) Life is about more than money. Happiness comes in several ways: family and friends; work and play; mental health and physical health; and (oh yes, let’s not forget) finances. Think of these as your life’s portfolio. We’ll deal with the finances. But we encourage you to think about the rest of your life, and we’ll gladly talk to you about all those aspects. Few advisors know, or care, that the happiest years of life (according to consistent study results around the world) come after retirement. We know, we care, and we’ll discuss it with you.

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The investment philosophy can then follow, but I won’t pursue it here: I’ve written enough about that sort of thing before. I just wanted to enlarge on Susan’s fundamental thought that “retirement planning isn’t just about the numbers – it’s about the person.”

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In May I was at a superb set of sessions at the International Center for Wealth Advisory Excellence in Tuscany. Among the things I learned there is that the advisory industry has started to move along three separate paths: investing; retirement planning; and life coaching. I think that’s healthy, if the paths are separately identified so that clients and prospects know what they’re likely to get.

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Takeaway

I wish financial planners would place my finances in the context of a life plan, and speak my language rather than theirs.

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