Executive Summary
In today's skeptical and cynical world, we believe little that we read or are told until we have a chance to try it for ourselves. The car looks great in the magazine, but we have to take it for a test drive. The TV is supposed to be great, but we want to see how the image looks on the screen in the store before we buy. Yet as planners when we deliver financial plans to our clients, we don't just fail to give them a test drive; we actually make it onerous to even try!
The inspiration for today's blog post comes from an extended conversation I had last month with Dr. David Lazenby, a licensed psychologist, researcher, and co-founder of the ScenarioNow business development process and supporting software.
One of the points that Dr. Lazenby made, which struck me almost immediately, is to contrast how we typically develop financial plans for clients, versus what an ideal would be that fosters trust in the plan. In our standard process, clients provide us extensive details information. We take this information back to our office, "work our magic" using the software to produce a series of graphs, charts, projections, and recommendations, and then bring our results back to the client to discuss. If the client wants to look at a different version of a solution - what if I retire at 62, instead of 65 - we take the new information, go back to our computer, crunch some new numbers, and schedule another meeting to discuss those results once the analysis is complete. The message to clients: financial planning is a complex black box that only I, the planner, can operate once I disappear into my office, and you must take it on blind faith that everything I am presenting to you must be correct.
Contrast this with the essence of what Dr. Lazenby preaches - an interactive financial planning process that occurs live, real-time, with clients, who can see in the moment what changes to their assumptions and goals will do to their plan. Clients provide information on their goals and personal financial details, which are entered on the spot into their financial planning software, and they can see the results. If they want to understand the impact of retiring earlier or later, or saving more or spending more, or any other goal changes, they should be able to interact directly with their plan and experience the changes on the spot.
As Dr. Lazenby contends, this is incredibly powerful stuff for building trust with a client, both for the client-advisor trust relationship, and the client-plan trust relationship. In the end, a plan that the client doesn't trust is a plan that the client will not act upon. Given our current standard process of making financial planning analysis and projections appear to be an arduous black box that is so difficult to manage that clients have to schedule a meeting weeks later to give us time to work the magic, it's no wonder that so many clients don't really trust the plan, its results, and the recommendations they're given - which means they don't act on the solutions provided! On the other hand, when the client can interact with the planning process - can reach out and touch and feel the projections and the impact of changes in their goals to the results of the plan - they can build trust and faith in the conclusions of the plan, because they've just given it a hands-on test drive.
Of course, there are a few notable challenges to this approach. The most significant, perhaps, is that for most planners, our software is, simply put, too complex to actually do this process live, in-person, with clients. In other words, we treat it like a black box that must be handled with care, because it actually is! Yet I think the point is that perhaps we are substituting a tremendous depth of technical precision - which is somewhat ironic given the incredibly long and uncertain time periods over which we're projecting - for a simpler process that can still reasonably guide clients to solution, but do so in an interactive manner that allows them to actually build trust in the process and the results. The implied solution is that a more basic financial planning software package, that gets "the big stuff" right but doesn't sweat the small stuff, and in doing so allows clients to engage the planning process more interactively, is the way to go. And although it was not the point of our conversation (nor this blog post), it is true that Dr. Lazenby has developed at least one version of a software solution for this, for those who are curious.
But the bottom line is that I think Dr. Lazenby has a really good point about how our current "disappear to tinker with the black box" approach of financial planning analysis can tremendously undermine client trust in the financial planning process and the recommendations it produces. Arguably, then, clients who continue to ask for different revisions and alternative projections to their plan are actually engaging in their own attempt to try to build trust and faith in the analysis we have provided them - which is unfortunate, because most planners respond to clients who make such repeated requests by viewing them as "difficult" problem clients, when in reality the problem may be the planner's process in the first place!? Perhaps we like to keep control of the reins of the financial planning software and analysis because it helps to ensure our role as "the experts" in the relationship; but notably, Dr. Lazenby doesn't necessarily advocate that clients open up to do their own software tinkering and analysis. The process is still meant to be one facilitated by a financial planning expert; just a (radically) more interactive one, that simultaneously allows the client to develop a greater level of trust and faith in the analysis and results themselves.
So what do you think? Does this ring true to you and your experience with clients? Or are you not buying it? How interactive is your planning process? If you were in the shoes of your own client, were you trust the way the results and information was delivered to you?
I am an adviser in Australia and we actually use a tool that does something like this.
It is incredibly powerful.
My experience has been that clients are more than capable of understanding that it is only a tool and that the projections will move around over time.
I tend to run them through the screens where we enter assumptions/info so that they can see what goes in (ie, their income, assets, debts, planned expenses).
When looking at the outcomes screen I then talk to client about the ‘levers’ we can pull. This is usually when do you retire, or how much will you spend in retirement – with investment risk usually a last resort. I am pretty sure these choices are universal whether you’re retiring in the US, Australia or Thailand!
If you have the tools available that will do some of the rough calculations appropriate to your jurisdiction (ie, your social security & tax system) I would highly recommend.
I actually allow clients that want it, access to their plan in MGP so they can tinker. Some want it, most probably do not. I even have a few people that I set up in MGP, charged them for access to the program and an hour of consultation, and then let them go do their own thing. They get to tinker with a real power tool instead of a useless piece of web junk, and I get to reduce my software outlay accordingly. Anyone else doing this?