Kitces & Carl Ep 86: Aligning Client Capital To Goals (Which Are Only Clarified Over Time)

***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.

Show Notes

• Start with Why: How Great Leaders Inspire Everyone to Take Action Paperback by Simon Sinek
• The Kinder Institute of Life Planning
• Deceit, Desire, and the Novel: Self and Other in Literary Structure by René Girard
• Wanting: The Power of Mimetic Desire in Everyday Life by Luke Burgis

Kitces & Carl Podcast Transcript

Carl: Greetings, Michael.

Michael: Hello, Carl. How are you?

Carl: I'm fantastic. How are you?

Michael: Fantastic is pretty fantastic. I know you've been... you were out on vacation for a while, right?

Carl: Yeah. I was actually gone for the longest time I've ever gone. Three and a half weeks living out of the... I built this adventure truck, so I was in California and went into Baja, Mexico, surfing with my daughter, and, yeah, it's been incredible. Absolutely incredible.

Michael: So was there an impetus or a buildup for taking the trip? Was this a family trip, father-daughter trip, or just, I need some time and take a vacation trip?

Carl: Yeah. I had loosely set this intent that I wanted to go to Baja for a month. I wanted to drive the whole peninsula. And then I set that a couple years ago, and then as it got closer, I was like, "Wow, that's a long time and I'm not sure..." And then a group of friends wanted to get together, we did this trip, we call it a Dancing with Dragons trip. We did this trip on Catalina. So it ended up being like four trips that were all tagged together. But the big impetus was when your 23-year-old daughter says, "I want to spend spring break with you," you say yes. You know what I mean? I was like, "Are you kidding? You want to spend spring break with me? What do you want to do?"

So she wanted to go surfing, so I sort of just tagged a couple of different trips. My wife joined us for five days. So it was a couple of different trips, almost no work in between, maybe one day. But it led to some really cool conversations. And really, in fact, I'll tell you, one of the trips we did was with a group of nine guys and you had to show up without a resume. So in other words, it was a resume-less trip. No one could talk about work, no one could say what they did, you couldn't ask. So we were together for four days...

Michael: Are these friends people you knew, or you...?

Carl: No, I and one other guy organized the trip. So I knew bios of everybody but two people and he knew the resumes of everybody but two people. But the other people didn't know hardly anybody's resume.

Michael: And you're not allowed to talk about what you do?

Carl: Nope. And you're not even allowed to ask.

Michael: I don't think I would have anything to talk about.

Carl: I know. It's really interesting the fear that immediately comes up with, like, "Geez, what do you do?" And that was kind of the point of the trip was we want to go to some uncomfortable places, but everybody on this trip had done crazy things like ski mountains or whatever. We didn't want to do that. We wanted to go to the crazy place here, but it led to these discussions.

Michael: I like for a moment that those are on the same plane, like, "We've done crazy ski mountains. We're trying to come up with something crazier. I've got it. Let's go on a trip where we don't tell anyone what we do."

Carl: I know, we...

Michael: The fact that those are analogous thrill-seeking adventures, it's an interesting statement unto itself.

Identifying When A Client’s Capital Is Misaligned With Their Financial Goals [03:08]

Carl: Well, listen, we should just talk about it real quick. It's interesting. I mean, everybody I talk to that wants to go on these trips was...most of the people I hang out with have done a lot of climbing or kayaking or whitewater or sailing, and they'll say things like, "I've skied a 45-degree slope, or I've jumped off of whatever, or I've climbed this." And they're like, "That's not really that interesting to me anymore. What I want to do is go to the scariest place. I'm really comfortable out there conquering things. I'm really scared to be here." Right? Like, just here, quiet. Who am I? And that's the unknown, the conversation we were having was that's the unknown territory we wanted to explore, right?

That's the unknown territory of, who are you? And especially who are you when you don't hide behind, "I wrote for "The New York Times" for 10 years." But what I wanted to talk to you about today was sort of, it came out of the thinking that went on during that trip. And what we ended up having a lot of conversations around, and I'm going to put different language on it than I used there, but for this audience, is this issue of alignment and particularly sort of aligning... And this is what I refer to as real financial planning. And again, I used different language here, just because I didn't want to talk about work, but aligning your use of capital, and when I use capital, there's always an asterisk that says time, money, energy, and attention. So aligning your use of time, money, energy, and attention with what's important to you.

So we spent a lot of time talking about those things without naming it that way, and it just got me thinking about the work that real financial advisors do. Helping people align...we ask these questions to uncover goals, and hopefully, we go a little deeper even than that, like statement of purpose, Simon Sinek's why, George Kinder's work. We get some sense of a deeper sense of purpose, and out of that flow, a set of goals. So we've got this...and I assume that we've gotten good at keeping our goals and values off clients' plans. So we've now got, client has said, "This is what I want. This is what's important to me." And then inevitably, because it's called being human...

Michael: Yep. We wander?

Carl: Yeah. Our actions, and in this case, we're talking specifically about the client's actions, the client's actions don't always match what is actually really important to them. We could go through a bunch of examples, but this goes all the way down to investment performance. Like, a solid retirement, really important to me, or whatever, not running out of money is really important to me. I'm scared when the market goes down. That's a simple one. A more detailed one would be, like I had this experience with a client that said, "I really want to coach. What's important to me is I really want to spend more time with my daughter and the easiest way to do that would be to coach her football team." Or soccer, sorry, excuse me. Her soccer team. "To coach her soccer team. I can't right now because I've got to work so much for my..." whatever you call it. I said overtime once. He's a private equity person. It wasn't overtime. "For my bonus. I have to work..." A couple of years go by, has a paid off boring car, comes in, wants to buy a new car. The new car would require a lease. So we've got this moment here, where, wait... And what I want to talk about is how do we...?

Michael: If you're going to afford this, you're going to have to do more of the work stuff that you said you really didn't want to do as much because you were trying to spend more time with your daughter. But this is the trap you're getting yourself in.

Carl: Exactly. So those are a couple of examples. So the question I really want to talk with you about is, isn't it interesting, and for those of you who are just listening, I'm sort of trying to draw with my hands, I'm drawing a Venn diagram of use of capital in one circle, and what's important to you in another circle. And we want those circles overlapping at least some. And we know that just by nature of being human, that overlap's going to change. Sometimes they're totally overlapped. Like I remember one of those, Christmas Eve, dogs on the couch, watching a movie, the family all gathered together. Perfect overlap. My use of capital was perfectly overlapped with what was important to me. Woke up the next morning, "Who bought all these presents?" Boom, the circles are spread apart again. So what's interesting is when there's a gap, there's, what we just pointed out, there's inauthentic behavior going on. And my question… my long-winded sort of framing of this question is, it's interesting to think about who has permission to enter that space, and you could point to a spouse, but we all know there's a strong disincentive for somebody to enter that space, you know what I mean?

Michael: Yeah. I'm just envisioning there's a sign above the path to that space, and it says, "Here there be dragons."

Carl: Exactly. Enter with caution.

Michael: "Enter at your own risk."

Carl: We don't even know how to tell people there's broccoli between their teeth. How do we tell them that buying the car is putting at risk hanging out with the daughter? So you could say a good friend. It's true. But again, the friend sees the same warning sign. And there's all sorts of reasons for that warning sign. Part of it is we don't want to be called out ourselves, right? Part of it is this old sort of wisdom tradition thing that we should focus on the moat in our own eyes and not the beam in... or, sorry, the beam in our own eyes, not the moat in other people's eyes. There's all sorts of reasons. But here's my question. Financial planners are uniquely positioned, and have been given implied permission, at least the way I think of the job, the job is to get that alignment. And I wanted to just talk about how do we do it? I think like the checkers game and the chess game, is it a punch in the nose? Is it an empathetic hug? How do we have those conversations? How do you think about that?

Understanding The Reasons Why Misalignment Has Occurred [09:23]

Michael: Well, I love that you're raising the conversation. And when I think about how we get to that place, I'm sort of thinking of, well, with client conversations, even just friends and family conversations, people where I've seen that misalignment. And just sort of thinking off the top of my head, I feel like I've probably seen at least three different versions of this. One, sort of primarily in the financial planning context, and I sort of feel like I learned this the hard way early on, started out in the world of doing financial planning, I'm doing goals-based planning, would ask people, "What are your goals? Tell me about your goals." And they would say some goals and then they would do things that didn't really align to the goals.

"I want to retire with $1 million." Cool. I can make a plan to get you there. I got awesome software. I'm going to do these projections. I'm going to figure out how much you need to save. And then we do the thing and we make the recommendation that we come back in a year and they're still not saving. You said you had the goal, but did I misunderstand something? And so, some them, I feel like there's sort of this, did I just misunderstand something? Was there something else to the goal that I didn't understand of what you really want to accomplish? "I want to have this retirement, but I actually don't want to give up certain lifestyle things that I really enjoy today." It's like, oh, well, I guess you sort of would've had to give them up to do the thing I recommended, so I didn't go deep enough in understanding your goals and what's really important to you.

And so, just even for my journey that was like, okay, stop asking about goals, start conversations more deeply at values. And to me, that leads to, I feel like the second version of this that I see sometimes, which is sometimes I think we kind of lie to or fool ourselves, sometimes. Like I said my goal is to retire and have $1 million or whatever it is, but the truth is I feel really good when I have the social status in my peer group, which requires me to make certain expenditures so I can have the social status, and I'm not willing to give up the social status. So, yeah, I'm going to keep buying the cars or the suits or the purses or whatever the thing is that I've seen clients spend over the years, because the truth is the retirement goal wasn't actually their top goal. They said that because they were supposed to say that, because that's what you're supposed to say, especially when you're sitting across a planner, but the truth that they didn't want to admit to themselves maybe even, was, "No, the social status really matters, and I'm not ready to give that up by changing my spending patterns."

So sometimes there's a, I didn't understand the goal all the way, so you're doing things that are different than what I'd expected because we didn't understand it. I feel like sometimes there's a second version that is maybe deep down the client hasn't even actually gotten clear on what's important to them, right? We talk about kind of aligning capital with goals and purpose. That presumes someone can figure out what their goals and purpose are, and not all of us are actually there.

Carl: For sure.

Michael: And then there's a third version that, to me, is still hard, but is probably the best of all these scenarios, which is they're really clear on their purpose, they're really clear where they're going, they're really clear what it takes to create that alignment, but life happened and they got distracted. "I was focusing on this and it really is important to me to retire, but then I was out with my friends and everyone was talking up their new cars and I got sucked in. Then I started looking at this thing online and then I was going to buy it as well. And now I'm sitting in your office talking about whether I can afford this car, and we need to have this conversation of, like, okay, yes, you can afford it, but do you really want to trade off your retirement goal for this and getting to spend more time with your family and all the other things that you said were important to you? Or are we just getting distracted?"

So I started thinking about these three tiers. There is the, did I misunderstand your goal, are you getting distracted from your goal, or is the truth you don't even actually know what the heck you want? And I sort of know how to do the misunderstanding conversation because I just ask more questions. The other two get really hard to me really quickly. That's where the sign with the dragons comes in, right? I mean, it's one thing to just, right, how do you actually call out someone to say, "You said it was really important to achieve these goals, but we keep having this conversation about buying cars that you could barely afford." And I feel like we need to talk about that. That's a hard conversation to set up. Never mind the, "You keep saying you want to retire, but I don't actually think you even want to do. You really just want to roll with your friends and buy expensive things." So how do you handle those conversations, Carl? How do you open that space up and not get swallowed by the dragon?

How To Use Micro-Goals To Clarify Client Goals Over Time [14:43]

Carl: Yeah. That's super good framing. Let me just comment real quickly on the not knowing our goals. I really hope if there was one outcome from this conversation that I would love to insert into the industry, speaking broadly, it would be that it shouldn't surprise us that this happens. This is called being human. We shouldn't be disappointed, we shouldn't expect anything different. And particularly around goals, we don't know our goals. I mean, just go read René Girard's work around the mimetic desire and you'll understand. Luke, I think it's Burgis. Luke's new book called "Wanting," I think it's called, is an amazing place to start if you want to get a sense of that. Or David Perell's work around mimetic desire...I mean, David Perell's work around René Girard's work. We don't know what we want. From the earliest age, we look to other people. From the earliest age, from the time we're born, we look to other people to learn what we desire. And so, it should be no surprise. And I think that's one of the beautiful things about this job if you do it at least sort of... I know I'm wrong about this and whatever, but real financial planning is a huge piece of the job, and I don't know what the number would be, but I'm thinking 50% of the job is goal clarification over time. So just helping clients try little experiments, right, try little...

Michael: That's a powerful way to frame it. Goal clarification, over time.

Carl: Yeah. Yeah. Because you don't have the information you need. So what do we do? We make a guess; we take some actions. "I think I want to do that. I think it'd be really fun to live on a ranch in Driggs, Idaho." "Have you ever been to Driggs, Idaho?" "I haven't." "Okay. You know what, if we start with a trip there?" "Okay, cool. You know what? Didn't like Driggs as much as I thought I would." Well, we learn. We just make small bets, it's the same... We've talked about this kind of stuff in other areas.

Michael: Which gets powerful when you get down to the, "I want to retire to Scottsdale." Cool. Ever spent more than a week vacationing in Scottsdale? Take a month or three after you retire before you actually buy that house, and make sure you're actually still feeling good about Arizona in July and August, and then move there if you're still happy after you spend the summer. No knocks to the Arizona folks, just, you haven't spent summer in Arizona, you might want to try that before you buy your retirement home there for the next 30 years.

Carl: Yeah. And I think there's all sorts of very, like, "I think I'd be happy teaching at the university." "Hey, have you ever guest lectured?" What little small bets can we make? I just think of those as micro-actions to see if there's tailwind, as we start getting closer and closer and closer. Because what will happen when we take that little action? New information will show up. That new information can be back into the feedback loop and we can say, "Oh, it turns out that's not my..." So that's goal clarification, over time. So that should come as no surprise. And I just think it's unfortunate because it's like one of the variables in our plan and we just want to nail it down. And it can feel a little frustrating, like, "They're always changing their goals." That's called life. That's called being human.

And I think if we start blending that into our process, we can start giving people permission to be human. That's pretty cool. So there's that, but now let's talk about, because I have a phrase that has been life-saving for me around, maybe we can go back to the guy who wants to buy a new car, but said that he really wanted to coach his daughter's soccer team. And you could use this any...you're spending more, you save... Because we have to realize that maybe, I should make some assumptions, that maybe the goal to coach the daughter's soccer team is no longer a goal. I don't know. It's maybe been a couple of months, it may even have been a year since we last checked in on that, and I got to keep my values off their plan.

So, I can't imagine that the car is more important than coaching the daughter's team. I can't imagine that as possible, but that's my values, not theirs. So the phrase that I've used that I just think is gold, at least it's been for me, to enter this space where the dragons live, which is really actually pointing to the dancing with dragons logo of the society, is this is where all the gold is. That's why the dragons are there. Right? And yeah, they can eat you, so it can be scary, but it's also where all the treasure is. So here's the phrase that I used and I still use it all the time. I even use it with friends and family. So let's pretend this guy's name is John. I would just say, "Hey, John, you may fire me for the conversation we're about to have, but you should definitely fire me if we don't. If we don't have it." And that phrase seems to be giving me the implied permission to enter this space. Together we're going here. I'm doing this because I think's my job.

Michael: I'm assuming no one's ever stopped you there. If only for the sheer curiosity at this point, like, "Now I just want to know what he's about to do."

Carl: Yeah. Yeah. And I've had this conversation recently with friends. Like, "Hey, you may fire me as a friend for what I'm about to say, but you should definitely fire me as a friend if I don't tell you. I've noticed this and I'm just curious what's going on." So in this case, let's pretend this guy's name is John. I would just say, "John, I remember you told me spending more time with your daughter, and the way you specifically identified was coaching her soccer team, was really important to you. And now you want to buy this car that's going to require you to work a little bit more. Just help me understand here, has this changed? Is this less important? Are we just not seeing it? How can we...? This feels like a conflict to me of two competing values. I want to buy a car and I want to spend time with my daughter. What's up?" Just sort of entering that space that way using this phrase, "You may fire me."

Michael: And so, that's how you'd frame it. Just, "Look, I see you saying this, I see you doing that, help me understand what's up."

Carl: Yeah. Has something changed? And I think it's really important to frame, like, "You told me this." Or even, "When we talked last, this was something you mentioned." So, in all these cases, there's a delicate dance between a punch in the face and an empathetic hug, and sometimes people need a punch... and, please, I'm talking metaphorically, I think. Sometimes people need a punch.

Michael: I think?

How To Address Misalignment And Reassess Financial Goals [21:34]

Carl: No, it's just a joke. Sometimes will need a... You'll know. You should know the clients that can use the direct... I told our financial planner that you've got to be part drill sergeant. If you don't call out my inauthentic behavior, I am going to fire you. Now, I may get mad when you do it, but I'll go on a walk and I'll go throw something around in the backyard, and then I won't be mad anymore and it'll be massively valuable. That's what I'm hiring you for. Now, I know to use those words because of the work we've done. But some clients need that punch in the nose, that's fine. Some need an empathetic hug. So you can have the same conversation empathetically, like, "Hey, I know sometimes when we set out these goals, I've noticed over my life and the life of everybody else we've worked with, they change. You may fire me for what I'm about to say, but you should definitely fire me if not. And I just want to clarify this. Last time..."

You could even say, instead of punching the nose, "Last time you told me this," you could say, "Last time when we talked, you mentioned that you like this idea. Is that still true?" Okay, cool. Now I'm seeing an opportunity here, right? It could be phrased as, "I'm seeing an opportunity here." What if instead of the car, do you want to use that time with...something to think about here? Would you like to use that time to spend more time with your daughter and coach the soccer team? Just want to check in with you there." That's much more empathetic than the other version of, "Hey, you told me this, now you're doing this. What's up?" That might be appropriate too. For me, I would rather have the second. I'd rather have my financial planner, Christy, just say to me, "Bro, you said this, you're doing this. I don't get it."

Michael: Yeah. I'm struck by the way you frame this that, to come to this question of, has something changed? Because to me, one of the interesting things that comes from that is it gives permission to say yes. Yeah, I know I said that was important, but now that I'm here, I actually think this other thing is more important.

Carl: Yep. I love that.

Michael: And it creates space for them to say it, whereas the, you said your goal was this, but you were doing that, you know, you're not doing the thing you said you were going to do just has a very... Because clearly, since you said it once, that's the only thing you're ever allowed to do and you always have to come back to that thing. And granted, for a lot of clients, they have said, "I really want to pursue this. I ask you to hold me accountable, to keep me on track for that." It's like, that is the point. But as we know, sometimes the goals change, sometimes we didn't actually understand. "Has something changed?" Also gives an opportunity just to clarify, "Well, actually, no, nothing's changed, but that wasn't really quite my goal. It was actually this." You create space for the client to clarify the goal, you create space for the client to have their own realization that maybe the thing that I said wasn't actually really the main goal after all.

And at worst, right, if it was...at worst, at best, it was just, "Hey. Yeah, I got a little distracted because life's going to life at me sometimes. Thank you for calling me back to what I said I really wanted to do, which is I really want to spend more time with my daughter. Yeah, I got caught up in the moment, but, no, you're right. I don't want the car. I don't want the extra hours I have to work to get the car. I want to go coach my daughter's team."

Carl: No, I love that. And particularly if we remove...the daughter's team has such a, like, are you kidding me, aspect to it, but if you change it to some of the ones we talked about earlier, like I want to move to Phoenix or Scottsdale, that's much more...there's no kind of embedded sense of morality in that decision. It's just this or that decision. And then it's very easy to say, "Hey, well, you know you told me Scottsdale was important, but now we're doing this thing." You could almost be like, "What has changed?" Or, "What have you learned? Has there been any interesting information...?" In a conference recently, a planner who I love, Christy Raines, mentioned that particularly right now, we're getting so much permission to allow clients to have conversations that they may not have ever had before.

You can assume with pretty darn near 100% certainty that they've had a conversation about making a change, like where do I work? Where do we live? What's up with...there's kids in school. And so, I think it's easy-going into these conversations right now to say, "Hey, any new insights into this goal over here that we've framed up, it's even written here on your one-page plan, and I see some actions that's not leading to me, it makes me wonder, do we need to clarify the goal a bit?" And I even think you could frame it the way you did, which is when I see this, there's often a couple of options. One, the goal might not be right. Two, we may not have even known what the goal should have been. And three, we might have just gotten distracted. And I think that gives people a little bit of room to realize that this is normal and human behavior. All three of those.

Michael: Oh, yeah. I think the biggest takeaway to me though is just, I really like this framing of we're in the business of helping clients to clarify their goals, over time. I guess, comma, and then pursue them or achieve them. But, the phrase goal clarification over time to me is super powerful. Because goal clarification sort of acknowledges we might not actually be that clear about our goals. I think I know what my goals are, but I don't really, or maybe I'm not even really actually sure what my goals are because no one's ever really asked me that point-blank. And this recognition that our goals can and do change over time, either because we didn't know what we wanted and now we have a better sense of what we wanted, or we thought we wanted something but now we realize we want something different, or we just literally decided that we want to pursue a different direction for any of the reasons that come at us in life. That I'm in the business of goal clarification over time. Helping my clients clarify their goals over time and pursue them, to me, is really powerful.

Carl: Yeah. I know. I love that too. And I think the reason I love it is because it suggests to our minds that this is a beautiful part of the job. Because I sometimes always felt almost frustrated. Like, wait, oh, no that's changing. No, of course, it's going to change. Of course it is. And it also helps us remember that sitting down and asking somebody in an intake form, what are your goals? It was kind of a silly idea because they don't really know. And so we've talked about that at length before of how to help them uncover at least their first guess at the goal, and then we're going to help them clarify that over time. And it's really a little bit... it shifts the thinking from, I got to get this right, to I got to put something on the board and then get less wrong every time we talk.

And to me, that just relieves a whole bunch of stuff where I thought my value was one thing, it turns out it's not. It's another thing. And how beautiful for a client, right? If you say to me as my financial planner, which just happened this week, actually, I got fired by my financial planner of making any financial decisions for our family, which was amazing. But if you say to me, "The reason that we're going to make this change is because you told us that you didn't want to think about this stuff anymore and you keep meddling," right? I can't tell you how valuable that was. And this guy coaching his daughter's team and people who want to move to a town, and somebody who thinks they can be a ski patrol. If you help them clarify all that, what's that worth? That's the why. That's the reason I love that.

Michael: Well, and my other takeaway as we wrap up is just the way you framed it, yes, these are scary conversations to put out with the client, there are dragons there, but that's where the gold is. The gold's under the dragon.

Carl: It always is.

Michael: You can't get to the gold if you don't face the dragons. I know at least to me, I take that with a little extra dose of courage of, "Oh, that's why I keep going to face the dragons. There's gold there."

Carl: Yeah. And to me, I love...we're not going to conquer them. We're going to dance with them. So I love the idea of this doesn't have to be big and scary. It is a little scary because they could breathe fire and eat you, but if we go about it the right way, it's this dance, and that's the art of what we do.

Michael: All right. So, thank you, dances with dragons.

Carl: You're welcome, my friend. Super fun. Thanks, Michael.

Michael: Thank you.