Kitces & Carl Ep 75: Crafting A Statement of Financial Purpose To Find The Client’s Financial Why

***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

• Scott Barry Kaufman's podcast

Kitces & Carl Podcast Transcript

Michael: Good afternoon, Carl.

Carl: Greetings, Michael. How are you?

Michael: I'm doing well. How are you today?

Carl: I'm good, yeah, things are...it's a beautiful sunny fall day in Utah. It doesn't get much better than this.

Michael: Amazing, amazing. I'm noticing now, just the background has changed again, the blue couch is gone, but I'm seeing...is that Mr. Burns over your shoulder here?

Carl: Well, the blue couch is right over there.

Michael: Okay, it's just on the other side of the room, it's still close?

Carl: My wife kicked me out. My wife has taken over my office. She's an interior designer. And so she's kicked me out. She's making me work outside, which is a whole ‘nother story, but it's been fantastic. And I came in to record here. She rearranged the whole office, so this is the view. This is the only shelf I get. The rest of the office is tile and carpet samples. And I got this shelf, and so Mr. Burns has to live on this shelf right there.

Michael: So why Mr. Burns? Are you a particular Simpsons fan?

Carl: No, actually, I'm not. That was a gift from Justin Castelli actually, because…and it's a long story, which maybe I can tell you another time. But I'm really, really familiar with imposter syndrome. Imposter syndrome is a friend of mine. And as part of my way of coping with imposter syndrome, I personified it, and Mr. Burns is who I've turned it into. So I can tell you that story another time. But when Mr. Burns is around, it means cool things are about to happen. They may fail, but it means cool things are about to happen.

Michael: Well, fantastic. I think in the spirit of cool things happening that you have created, actually for the discussion today, I was just looking through, we get a lot of comments in from people listen to podcasts, just asking what do they want to hear the two of us talk about? And I've been getting a number of questions lately, going all the way back to some stuff that we actually talked about, probably the better part of a year ago, you had talked about this statement of financial purpose that you create as part of, I think, how you keep clients on track when they're wigging out market volatility. So we were talking about it last year when markets got crazy volatile in the pandemic, you'd said...we've kind of come back to the statement of financial purpose, and ground them there, and then build a layer on top of that to get them comfortable.

So we had some people come back to say, "Carl mentioned that statement of financial purpose thing, but we didn't really go into a lot of detail about literally, what is a statement of financial purpose?" That's kind of a weighty label. What exactly are we talking about here?

Defining And Understanding A Statement Of Financial Purpose [2:38]

Carl: That'd be a really fun conversation. It is one of my favorite subjects. So maybe it'll be helpful just to give some history. I'll put it in context, and then we can back up and go through it. Statement of financial purpose to me is the first...I think of it like a third on a piece of paper, the first third of a one-page financial plan. It's literally just a sentence or two about why, just a reminder about why. And we can go through examples and go through why even do that in a minute.

Michael: I'm getting a glimpse already of the difference between my financial plans and your one-page financial plan because...

Carl: We’ve known that for a long time.

Michael: I just heard that correctly. The top third of your plan is a sentence.

Carl: Yeah, it's a one-page…

Michael: That is like a centimeter on mine. But okay, please keep going. I like to put more stuff on that page than you do. But, maybe we’ll come back to that later.

Carl: Yeah, for sure you do. There's...

Michael: I feel like it's in lights, it is this one sentence ensconced in beautiful whitespace at the top of a financial plan. What is the sentence? Where is this going? What are we doing with this sentence?

Carl: So, I know we've talked a lot about one-page financial plan. This is just the first little part of a one-page financial plan. So, go back and review the one-page...there's that, and then goals, and then next actions is essentially what I think of as the executive summary/one-page plan. The statement of financial purpose, to me, I have sort of a dream, or an opinion that I'm trying to kind of forcibly insert into the industry that every client will have a statement of financial purpose. And let me give you a little bit of the history. And I get asked this...it's not every day, but a couple of times a week, for sure, on podcasts, interviews, or media interviews, what's the biggest mistake people make? And I still think it's this, I think it's all the other mistakes are because we have never gotten clear about why we're doing this in the first place. Why are we spending the way we are? Why are we saving the way we are? Why is the investment portfolio invested the way it is? It all comes down to this idea, what's the real... So, this isn't a goal. Right?

So, Bill Bachrach would have referred to these as values. And I read Bill's book when I was first in the industry, so I was always thinking values. And then I ran across the work of an academic and right now, I can't remember the name. I'll try and find it and get it to you for the show notes. But who talked about purpose, and purpose being this relatively enduring thing that informs our other activities. I remember where I was, actually, when I was listening to that podcast. It was Scott Barry Kaufman's podcast. And Scott's a psychologist, a positive psychologist out of Wharton and University of Pennsylvania. And I remember, I was walking on a trail in New Zealand when I heard this, I was like, "Oh, my gosh, purpose, right."

So that's when I moved away from this idea of values to purpose. I think they're probably, point being, the same thing. And I'm not...whatever, zealot about what you call it. I just like the idea of a statement of financial purpose, almost like an investment policy statement. Right? Like, if you're an institution, you have to have an investment policy statement, right?

Michael: Yeah.

Carl: I think individual clients, we should have a statement of financial purpose. So here's what it is. Mine, my one-page plan, that line says, "Time with my family, mainly outside." Sometimes I get that reversed, "Time outside, sometimes with my family." Actually, it's, "Time with my family, mainly outside. And service in my community and my church." That's what's there. Let me go through a couple more, because I find just riffing on them for a minute. Jerry and Vera’s…actual clients, with no last name. Jerry said to me, "Carl, I just don't want to be a burden to the kids. And if there's money left... And I would like to see them enjoy some of their inheritance while I was alive." That's deeper than the goal. But what's interesting is goals, to me, this is where the conversation starts. Because goals, we can now use this to frame the goals, right? We get to show them what their goals are, instead of ask them, "Oh, what's your goals," in an intake form.

So with Jerry, it's really easy now to say, "Oh, interesting, Jerry. What would that look like?" So, that's why I think it's nestled, foundationally it's underneath the goal. So, the one I wrote about in the book, "The One-Page Financial Plan" book, was the ER doctor who she said, "I just want flexibility, time..." or, "flexibility, freedom, time to think about having a family." That sort of sat underneath there. Another client who said, "I never..." she was older, retired, "I never want to have to worry about money again." So it's those kinds of savings. Now, nobody has to cry. It's not a requirement that you cry to have it. But...

Michael: I feel like the fact you pointed that out makes it sort of an expectation though.

Carl: Yeah, I used to have a goal. I wouldn't tell clients this, but I had a goal in the first meeting that someone was going to cry and it wasn't going to be me. But Jerry and Vera, they were like from Tom Brokaw's "Greatest Generation." Jerry had never...he came to me for the investments, "What have you got for me, kid?" And we all know that if we engage at that spot, at least...if we start competing at that spot, like, "My investments are better than their investments." And especially if we compete based on inches, "Look, my pitch book is three inches, and theirs is only two." If we engage at that level, we know what that leads to. It's just an absolute sort of gerbil wheel of a relationship.

But if I can say to Jerry, "Jerry, got it. Performance is super important to you. And frankly, it's important to us, too. It's one of the key drivers of lifetime success for sure. Before we get there, can we just back up? Help me understand why this would be important to you. Jerry, why?" And then ask him, and then Jerry says to me, "Gosh, I don't know. But I just never want to be a burden to my kids." So Jerry didn't cry, but he'd never said that to anyone else. And now to see it written on the top of the page that he sees every time we meet as a reminder of everything else we're doing is in service of that purpose. That's what a statement of financial purpose is.

The Techniques Advisors Can Use To Discover A Client’s Statement of Financial Purpose [9:44]

Michael: So how do you get at this with clients? I'm assuming this isn't like Jerry came in, "Okay, kid, what have you got for my investment portfolio?" You say, "Well, Jerry, I'd like to start by asking you about your statement of financial purpose." You always have much better ways to cue this up than that. But I mean just, how am I getting a conversation there? And particularly, since it sounds like this is your aim even in a...this isn't even necessarily like a first client data gathering meeting. This is a prospect conversation even where it may come up. How do you get a conversation there? How do you put it out there? Are you literally calling it statement of financial purpose to the clients? How does this work in a client conversation or in a prospect conversation?

Carl: This is super. I love that we're having this conversation, because you're asking the questions that all the people that sort of are on the same page as you about plan...you know what I mean? How do I even...

Michael: Sounds neat, sort of get how it might be powerful. Really not get how to take the conversation there...

Carl: "That's cute, Carl, that's cute."

Michael: ...without making it awkward, because I'm nerdy. Give me numbers, I can talk about them. I'm not quite sure how to get this conversation there.

Carl: No, I love this because a lot of us come from a really strong just sort of like, "Hey, this is a spreadsheet math problem. Let me get at it." And look, in the past, I've been accused of sort of dismissing or diminishing the value of that. I've only recently -- by recently, I mean in the last three years -- understood that it's not "or," it's "and." The spreadsheets and the numbers are incredibly important, and if we can get underneath them. So here's how we get at it. I think we probably have covered this in other calls, but it's the first meeting, the client first meeting. I do think...it was my favorite prospecting tool too, because I would say, "I'm a..." Look, I leaned into...I didn't lean into, "I'm a life planner." For me, it didn't work. I know it works for other people to say that, like put it on my card, all that stuff. I found that to be slightly...I don't quite want to use the word off-putting, but it was like people didn't understand it, it was confusing. So I just lean in, "I'm a wealth manager. I'm a financial advisor." I just use that term. And then it was I felt like I was playing a series of righteous tricks -- and I mean that intentionally, righteous tricks -- to sort of lead them...greet them where they are like Jerry. Nobody ever showed up to my office and said, "Carl, could you please help me clarify my financial purpose?"

Michael: Right. And particularly, given what we were just talking about in our last episode, this is not like, "My elbow hurts, please help me." Like, "Carl, woke up 2:00 in the morning. Could not come up with the statement of financial purpose. Couldn't go to sleep until I found one. Went on Google, found you with an article about statement of financial purpose. And I'm now reaching out to you to become my financial advisor for my life savings," said no one ever.

Carl: This is a really important conversation, because I think there are people who successfully do the, "I'm a life planner, I'm your financial architect, I'm your financial coach." And they do that successfully. And for them, please keep doing that. That's awesome. But there's a whole group of people, I think, like me that that's what I see myself as, but it was just too confusing. In fact, I remember a client early on was like...we were having this conversation about a client early on, he's a doctor. And he said to me, he used Patch Adams as the comparison. He's like, "They're expecting a white coat and a stethoscope. Why don't I give them that? Even though I want to do something slightly different, let's greet them with their...so it doesn't become too stark of a contrast between what they expected." So I don't run around saying that. I don't think I even write much about this. I'm always thinking, "How can I help people lead to that? How can I pull righteous tricks? How can I play chess?" So here's how that would look...

Helping Clients Realize Their Financial “Why?” [13:54]

Michael: So how do you get them there?

Carl: Yeah, here's how it would look. People come in, and I never said, "Here's the intake form, fill out statement of financial purpose and your goals." Goals is the same thing to me. I don't think you're allowed to say it. So we'd sit down, and somebody would say, "What do you do prospecting-wise? What do you do?" And I just got so sick of that question, I would be like, "I'm a financial advisor." And then I would wait for that look, and then I would say, "But not like that, not what you're thinking." "What do you mean?" I said, "Well, look, I think I can go toe to toe with anybody on our investment process. I have, toe to toe, no problem defending our investment process. I think we're better than anybody else in the world at it, actually. But none of that matters if we don't know why we're doing it." And then I'll always pull out...I love pulling out the old Stephen Covey quote, that it doesn't...the last thing you want to do is spend your entire life climbing a ladder, only to find out at the end that it's leaning against the wrong wall. And so the portfolio is in service of the person and their purpose, not the other way around.

So that was the prospecting way. But let's just quickly fast forward to client comes in for the meeting. So let's just use Jerry and Vera come in for the meeting. They got referred, probably got referred because somebody was like, "Yeah, they know how to invest the money and so much more." And clients didn't even know how to...like, "Carl knows my family." You know what I mean? "They know what's important to us. If I were to pass away, my spouse would feel really comfortable," all those things, but they wouldn't say, "Go meet with Carl, he's got a statement of financial purpose," or, "They'll help you define your goals," or, "You'll cry on his couch." They would just be like, "Oh, it's so much different than anything else I've been through." Because they were comparing it to a broker, if you will.

So they come in, they're expecting a similar experience. That's why they've got their hands on their wallet. You're not going to get this from me. They're expecting to be pitched portfolio. Jerry and Vera sat down and I just said, "Jerry and Vera, thanks so much for coming today." Literally, there was no small talk, "Hey, your kids play rugby? So do mine." None of that stuff. So it was literally, "Jerry and Vera, thanks for coming today. It shows how committed you are to making smart decisions about money. So let's get started." And then I would give a little roadmap, "First meeting, we're going to do this. And if this goes well, we'll have a second meeting." I give a little roadmap. But then I would just say, "Ask the question that helps you uncover the statement of financial purpose." And we've been through the question so many times that we're not question zealots. Dan Sullivan's got a great question. Bill Bachrach's got a great question. John Bowen's got a great question. And George Kinder has got a whole set of great questions. Who cares which one you use. The point is, you're trying to uncover this purpose.

So for me, it was, "Jerry, why," a little twist on Bill Bachrach's question, "Why is money important to you?" And I would say it softly, so it wasn't an interrogation. Because all the coaches get mad about using why question. So like, "Why is money important to you?" And Jerry was like, "Gosh, that's a good question. You know what? I just don't...I don't want to..." And often they would say something like, "Oh, I just want performance." And I would say, "Got it. Performance is super important." I'd write that down. Super important. So instead of saying, "Performance doesn't matter. I'm a life coach," I would say, "Performance is really important, because it's true. And we'll get to that. Tell me why is money important?" I just go right back to the question no matter what the question was.

And I found the question didn't matter so much as the follow-ups. Like the, "Tell me more, go a little deeper." Jerry literally said almost on the first time, "Gosh, I haven't really ever thought about it this way, but I really don't want to be a burden to the kids." And I wrote that down, it was like, "Don't want to be a burden to the kids." I was like, "Is anything else more important? Is there anything more important?" He's like, "Well, if that, then I would also love to leave some money to them during our lives so we could see it. And if that, we got all that done, it would be great if there was still a chunk left over for them when I died." I was like, "Is there anything more important?" "No." Jerry, there's no crying. There's no reason to dig deeper. There's no reason to make him go...whatever. Vera said, essentially, very similar statement on the same thing, "Yeah, actually, we've talked about this. That's exactly. We just don't want to be a burden to the kids."

So then I can say to Jerry and Vera, "Hey, in our work together, would there be anything more important than helping you...is it okay if I view all of our work together through that set of lenses?" "Oh, that'd be great." Now, you can see how cool that is because now we can say, "Okay, let's talk a little bit about this. Would it be okay if we put some framework around never being a burden to the kids? And when we do, Jerry and Vera, is it okay if we call that a goal?" That is so much better than, "What's your goal?" And then we can say, "Okay, cool. How much would you like to leave to the kids? How much would you like to..." "Oh, could we do $10,000 a year? That'd be amazing." Now we've put a bunch of framework around the goals. Now they know their goals sit on top of this thing we've now defined as purpose.

And then at the end of that meeting, it never came out of my mouth, "Statement of financial purpose," until the end. Maybe even at the end of that, before we move to goals, you could say, "Okay, I've written this down. You said...let me make sure I got this right. You said you never want to be a burden to the kids. You'd love to leave some to them. You'd love to see them enjoy some of the inheritance while you're alive. And if there was some left over, that would be great. Did I get that right?" "Yeah." "If it's okay, I have a name for this. We just call it a statement of financial purpose. Is that all right?" "Yeah, that's great." That's how it happened.

Why Advisors Should Treat A Statement Of Financial Purpose As A Living Document [19:59]

Michael: And so then financial plan future meetings just...this sits at the top of the one-page plan, or whatever document you're putting back in front of them, just to be that visible filter, that visible, "Hey, in case we forgot, this is what we're building on. Everything follows from this." I'm going to guess that means from time to time you would sit down with the client on this, they would actually say, "Actually, I'm not sure that's the thing anymore." Like you said, your ER doc was for flexibility, freedom, and time to think about having a family. That goes well, at some point, she has a family, and that may not be the statement of financial purpose anymore because her are life's moved and she's at different place. So you put it up there, every now and then a client will say, "Hey, actually, I feel like it's a little bit different now." And that's fine. That's just a door you open and go down that pathway if they open the door.

Carl: Yeah. So a couple things there. I think we do it almost more intentionally. And so a couple of things, right? If it's on the top of the document, you know how some books have a callout quote at the beginning of the chapter?

Michael: Yep.

Carl: And it's almost always italicized, stands out a little bit like. It can just be on the document, and you don't necessarily even have to point at it every single time. So that's one thing to keep in mind, it's just there. It's just a reminder. To me, it's the touchstone, but let's get back to the...well, I want to cover the changing part, but first let's talk about it's the thing...just keep in mind, I think we're asking people to say a large part of the job of a successful financial planner over decades is to get people to say no and yes at the right time and the right reason. And often it's saying no a lot. You're asking people to say no to an emotion that they want to get out of the market. You're asking people to say no to spending. You're asking people to say no to a lot of things. Look, this all started out of the goal to close the behavior gap. Right? For 25 years, I've been trying to figure out how to close that. And the only thing I could find was to give them a bigger yes. In order to say no to all those things, I had to give them a bigger yes. I tried facts and figures. "Don't you know the average bear market? Don't you know if you miss the 10 best days? Don't you know..." That doesn't work. I tried a goals, goal-based planning, "We all do goal-based planning, dah, dah, dah." That didn't always work. It worked better than the other things we used to do.

And then after that, I tried a plan. And that worked better than facts and figures and goals, and it worked better than...but it's still... So I was like, "What's a succinct way to bring them back to what they said when they were thinking clearly, when they're in the middle of wanting to make a slightly...I'm going to just call it a slightly irrational, but it's at least slightly off-plan decision?" So if they call wanting to make one of those decisions, I like to think of it as just a scary market conversation, we can use this, "Hey, Michael, before we dive into that, I understand you're scared, nervous. To be honest, when I watch the news, I get scared and nervous too, right now. But before we dive into why and what we want to do about it, can I grab your file?" What do you grab? You grab the one-page plan and you say, "Hey, let me just double-check on something. When we first met, you told me time with your family, mainly outside, services in your community. Is that still true?" "Yeah." "Okay, cool." So we're taking them from way out here back to the foundation, what's sitting in their purpose. So that's how it's used. It should be... It's a living, breathing document. It's not meant to be filed.

And then this last thing on changing. Of course it changes. And I think we need to get better at actively...I think of it as actively looking for disconfirming evidence. Sometimes we think if we change something, for some reason we're wrong. We were wrong, we made a mistake. And I think we need to flip that. There's a term in complexity theory, there's a term called error embracing. When the error shows up, we... So in the statement of financial purpose, we should expect it to change. Having said that, on an interview yesterday, somebody asked me when I changed mine last. Fifteen years, it hasn't changed. And I was trying to anticipate when it would change, "Time with my family, mainly outside. Serving my community and church." I don't see that changing.

How To Draft The Proper Statement Of Financial Purpose [24:47]

Michael: So one follow-on question just that I've got. Maybe this is just me channeling too many times doing business meetings with mission and vision statement, which I'm sort of channeling a similar theme, where we spend so much time sometimes trying to find the word, the image. There's often a lot of polishing that goes into mission vision statement. Should I be thinking about statement of financial purpose the same way? Am I overthinking it? Do I just grab whatever words is the client said? Close enough, I'm going to put it on a page, because if they don't like those words, they'll tell me next meeting when I put it on a page. How much do I have to worry or care about trying to craft this or polish this? Because your sounds really polished and catchy. I don't think mine is going to be the first time. I don't think a lot of clients are going to be there. How polished does this need to be, or should I expect it to be, or do I work towards?

Carl: Such a great question. Look, a couple of things. I'm not a zealot about any of this stuff. So whether you call it ever. One of my favorite financial planners was on a call last month where we were talking about this. And she said, "It's just too cheesy for me to call it a statement of financial purpose." I'm like, "Then don't call it that." The point is, we're trying to capture the clients' words. How do they describe? If you were just to... Ron Lieber, the editor of "The New York Times," once when we were having lunch pinned me down in a corner in a restaurant and asked me seven deep why's, "Why that..." He did the seven why's game to me. And I remember being at the end like, "I don't know, but this." And that was the thing that we were trying to... So it's sort of like if you could just get a client... So, first of all, don't be too worried about calling it anything, because as soon as you bring up mission statement, I'm just like, "Dude, I'm out." I could see how close this could be, "Oh, you mean..." People have said that, "Oh, you mean like a financial mission statement?" "Yeah, yeah." So, we don't have to call it anything.

And then to answer your question, Jerry's isn't polished. "I don't want to be a burden to the kids." Amazing, right? I was always like, "Well, that's not really...nobody cried." And I was like, "Jerry had never said that to anyone else, ever. And now it's like a thing." So I think the most important part, the rawness of it, the lack of polish is a benefit because the most important part is that it's their words, and it resonates with them. And back to your earlier question about changing, I would actively ask that. I think it's at least an annual conversation where you just say, "Hey, you'd mentioned this to me last year. Is this changed at all? Still feel like it captures?" And Julie, ER doctor, would say, "Yeah, the family thing, it's been five or six years now, the kids are getting a little older. I've had time to have a family. Now I'm more focused on dah, dah, dah."

Michael: Okay. Awesome. Well, thank you for sharing, Carl. You've mentioned a lot of times, we kind of got a little bit down the road, but had really got into how do you do this? How do you get this out of a client? So appreciate the discussion.

Carl: Super fun. Thanks for asking the questions.

Michael: Awesome. Thank you, Carl.