Kitces & Carl Ep 33: Triaging Clients Efficiently Through Critical Financial Care

Show Notes

• Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety
• Markets Plunge. Economies Stall. Panic Spreads. It All Feels Very 2008.
• 20 Years Later, the Y2K Bug Seems Like a Joke—Because Those Behind the Scenes Took It Seriously
• Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets
• Kitces & Carl Ep 26: Talking Clients Out Of The Bunker Portfolio
• Nick Murray

Kitces & Carl Podcast Transcript

Michael: All right. Welcome, Carl.

Carl: Greetings, Michael. How are you?

Michael: Well, doing mostly okay. It's been a little bit of a stressful few weeks. The world is in a global pandemic and it's a little freaky right now.

Carl: Yeah. It's super-interesting, yeah, and really crazy, really crazy. So yeah, it's going to be interesting for us to chat a little bit about how we handle this. I'm assuming that's where you'd like to go.

How Advisors Face Their Own Anxiety As They Reassure Their Clients During Times Of Uncertainty [00:01:27]

Michael: Yeah. We separately did a webinar recently on calming client anxiety of coronavirus. So I thought an interesting discussion today would be calming our own anxiety, right? It's one of those things I don't think we talk about much, this realm where markets are going crazy, the world is going crazy, I suppose like, "These are the times we make all our money. These are when we add our value, keeping clients on board, talking them off the ledge when they're scared, when they're anxious, when they're freaking out."

And nobody ever talks about what happens when we're freaking out maybe on the inside because you can't say that to clients because then you just freak them out even more.

I remember going through this in the tech crash, because I started my career before 9/11, and then probably even more so I remember it in the financial crisis. There were these moments of trying to keep clients invested to stay the course while the financial system was melting down, and it was hard not to have this nagging thought in the back of your head of like, "What if it is actually coming down?"

I was telling people to stay on board because we were going to get through, the system is resilient, then we'll recover, and the economy will grow back again. But it's hard not to have that nagging thing somewhere in the back of your head of like, "Well, unless it doesn't."

And these are never the same, right? History never repeats, but it always rhymes. So last time it was, "I wonder if the financial system is going to survive." This time it's, "I wonder what happens to all of our economies as the pandemic rolls through."

So let me start there, because you've been through this journey as well. Let's maybe start in 2008. As you were going through this with clients, did you have doubts yourself? And how do you handle them, or think about them, or process them, or just deal with them? Because we don't get to talk about it with clients because we're supposed to be their anchor.

Carl: Yeah, yeah. So first I think there are a couple of quick stories and then I think we can get to some really practical things we can do. So the answer is yes, I had massive doubts, which I'm sure we'll have a chance to talk about in another episode, but I was really sort of a crushed human after I got through it.

Part of that was just my own anxiety and fear, and doubts around things, but I think we're now starting to remember what that felt like. If you've been through it maybe... I didn't know of any people actually that were saying it. Now we look back at Y2K and we're like, "Oh, wasn't that cute?" Right?

Michael: Yes. At the time where it was like, "Oh, my God. What if all elevators stop working because the clocks and the floor timers were tied to the wrong number of digits?" I remember this queuing up to Y2K.

Carl: Totally. Yeah. I was trying to explain this to somebody who wasn't even born yet and they couldn't even process it. My point is that I don't think we've gotten to the point yet where we are saying 2009, 2008, 2009 were cute. People who've been through that still have that in their memory.

Here's a story. I remember I had a friend; his name is Brad. Brad had built this business and he had an offer to sell it. Somebody was going to buy it from him and Brad was one of my best friends. I consider him my brother. I had seen him build this business and I had known what it did.

Just those of us who built businesses; sometimes it's pretty intense, right? I'd seen the sacrifices he had made and he had an offer to sell it. And this was in the middle of all this going on. And he called me and said, "Carl, hey, if I sell this, how are we going to invest the money?" And I remember saying, "Man, I don't know." Right? I don't know.

Michael: It was supposed to be the big moment, clients having liquidity events!

Carl: Yeah. And let me be clear. Brad was not a client. So this is a friend who I could say, "I don't know."

Michael: We didn't say “advisor friend” having their own liquidity event?

Carl: No. This is a friend who wasn't an advisor, right? He was building a different business and he was coming to me saying, "Hey, I'm... Obviously, whenever I have money, I'm going to trust you to invest it." And I was saying, "I don't know."

I remember telling my wife that and my wife was like, "Well, wait. How should we invest our money?" And I was like, "I don't know." So where do we go from, "I don't know?"

So this is the other story that I think is really valuable. Dan and Barbara were two clients of mine, and to make a long story short, Dan was laid off because of his age. They were downsizing and he got a buyout. That's what we'll call it, a buyout package. 95% percent of his net worth was in the stock of the company that he worked for when he came to me. It was a substantial amount. It was close to $2 million in the early 2000s and the stock was at $40 without getting into the details of which stock it was, but it was at like $40.

And I said, "Dan, if you're going to become a client of mine, we're going to sell all of that." And Dan said, "Well, why? Because you think the stocks are going to go down." And I said, "No, no, no. Because I don't know. In fact, I would prepare; if we sell, it will double the day after we sell it and if we don't sell it, it will get cut in half the day after we decide not to sell it. But that's not why we're doing it. We're doing it because of our principles, right?" This is all important to the story. Dan, I said, "You can't become a client unless we sell this and we're going to diversify using correct portfolio design principles, not because I know about the stock."

We sell it, and six months later that stock has gone from $40 to $3. Right? And so Dan starts calling me Santa Claus because of that. And I keep telling him like, "Dan, I didn't know. I would have never even wished that to happen. It was just a principle, right?"

Okay. So fast forward, Dan who calls me Santa Claus through every single scary market we’ve had and he would just be like, "Carl, I don't even care...whatever." Scary markets. He was like Teflon from that point on. It was just like, "Whatever." So anything we had happen between Y2K and September 11, as crazy as that was, and all that stuff just didn't faze him.

And then he goes on a cruise in late 2008, early 2009. They leave from LA (which apparently means there were more retired folks?). They get to the first port and Dan calls me. This was with Lehman, AIG – that week. He was on a cruise that week with a bunch of other retired people and he was like, "What's going on? Should I come home?" And I said, "No. Listen, things are pretty serious. When you get home, come meet with me. But just finish... You're on a boat. You don't need to jump in the water." And he's like, "Well, half the people are flying home from the first port." So Dan comes home.

So the reason that all this context matters is because Dan was calling me Santa Claus, right? So this was a big deal. Dan comes home. Dan and Barbara come into my office and I took them through the scary markets conversation that you and I have talked about before. This is the point for the conversation.

I remember looking them in the face and saying, "Dan, look, we're in a lifeboat. It makes no sense. We've kind of prepared for this, but remember, risk is an arbitrary concept until you experience it, right? So all the lifeboat drills in the world – they're good, but they’re not the same as actually getting punched in the face, right? So you're in a lifeboat. The only thing..." After taking them into the whole scary markets conversation like, "Look, it makes no sense to jump in the water. We just need to stay the course." You guys can go review the scary markets conversation.

This is the point for this thing. I remember closing the conference room door and thinking to myself, "Oh, my gosh. I hope I'm right." Right? So there's an internal conversation that we need to be having that we probably do need to keep separate from clients. And in the internal conversation, we need to acknowledge that when we say that cute little phrase where we say the last four words of any great investor, "This time it's different," what we mean is the end is never different, meaning they always end. So far they've always ended.

And so we need to acknowledge two things. One, the beginning is always different. Right? The stimulus for these things is always different, enough that you feel like...

Critical Events Precipitating Client Anxiety May Always Start Differently, But They Have Always Ended The Same [00:11:05]

Michael: Right. This time it's coronavirus pandemic. Last time it was a financial system meltdown from the mortgages. The time before that it was 9/11 and the tech boom and crash, then it was algorithm trading in '87. It was an oil crisis in '73. They are always different.

Carl: They're always different.

Michael: The precipitating thing that at least sets off the chain reaction is always different and, right or wrong, the presumption is always, well, it's going to end the same and the ending is, "We get through this, things get growing again, scary stuff eventually ends, and then we move on."

But as you said, there's this lingering thing, right? Clients have this lingering doubt, "Okay. But what if it actually is different?" And right or wrong, true or false, we'll see. That seed gets planted in our own heads as advisors, like, ''Oh, my gosh. What if it is different this time?"

Carl: Yeah, yeah. And I think there are a couple things that are super important. One is that the beginning is always different enough to make you feel like it's unprecedented. We've never seen anything like this before. That's always true.

So it feels like, yeah, in the middle of 2008 and 2009, we weren't just talking about, "Oh, it's scary." We were talking about things we never heard of before, the credit default swaps and who knows? And people didn't even know how to explain it. It's always different. So first, we need to feel that, "Okay. This is different. It's okay for me to be scared because this is unprecedented. We've never seen this before."

Number two is the idea that it will always end. We just need to acknowledge that that little creeping doubt... We weren't basing this off 95 years of stock market data. Right? And then you want to go back a little bit further and say, ''Oh, no. I'm not. I'm betting on the concept of capitalism." Okay. That's fine too, but the concept of capitalism...when we talk about the window of human history, we're still talking about a relatively short time period.

Michael: Okay. You're ratcheting up my fear here, Carl.

Carl: I know, I know. It's on purpose. We need to at least acknowledge that that is uncertain, but what do we do? So here's the solution my head. The way I go through it is believing that this time, the ending is going to be different. Even though it's a possibility, I think acknowledging the possibility is important. Not externally, internally between us advisors, it's important for us to go, "That feeling I'm having, I need to acknowledge that, right? I need to find a safe space to talk about it."

But just because something is possible doesn't mean it's likely. Right? So the only thing left to do is live in this uncertainty and say, "Okay. How do I make a decision? I've got to rely on the weighty evidence of history." It would be unreasonable to assume that this time is going to end differently because the only precedence we have that we're making all these decisions on is that you know what? We get through these, we figure it out, and we get through them. Right?

Michael: Well, it strikes me as well. I remember particularly going through this in 2008. It was different to me when the tech crash happened and 9/11 happened. The actual stock meltdown, well, for the tech crash was fairly confined to tech. Granted, everyone was obsessed with tech and they wanted to put all their money into the Nasdaq cubes instead of broad-based portfolios.

So people got to concentrate and portfolios got hammered a lot harder. But broad-based portfolios held up quite well. Heck, small cap value even went up while all the rest of the market was melting down because it had been so neglected in the late '90s.

Even when 9/11 happened, I felt there was this reaction in the country of, "We got hit. America is strong. We'll bounce back." There was such a surge of patriotism that I felt this acknowledgment, "Yes. We got hit and this may have done some economic damage, but we're better than this. We're stronger than this. We will power through this." And the surge of patriotism that came to me, I never had doubts in 2001 going through 9/11, of, "Would markets be okay? Would the economy be okay?" Yes, terrorism has hit home. Our lives have changed." We haven't gotten away from TSA since. But there were never doubts for me in telling clients that they needed to stay the course, about staying the course.

2008 and 2009 to me felt different, right? Even as participants in the financial services industry, we were seeing things that we had never seen before. Institutions that we were accustomed to, even within the industry, were suddenly disappearing and vanishing. Organizations that had been around for a hundred-plus years were suddenly vanishing basically overnight.

I remember conversations with clients of the firm in the fall of 2008, trying to keep them on board, and all the same stuff – this too shall pass, let me pull out the charts, here's how long it typically takes for recovery and bounce back periods – all that stuff that we try to do to anchor people. But I'll admit for that one, that nagging fear in the back of the mind was definitely there like, "Man, I hope this is actually true because if it's not we're all kind of screwed here."

The irony to me, at least with the nerdy logical rational brain that I have, frankly, was that it was kind of a comfort in some ways. It sort of reminds me of the bunker portfolio scenarios even before the coronavirus. The folks that want to buy 100% gold because they think the whole economic system is going to melt down someday for all the various reasons that they think the whole economic system is going to melt down.

There was always a piece of those scenarios of like, "So what exactly are you going to do if it really melts down? Are you going to chop the gold with your knife?" You really need guns and food storage. And even that's only going to last you so long if literally the whole economic system has melted down.

There comes a point where I feel like you have to keep powering forward not just because the alternative is too awful to contemplate, but because there are no tools for the alternative where you're like, "We can talk about gold as a hedge, but if you really want to blow up the entire economic system, gold ain't going to cut it." That actually still assumes there's some foundation of government and systems that cares about gold and the interchangeable nature of commodities as opposed to just owning hard goods.

It's not exactly the same, I think, for this coronavirus cycle. But the more it grows, the more it compounds, the more these discussions of sadly how many people may die, how much loss of life there will be, how much permanent harm we are doing to the economy as travel starts grinding to a halt and business starts grinding to a halt. These questions start surfacing again like, "What if we don't come back from this?” or “What if we don't come back in the same way that we have all the other times that terrible things play out?"

But I still keep coming back to some combination of, okay, well, we actually still have some historical precedents for this like the Spanish flu. And yes, eventually, the world did come back and it did grow again. We still get through this. We're not quite at the 12 Monkeys level and I don't know what the alternative would be anyway.

There comes a point where you may as well bet on the system recovering because none of our bets really matter if you think it's not going to. It's sort of a Pascal's wager. Do you want to bet that God exists or not? Not to go into an entirely religious direction here, but famous philosophy wager around should you bet that God exists or not. And it essentially comes down to well, you may as well because if you're right this is going to go well for you and if you're wrong this is going to go really bad for you. But if God doesn't exist, you're not giving up much by betting he does. So you may as well go for it.

I feel like there's a similar thing that comes forward, but even that to me still leaves this lingering doubt. It means that we're sort of assuming this blind confidence for ourselves. I'm going to tell clients, “You gotta keep going, it's going to be okay,” even though I'm actually not sure deep down it's going to be okay because I don't know where else I could take them anyway. So we may as well keep going down this journey together and we'll all collectively pray it works out.

Carl: But here's the deal with that. Right? So number one, what are you going to do anyway? What are your alternatives? That's the way I always think through it. What are my alternatives? Okay.

Number two, the only rational conclusion based on the weighty evidence of history – at least the piece of history we're using – the only rational conclusion is that we'll get through this. Right? And we just have to remember that humans are uniquely qualified and really good at dealing with problems right in front of their faces. Right? MacGyver bubble gum and duct tape style. We'll figure this out. I don't know, but we'll figure it out. Right? We're terrible at understanding what's going to happen two weeks from now.

What has Nick Murray been saying? Optimism is the only realism. Being irrationally optimistic about this is the only thing to do and it's actually that “We'll figure it out” has been true. So I'm totally cool with assuming otherwise. If I had a bunch of data that told me that, "Oh, you know what? It actually turns out 50% of the time, we don't figure this out."

But so far and what I'm talking about figuring out is the capitalist system speaking broadly. I have no idea. If you own individual holdings or you've made bets on Bitcoin, or you bet on whatever else, gold, any individual, I have no idea. I only know how to handle this: when I've got a broad-based globally diversified portfolio that's aligned with what I said was important to me. The reason my money is invested that way is because it gives me the greatest likelihood of meeting my goals based on the weighty evidence of history. That weighty evidence of history included the idea that we would have markets like this (in air quotes).

We didn't know when, we didn't know how, but we knew they would come and we're not even... Where are we, 25? As we're speaking I don't know what the numbers, but we've crossed into bear market territory. But we're not down 50. The S&P 500's not ... The Nasdaq's not down 82 or whatever it was in 2002. Right? And I'm scared to death. I'm talking right now as if I'm not, but, of course, I am. I'm human. But this is the dialogue we have internally.

And then there's one more piece that I think is useful for people to remember. So now let's talk a little bit about how you would feel it out with clients. There are times when overconfidence plays a productive role, where overconfidence becomes a tool in a backpack, right? And I can't find the reference, but somebody told me about the role, the sort of research that had been done in military science around times where you have to look people in the eyes even though you're not sure yourself and say, "It's going to be okay."

I've been in places like that in the woods in some of the adventures that I do. I've been in places where I was, "I'm not sure exactly this is going to work out." I was the leader. I couldn't look at the other people and go, "I'm not sure this is going to work out." I had to look at them and say, "I know you're freezing. I know you're cold. I know that's a really scary place to go, but listen to me. We've got to go there." Right?

So, Dan and Barbara, that's what I had to do in that meeting. I had to say, "Okay, look. I'm not sure. We're in uncharted territory. I can acknowledge that. This field is crazy, but Dan and Barbara, I can't think of anything better to do. We built this portfolio based on your values and goals. We're broadly diversified. We followed all those principles. We got low-cost investments. The investments are working like we expected them to work in this environment. Right? There's nothing broken there. There's no fraud. I can't think of anything we should do differently," and then I have to walk out and go, "Oh, gosh. I hope I'm right." Right? That's all we can do.

If there's something better to do, tell me, but I can't think of something better to do. And we might be wrong. But to assume we're wrong would be to deny the weighty evidence of history. How about that?

How Advisors Can Use (Rational) Overconfidence As A Powerful Tool For Effective Leadership During Difficult Times [00:25:21]

Michael: It's an interesting point of just how we talk about these as behavioral biases, all the negative implications of behavioral biases, which overconfidence is always one of the big ones that's out there. But yeah, I think you sort of indirectly make a good point. There's a reason why this behavior got naturally selected for that, right? If it was actually counterproductive to our survival, the people that carry that trait tend not to survive. There's a reason this is honed for us and I think you make a good point. Right?

Take it out of modern environments and back to our roots just a few thousand years ago. Almost everything in the world was scary uncertainty. We didn't know how anything worked and every day was just survival mode with the herd, right, with fellow humans, where someone was the leader leading the herd. And you needed a confident leader, and the leader may or may not have actually known what was going on. But someone has to lead and you have to lead confidently or people don't follow. Right? It's one of the first things you discover. I still remember as a parent early on, learning that lesson that if you see your child fall and get hurt and you rush them upset that they got hurt, they just get more upset because they see you're upset.

If you want to calm a child when they’ve gotten hurt, when something's happened, you have to be calm and exude the calmness, and they feed off your calmness. And it helps to settle them down even if you're still thinking about it in your head like, "Oh, my God. Did you just break a bone?” How about, “Is she hurt? What just happened?" Right? All those thoughts are rushing in your head as a parent, but you have to exude the confidence because it helps the other side even when you have the doubts or the worries in your head.

I think there’s a striking similarity; there’s a striking parallel here to me. It's just recognizing that it's okay to be confident. It's okay to be overconfident. It's okay to be irrationally overconfident sometimes. And you can still recognize that you might be wrong in the back of your head. Right? We don't know these things. We don't know the future. I cannot unequivocally know that this time won't be different and if it will end the way it was kind of differently leading in. But at the end, I've got a role to play in trying to transfer that confidence to my client, which means even if I've got doubts, I need to carry the overconfidence. That's part of the burden we bear.

Carl: Hey, Michael, one quick thing I just want to point out is it's not irrational overconfidence that we're talking about, right? Because we've already said the story; so yes, it's overconfidence…

Michael: It's rational overconfidence.

Carl: We're not talking about a leader who's going to take the whole world down in flames. I don't want you to run with me off a cliff. What I'm saying here, based on everything I have, the course of action here is still uncertain, which is me acknowledging the reality of uncertainty internally and then saying, "We don't know."

And in the face of that uncertainty, this is a little different than a critical care doctor that looks at somebody knowing that person is going to die, but saying, "You're going to be fine. You're going to be fine." Right? This is different than that in the sense of this is a critical care doctor that's more like, "Well, this is touch and go. I don't know how the situation is going to work exactly, but I've been through this a couple times before. And I think there's an 85%, 90%, 95% chance that if we get this person in the hospital quick enough they'll survive."

They're not going to talk to the patient, and say, "I think there's an 85% chance that you’ll be okay... But there's still a 15% chance you're going to die." They're not going to say that. They're going to look at you in the eyes... This is what we're talking about here, right? This is rational overconfidence. They’re going to look at you in the eyes and go, "You're going to be okay. Stay with me. We got you." Right? That's rational overconfidence. I don't even know if it's the correct way to say it, but that feels different to me than like, "Follow me. We're going." It feels different to me than "Braveheart" – against all odds and it will happen to work out. Well, if this were against all odds, we would be making a different decision right now.

How Advisors Can Deal With Lingering Doubts Even While Reassuring Clients [00:30:05]

Michael: So I like the framing of rational overconfidence. But I guess as we wrap up, the one other question I'd put back to you, Carl, is just how do you handle, how do you process, how do you quell the doubtful thoughts that still sit in the back of your mind as you're trying to have that conversation with clients?

I think some of us, maybe more than others, but all of us, at some point, still come back to the thought of, "Man, I hope I'm right about this, but I'm not sure."

Carl: Here's the tool I wish I would have used in 2008 a little more explicitly. I was doing it in my head, but I didn't realize I was doing it. And it's what I do now. Write yourself an argument. Pretend like you've got to convince a court, a jury, of the position you've taken. Get it written out; it should just be one page, right, with a Sharpie even. That's the level of resolution I'm talking about.

So you just go through like, "Here's how I've made this decision that the best course of action right now..." You're dealing with a complex adaptive system, right? It's changing. New information's becoming available. So you're going to have to keep updating this thing.

But I think you write out, "Here are the principles. Based on the weighty evidence of history, da-da-da-da-a. I recognize that this time the beginning was different." And at the end, you come up with this conclusion that, "Based on all of these facts, the only reasonable thing I can think to do is to stay the course because of all of this."

Then if you have that written down, keep pulling it out, right? Just use it as a touchstone because what happens is you swirl and you lose track of what you're even swirling about. And then you can go, "Wait, I've already made this decision" You can pull that document and go, "Is there any new information that requires me to change what's on this document?" Because if you keep that touchstone there and keep going back, you'll catch yourself. You're going to still do it 50 times a day. Right? You're going to wake up early and see how Tokyo opened or whatever. Right?

But if we can get to the point where we can take ourselves back to breathe at a touchstone, the things that we can control are on a piece of paper and then we have to let go of the rest. That's it. Right? That's all I've got. I've been thinking about this for a decade. That's all I've got.

Michael: Yeah. And for me, I think it really comes back to this fundamental challenge. I don't know what the alternative is that I would plan for anyways. There comes a point where there is no Plan B. Right? Markets may go down, they may go down a lot, and they may go down a lot, a lot. Some people may die. A lot of people may die. The economy may go down some. The economy may go down a lot. Heck, take it back to the Great Depression when the market crashed almost 89% from top to bottom – and we aren't even that bad yet. We've had such horrible stuff, but at some point, humans move on and adapt. The system adapts. We start growing again. We move on to new opportunities and new highs because if the whole system just fundamentally breaks, I don't know how else to plan for that anyways. And not to be totally morbid about it.

It's amazing how adaptive the system can be even in the face of horrible, horrible stuff that has happened historically. But there comes a point where I feel like you have to power on with that belief, with that rational overconfidence framework, because I don't have a solution for the alternative, "What if the entire system stops functioning?"

Carl: Look, I know we have to wrap up, but here's one mental framework I use, around that exact thing. I would literally get down and say, "Okay. Great. Let's go that path.” Right? So then you go down the guns and butter path, really. If we go that path – I used to have this conversation with clients. "Let's just explore this together." Right? "If we go down that path, what would be the reasonable portfolio? What would be our conclusion portfolio?" So let's just go with guns and butter. My clients would say cigarettes and powdered chocolate. Somebody said powdered chocolate. She's like, ''That way I can trade with all of you people who just have powdered milk; it tastes so gross."

Anyway, guns and butter; then the framework I used was, “Okay. Guns and butter would be the appropriate portfolio in that environment.” And then the question that I found really helpful to myself was what percentage of the time in the history that we're dealing with, modern markets history, what percentage of the time has guns and butter been the appropriate portfolio? Zero? Maybe if you've dealt with days? Like, "Oh, yeah. I could pick out a few days where it would have been..." But mainly it's zero. Do I want to make a bet on zero?

That's how I would get that. I realize the odds. Maybe it's 5%. Do you want to make a bet on 5% or 95%? In the end that's where we get to be rationally overconfident. Just the odds are in your favor of saying what you said, which I think we've got to remember. It's unbelievable how good humans can be at adapting and making something work, at figuring things out. We've gone through way crazier stuff and we don't even know what the role of the massive amount of news, social media, the stable market we've had, politics, and nationalism. And you mix all that in and it's, "We'll figure it out. We'll figure it out." So anyway, that's all I got for you.

Michael: The takeaway to me: it's okay to be rationally overconfident. It's the reality of our role in trying to lead clients that sometimes as a leader, you have to express a rational level of overconfidence, even if there are some nagging doubts in the back of your mind, and it's okay to have the doubts.

That doesn't make you a bad advisor or a lesser advisor. You can acknowledge the doubts and recognize that you have them. And then do what you need to do to help move clients forward.

Carl: Yeah. I'm fine. I know we'll record another episode about this probably, but just on that little note, just find a place where it's safe for you to have those doubts. Right? Whether that's a paid place or a friend, you gotta have a place that's safe to have those doubts where you can just go, "I don't know."

Talk it through. Hug it out. Well, don't hug it out right now. Air hug it out and then get back to being irrationally overconfident because we need you. Right? We need you, and the people need you. So thanks, Michael.

Michael: Thank you, Carl.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

***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

• Small Business Administration Paycheck Protection Program Loans FAQ
• An Advisor’s Guide to the Paycheck Protection Program
• Quickly Maximizing Paycheck Protection Program’s (PPP) Forgivable Loan Opportunity For Financial Advisors
• Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic
• Ten Planning Conversations To Help Clients Now During the COVID-19 Pandemic
• Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety
• Kitces & Carl Ep 30: Conveying Rational Overconfidence In Talking To Clients About Coronavirus Fears
• The Fellowship – The Society of Advice
• XY Planning Network

Kitces & Carl Podcast Transcript

Michael: Welcome, Carl.

Carl: Greetings, Michael. I'm hesitant to ask because we could take an hour to answer the question, but are you?

Michael: I'm doing all right. I'm adjusting into stay-at-home life as our great state of Virginia is closed for the better part of two and a half months. So slowly adjusting to the reality of we ain't going anywhere until June.

Carl: Amazing times. Yeah, for sure. For sure.

Michael: How is it? Because you're in the UK now, so how is it in the UK?

Carl: Yeah, similar. So like they say, I think they said six weeks. Originally it was three weeks and now they're saying six. And people seem to be banged out and doing their part. I went to the...the butcher today was completely restocked.

It seems like we got through that initial kind of panic, and that whole thing. So it's really interesting. I'm certainly getting a lot more work done. Hesitating real quick. I'm able to think about more things lately. I don't know why. So anyway.

The Challenge Of Keeping Up With Clients’ Critical Financial Situations and Government Relief Efforts [00:02:01]

Michael: So I thought for today's discussion, it would be interesting to dive a little further into this dynamic, that I think is evolving for a lot of us, of clients that are in I guess ‘critical financial care’.

For some clients, "Hey, stuff's changed. We've got to look at updating the plan." But for other clients, it’s more like, "No, no, I don't have time to update the plan. I heard there's a new government program that can give me a bunch of money for my business. I need to figure this out like right now, can you help me today?"

And I might even be fielding that call from multiple different clients at the same time who all heard about a new thing or a new piece of news or a new something financial that's going on and immediately want help and access to me as a financial advisor right away and I've got to respond to them or even triage, who am I calling back?

They're asking about programs that just came out. I don't necessarily know any more than they do because I've got to figure this out. I don't even know where to find the time to figure this out because I'm dealing with all these inbound phone calls. Like, Aaahh! Right? I feel like there's sort of the second flurry of activity that's cropping up.

First was just the flat-out market volatility when it got underway in March. Now, here in April, there's kind of this second wave of, now the government response is coming, all these new programs are rolling out and we have this new wave of figuring out how to help clients in, call it like critical financial situations.

Carl: Yeah. Yeah. It's super interesting.

Michael: And to me, this ends out starting to highlight a couple of just very real-world challenges, right? One is just, how do I get up to speed on this stuff quickly? Or even just tell clients like, "I don't know. I don't know how that program works because they just came out about it. I'm going to go research it and try to get back to you."

And do I even have the time to do that research right now with everything else that's going on? Other clients want me to research and ask about other things. It feels weird to tell my clients, at least for some of us, like, "I don't know. I'm going to have to try to look that up myself." "Aren't you supposed to be the expert? Why do I pay you?

Like, now is the crisis time, I've got questions, you don't have answers. What gives?" There's a lot that gets wrapped up into this fast-moving environment where people want fast answers that are absolutely critical. New programs are coming out very quickly, and we're trying to figure out what to do. Not from the literal like, "How do I find the information on Paycheck Protection Program," but just, "How do I deal with this onslaught of clients and questions and wanting expertise that suddenly I'm finding I don't have?"

Carl: Yeah. Yeah. It's so interesting. I think, to me, the first thing that's really important is to get sort of ourselves right. And I think of that as like, the mindset around how to approach this. Because it's really...even in the way of this, "Aaahh! I don't know what to do, I don't know what to do!" feeling, that feeling is completely normal.

But in a time where people are looking for leadership, they need somebody who is confident. And when we think about these changing environments, sometimes we've linked our confidence to our outcomes. And maybe even more specifically our confidence to like knowing the terrain, or maybe even better, knowing the map of the terrain.

And I think we need to delink our confidence from knowing the map of the terrain and we need to link it to our ability to engage in a process, right, so that you can walk into that meeting even when you should be pretty sure that you don't know the answer. Because four days ago, you had no clue what this...like to use Paycheck Protection Plan as an example, how could you?

Clients aren't paying you for that, to know that answer. And again, these are maybe upstream problems in terms of the way we communicated in the past, that you and I have been talking about for a year now. But let's just say right now, clients aren't paying you to know the answer or defend the map, they're paying you to be the guide.

And if you can be confident in your ability to engage in that process, which you should be, like, everyone listening to this should be, it's just that we're not used to that feeling like our confidence because this is like, we've never had to feel this way. But you should be. You are trained to do this. You know what you're doing. The process is pretty simple. We assess the current situation. I'd like to get to triage in a minute, but we assess the current situation for a client, we make the best guess at what to do next, realizing it's going to be a thoughtful, researched opinion, but it's the best guess about what to do next. We take that action. So we assess the situation, we take an action, we reset, right? And in some cases, these are micro-actions. Like, "I got your phone call, give me an hour." Right?

So the difference between, "I don't know, I'll try to find it and get back to you" and, "Michael, thank you for your call. I understand how important that is. Give me some time. This is moving so fast that nobody knows, but guess what, brother, I can figure it out." That's the sense we need right now. And you can engage that way.

I think getting that straight first is important, is that your value doesn't come from what you maybe thought it did, designing a plan, knowing all the rules. I read the code back and forward. That's important, but what's equally if not...well, actually, what's more important right now is your ability to engage in a process of making decisions and resetting, guiding people, and in some cases, as we've talked about before, that guide is 3, 6, 12 months, in some cases, it's 3 hours, right? That cycle rate of having new information show up.

So that's where I would start is getting yourself right. Understanding that you can't...because there's a tendency, I've had...like you have, we've had, I don't know, hundreds, I don't know what the right word is. Yes, I've talked to hundreds of advisors in the last couple of days feeling unmoored and totally lacking confidence. And if you shift your mindset from, "The map has changed, I don't know what I'm doing" to, "Hey, I know how to guide people in changing landscapes," you can feel really confident in engaging in that and realize it's massively valuable right now. And the sun is coming from out of the clouds. It's just perfect timing.

Michael: And it’s as though the angels are singing.

Carl: Exactly.

The Importance Of Advisors Having Confidence… And Of Having Their Clients’ Backs [00:09:49]

Michael: I think, to me, I think one of the key takeaways to that out of the gate is just this acknowledgment once again, we've said it before here on this podcast as well, but like, it's okay to tell the client like, "I don't know, but I will get you that answer." Or I thought you put it even better, like, "Look, things are moving really fast right now. Just literally new information is coming out as we're talking. So I don't have all the answers for you right now, but I'm going to go get them for you as quickly as I can, and then we together will figure out what to do with it."

Carl: Totally. And I think we need to lean into that. You can say and you shouldn't feel, I don't know if you want to say it, but you should feel, "And there's no one better to be holding...walking next to you right now than me." Right?

Like, "A, I'm a rock star at this." I wouldn't be saying these exact words, but just to say you should feel, "A, I'm a rock star at this. I know how to figure this stuff out. B, I know you really well." So yeah, I usually go, "Look, I'll figure it out. I'll get back. I've got you. I've got you, right? I've got your back."

Michael: And I think the second piece that, to me at least, that goes with this is look, when there's this much stuff coming out and there's this much moving, as you said, the cycle rate is very fast of the amount of information that's coming out and hitting us.

I think the second thing to acknowledge, like, it's okay to say, "I'm going to find you an expert who specializes in this, and I'm going to connect you with them." I think there's also still this feeling right now like, if I don't have the answer to every single question my client asks, I need to go find the answer to every single question my client asks. And when the cycle rate is this fast and there's this much stuff coming out, like, yes, in a few weeks, you may get up to speed on all of it as you absorb all of it in, but you may not be able to absorb enough information fast enough.

And so, I think in that truest sense of being a guide, it may be like, look, I'm still getting up to speed myself on the Paycheck Protection Program, but here's a guide I found that the Small Business Administration put out that I can give to you right now so you can start diving into this on behalf of your own business. Like, I'm going to empower you, Mr. Client to take some of this on yourself because you're a business owner and you probably want to deal with this anyways. But I will try to conduit information for you. I will be your guide in helping you find the information.

I may not even have the answers. You may be able to get up to speed on this faster than I can in your business by just connecting you to the resources or expertise. And so if I can't be the answer person, I can be the connector person. Here's a key list of resources that I'm going to put in front of you as quickly as possible.

How A Networked Community Can Be A Powerful Resource For Helping Clients Find Answers [00:12:51]

Carl: Yeah. I think two things came to mind which is really smart. Imagine how powerful it would be to say, because I'm dealing with this right now, imagine how powerful it would be for your financial planner to say, "Hey, Michael, I've got you, I'm here. Things are moving so fast. You know what would be amazing? Let's get your accountant involved immediately. Like, one more set of eyes.

Would you mind if I called? Right? Can I call her and we'll talk through what's going on? Because I would imagine she's getting similar questions. I'll get some information to you. She'll be looking, I'll be looking. We're all hands on deck." That's so… I got a little nutty because I get...my hair stands up on the end. I get so excited about the idea that you can help somebody right now.

So that. And then I just had this experience. I just had this experience with a family member who owned a...yeah, let me not get specific. A family number owned an investment that I didn't know anything about. I knew what it was called. I've seen 1 million of them, but each one needs to be dug in really deeply. It could be an annuity, it could be a privately traded REIT, it could be any of those sorts of things.

And I said, "I don't know, but let me find out." It took me about 10 minutes to find like 20 people who knew how to do this. Tyler Olson, who is a financial planner, who knows these things really well, dug into it for me, got back in an hour with a really clear summary of what was going on. And the person who asked me, a close family member, was like so blown away that we were able to get results or get answers. There was no like, what you don't know, it was the opposite. So I think that's really, really important.

Michael: But it's interesting, like, you didn't find an answer, you found a person who knew the answer, which sometimes you can actually do faster than get the answer, read up on it, learn it yourself and spit it out to the client.

Carl: Yeah. And where do you do that, right? So chances are everybody listening to this belongs to some community, whether that's XYPN or it's something on Twitter or it's the Fellowship or it's the group of financial...

Michael: Facebook group, LinkedIn group, your broker-dealer...

Carl: Totally. That you can throw something up and go, "Does anybody know about this?" Right? And in 10 minutes, you'll have somebody who says...raise their hands and...yeah, right? I remember, I used to feel that way when I worked at a big, big, giant brokerage firm that will go unnamed, but has a bull as its symbol and that’s owned by a bank.

I used to remember feeling like I could say to clients like, "I'm going to bring the full resources of this firm to every one of your situations." And now we've all created that, right, with these. Like, "I'm going to bring the full resources of everybody I know. It's all hands on deck. Let's get your CPA involved. Let's get your attorney involved. Let me check with everybody I know, we'll get you answers." That's the kind of stuff I think should be going on.

Michael: Yeah. The other piece, to me, that goes with this is sort of this recognition like, the challenge when the cycle rate picks up and there's all this demand for expertise is just that you're trying to learn the information, get it out as quickly as you can. And recognize that any opportunity you have to make that repeatable, to make that scalable in your business is incredibly valuable right now.

So, oh, you've got to look up something about Paycheck Protection Program? Fine. Every time you find a resource, like a good guide, a good article, a good thing from the government, whatever, save that PDF document or save the link to that article, and at the end of the day, when you get 20 minutes, turn on a webpage for your website that says "resources for small business clients," dump the links there, send a quick email to all your small business owner clients that just says, "Hey, I'm gathering some of this information together so that you all can look in one central place."

And so you don't have to get stuck in this trap of every single client, every single question. They're all different or we're all trying to rapidly iterate. Like, scale your expertise as you're finding it, if you are doing some of this research or trying to find resources and answers, and start pulling together a central summary of, "Here's all the stuff that I've found that would probably be useful to you, Mr. or Mrs. Client," or send out to all your small business owner clients or all your clients. Like, whatever the thing is, take a moment of expertise that you find, make it repeatable and scalable by finding other ways to leverage it and get it out there.

Carl: Yeah, I think it's maybe really important to highlight that a bit. Like, what's happening is most...like, most planners are...well, all the planners listening to this are humans, and when humans are faced with this level of uncertainty, we really want to...most of the time we want to flight, we want to get in a fight or flight. And sometimes that means we want to hide.

And because we don't know what to do, we're going to hide a little bit. We're going to hide behind research. And I think right now, you could just do the world a massive service, let alone your own business, by just being on the front foot and saying like, "I'm on it." Right?

And if I were building a business right now, I would be...I don't know if daily is too often, but certainly every...at the end of every week and maybe twice a week, maybe Wednesdays and Fridays, I would be sending out an email saying, "Look, you may not have this situation right now, but here's what I've been researching. I found this, this and this. Here's some of the big questions, know that we're on it." And I would end that email by saying, "Look, if you've got...we're super busy right now, but if you've got friends or family who are nervous about this, feel free to share it with them." Right?

And suddenly you're on the front foot being a resource out in public when most people are hiding right now. And they're not hiding...some people are literally hiding, and those people, we need to give them a swift kick. Other people are just hiding because they're scared and nervous. And that's normal.

So, yeah, I love the idea of getting out on the front foot, like a morning briefing. Like I've seen some planners doing amazing like morning coffee Zoom meetings. Like, "It's 15 minutes. I'm going to give you an update on everything I've found if you're a small business owner." This obviously gets easier if people have been focused on a specialization or a niche, as we say here in the UK. But, right, like morning briefing. Like I'm thinking of [inaudible 00:21:53] optometrists, morning briefing for optometrists, everything we need to find. It's 15 minutes. Join if you want to. Feel free to forward this to your friends. Right?

Michael: Yeah. Feel free to forward to your fellow optometrists as I'm the leading expert on optometrists and their financial planning issues. There is, to me, an interesting sort of indirect angle that comes from this. When you get in these environments where there's a lot of critical financial care and a fast cycle rate on the information that's flowing, that to me, this becomes one of the areas where, frankly, having some kind of niche, some kind of focused clientele helps.

Because the challenge that so many of us have, like, when you've got 100 clients of 100 different types with 100 different problems, they ask 100 different questions, and you don't have the time to research 100 different answers right now. So you're feeling that pressure. If you're specialized in a particular domain, if you specialize with optometrists running small practices, like, you can go find all the information exactly relevant for optometrist small business owners, how it works, produce one resource that's helpful for all of them, and you've answered all 100 questions at once with 1 answer instead of 100 questions with 100 answers. That's the essence of what I like to call repeatable expertise. Your planning gets much more efficient, and it gets noticeable in times like this when you can repeat your expertise because every client's got the same question because you picked a particular consistent type of clients who ask the same types of questions and you're awesome at knowing the answers to that.

Now, for advisors who aren't already focused that way, obviously, we can't wave our magic wands and change that now, but you can start watching for what are any opportunities where I can turn this into repeatable expertise, right? That resource I found, okay, I'm going to start making a list of resources. And I'm going to start emailing out the resources. And then once a week, I'll email out updates of new resources that I found. And then I'll do my "coffee with me" once a week or twice a week. Say, "Here are new resources I found on this thing." And start turning one-to-one things you're looking up and trying to find out the answers for clients into at least one-to-few. You maybe can't do them one-to-many if your clients are very diverse in their needs, but can you at least start turning it into one-to-few and trying to make this fast cycling process more efficient for yourself?

Carl: It's so powerful. I don't even know how to talk...I don't know how to talk to anybody about marketing anymore if they don't have a niche. I don't even know how to...so yeah, I think that's really good advice on how to start moving that direction. Super good.

The Art Of Triaging Financial Planning Clients In Need [00:22:57]

Michael: So last question I want to ask you, Carl, it's kind of come back to the challenge we had at the beginning. Like, how do you think about these triage situations? So triage in the medical world, like, a bunch of patients come in with various health issues and maladies, triaging is the process of figuring out which is most important that I need to answer first, that I need to address first?

So in the medical system, it's like, you, if I don't help you in the next five minutes, are going to die. You, if I don't help you in the next five minutes, are going to continue to be in pain, but you're going to survive. So no offense, like, I'm going to leave you in pain for a while because I need to help this person who is going to die if I don't intervene immediately.

So we don't necessarily deal with the same level of literal life-and-death stakes in the financial world as the medical world, but we do, I think, get these situations when the volatility amplifies, and particularly now that it's propagating into business owners, people's jobs, people's employment situations, like, we're going beyond just a portfolio thing now. This is a whole financial life thing.

And people start asking questions. And of course, everything is important to them. Right? "I hurt, I want access to you," but you're looking at this and saying like, "You hurt, but that guy hurts more right now. And that guy is going to die soon. So I've got to go help him first." How do you handle that? What do you say to clients when they're calling, emailing, trying to reach you? And obviously, you don't really want to say like, "Well, I'm going to help another client instead because I think his situation is more important." Or maybe you do say that. How do you handle this without just pissing clients off?

Carl: Well, so first, let's just make an assumption real quickly that it's a problem. So first of all, if you've got 15, 17 clients and they're all optometrists, this isn't a problem. So don't make it into one if it's not. And if you have 100 clients, it may not be a problem either. Who knows, right?

But if it's a problem, I like to think of risk as consequence of failure. And so when I think of a client, I think of client's risks. When I think of a client's goals, I like to rank them in order of riskiness. I don't necessarily communicate this with clients, but riskiness. And riskiness is consequence of failure. And so that's the same way I would do this is I would triage. It's a lot like what you outlined with medical doctors, right? Is I would just think like, who has the highest consequence of failure? And then I would be focused on solving those problems.

But in terms of how you communicate it, I do think like, you get an email. It's a couple of things. Number one, response is super important. And even if the response is, "I want you to know I've got this, I'm doing a little bit of research. As I understand it, I'm going to get back to you in three or four days." So response, setting expectations, and follow-through.

It gets crazy how good it is for referrability if you'll just do what you said you would do, right? Response. And I remember, I had an advisor friend who everybody would send out these fancy birthday gifts and holiday gifts and whatever. And my advisor friend was like, "Yeah, but those people don't even return emails." He was pointing to some specific people. I'm not saying in general, he was saying, "Look, what I'm focused on is rapid response to clients' concerns. I don't worry about all that other stuff."

So response, setting clear expectations and then following through. And so that could look like, I get an email, I know the situation well enough to know that this isn't like...like if I get back to them next week, that's going to be fine. So I reply to that email and I say, "I want you to know I've received this. I'm working on this right now. And as I understand your situation, getting back to you next week would be fine. Let me know if I've missed something." Hit "send." Okay?

Michael: So you're sort of asking for permission, kind of telling and setting expectations. Like, "I'm going to get back to you next week." So just you bought yourself time. If you understand their situation well, they should be okay with that. You've invited them to object if they're not, right?

If there's something else in the situation that you didn't know that you didn't realize that makes this more time pressing, you have opened the door for them to come back to you and say, "No, no, no, I really need an answer now and here's why."

Carl: Yep. And if you've got any of those resources you pointed to earlier, right? Like maybe this is just, "I'm really scared about the market." Like, "Hey, here's a couple resources we've put together for people on these things." Like, "Maybe you didn't know, but my daughter's business is going to fail tomorrow and I just need to ask you a quick question." And you've left the door open to like, "Oh, no, no, no, no, it's about my daughter's business. Can you please jump on the phone?" So I just think that's the only way I can think through to do it. Get a response out. Even if the response is, "I've got this. I'll get back to you tomorrow."

Michael: And you wouldn't necessarily say like...

Carl: Like explain the triage situation?

Michael: Yeah, explain the triage, right. It's like, I think for some of us, we feel motivation to like, well, the client is going to say like, "Well, why can't you reply to me today? Why did you say next week? Why can't it be right now or by the end of the day? I feel like you're usually so responsive."

So I'm like, I want to preemptively answer that and say like, "Well, some of our other clients are in even a more dire financial situation than you. So I'll get back to you next week." Or like, you just...you wouldn't even open that door. Just set the expectation. Recognize most people will just accept the reality they're presented.

If you say you're getting back to them next week because there's fast-moving information and you're researching, they will accept that. Don't overthink it. And if it's really that urgent for them, they will tell you if you give them the opportunity to.

Carl: Yeah, I'm just thinking through risk-reward in that conversation. And I consider myself a relatively decent communicator in situations like this, and I can't think of a time...like, I hate those calls when I call and say, "Due to high call volume..." Like I called Delta last week, "Due to high call volume, your hold time is nine hours." That didn't make me feel better.

Here's another way to say that same email would be, "Hey, I've got this email. Things are moving really quick right now. Let me research your question. I'll get back to you. Would it be all right?" Right? You could soften that up a little bit and say, "Look, would it be all right if I get back to you in three or four days? Would it be all right if I get back to you next week? If there's something I'm misunderstanding about this, just hit 'reply' quickly." Right?

Or, "Here's my number. Call me." Something like that. That would feel better to me than, "Sorry, your situation is not bad enough." You know what I mean? I can't even think of a good way to say that. So I think you're just doing that without saying it.

Michael: But again I think clients understand like, we're more busy. They all sort of know we're not their only client. Just set a reasonable expectation. Not reasonable because I feel like I've got to reply to every client in 24 hours, reasonable to how fast do they actually need an answer for their actual problem, right?

We can't overservice and be superfast right now. Just answer in a timeline that's reasonable to the problem, set that expectation with the client, let them know if it is more urgent, they can always come back to you. And they'll do that if it's that urgent or you can decide whether you think they were right to escalate it. Most people will accept you at your word. And then you bought yourself the time that you need just to deal with all the other things that are coming at you.

Carl: Yeah. Let me just insert just...one last thing in that is maybe ask another question too. Often we misinterpret the question. It could just be, "Hey, I need to talk to you." That's often the email. They're not going to say like, "Hey, I need to talk to you. I wonder if we can come in for a meeting."

One of my favorite questions always was, "Got it," and I use this question today now a lot, "Got it. Thanks so much for the email. I hope you're well, dah, dah, dah," all that stuff. And then I would say, "Hey, just so I can be prepared, can you give me just a little detail on what's...just so I can make the most of your time, client, can you give me a little detail on what's going on?" Or, "What's up?" Or, "Why you want to meet?" I don't like "why you want to meet" because that feels like, "Why do you want to meet?" I think I just say, "Look, just so I can make the best use of your time and be prepared, give me a little sense of what's on your mind."

Michael: And I would imagine that, well, at worst, just you'll know exactly what the scope of the conversation is and then can figure out how urgent it needs to be. At best, they really just needed to vent and they'll vent in the email, by the time they're done, they'll write at the end like, "Actually, this really got out everything I needed to say. I don't think we need to meet anymore."

Carl: It's surprising how often that happens.

Michael: Well, awesome. Appreciate the suggestions and kind of talking through triaging clients and dealing with fast cycle rates of new information. Hope you're enjoying your time hunkering down there in the UK, Carl.

Carl: Thank you, Michael. Stay well.

Michael: Thank you. You, too.