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A Most Important Consideration in Planning

Financial planning is a central part of what most investment advisers do for clients. Simply recommending investments because they are surefire winners (as if they ever really can be) will fall flat without consideration of the context of a client’s investing. That involves many factors ranging from age and health to employment status and from the nature of assets to the details of spending and estate goals. However important all these factors – and more – may be to a financial plan and its associated investment recommendations, there is one factor that plays an outsize role and at the same time may be all but invisible to the adviser.
This important factor is the client’s underlying psychological and emotional motivations for how the client makes financial decisions and what those decisions are. All too often, these motivations are not fully understood by the client, let alone the adviser. If a financial plan is to be successful, it must somehow be tailored to fit those motivations as well as all those other factors we need to weigh and consider in making a financial plan and recommendation.
A couple of brief examples: An adviser told me about a client who often came to the adviser for advice on how to handle a variety of financial issues. The client disdained his attorney and CPA and turned to the adviser who, naturally, was somewhat flattered. Turns out, the client’s main motivations were not the adviser’s knowledge and abilities but the fact that the client thought he was smarter than anyone else and did not want to pay the hourly fees his attorney or CPA would charge for the advice. Ouch!
In another case, a client in a second marriage gradually, over a period of several years, increased the goals and spending for the spouse and in particular in the context of a survivor plan if the client were to die early. This continued, the adviser told me, until things reached the point that the planning significantly reduced the estate for the children of client’s first marriage. When this was pointed out to the client, there was a great deal of surprise and uncertainty expressed by the client who apparently was unaware that the changing goals had such an effect. Why the client had not considered the issue was likely some unconscious motivation that was not thought through. Ultimately, a variety of options for meeting both types of goals without shortchanging either was offered by the adviser and allowed the client to reconcile the conflicting goals.  


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