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Written by: Lillian Turner | Daring Greatly Wealth
The one thing we know about personal finance is that it’s PERSONAL, and yet, most financial advisors are still cranking out cookie cutter financial plans that lead to poor client implementation.
This article explores why this may be the case and how we can turn things around.
A New Way of Living (and Retiring)
The typical “American Dream” used to look so similar for each individual. It involved working 9-5 until 65 (when one’s pension typically kicked in), buying a beautiful home with a white picket fence, and having 2.5 kids, both of which one was easily able to put through college.
But times have changed. Our retirement system in America has moved almost entirely away from employer-funded accounts and placed the responsibility for saving on each employee, encouraging people to job hop or start their own business. The workplace has switched from fully in-office to often remote, leading to more travel opportunities and glamorizing the nomadic lifestyle. Rising daycare expenses and college costs are encouraging couples to delay having children or forgo that path altogether. And the high cost of buying a home, let alone maintaining it, has persuaded many Americans to instead enjoy the flexibility of renting, whether permanently or for a far extended period than in the past.
In addition, this newfound sense of agency has encouraged more and more people to pursue alternate paths to retirement. While the Financial Independence, Retire Early (or FI/RE) movement appeals to some, others prefer to enjoy mini sabbaticals every few years, or work longer in a lower paying job that feels more fulfilling. Regardless of their chosen path to wealth, there is no longer one single “standard” financial planning scenario, so why aren’t advisors getting the memo?
Asking the Right Question - Why NOT How
When it come to crafting a financial plan that your clients will actually want to implement, it’s important to cultivate emotional buy in. The “how” of your recommendations (maxing out 401(k)s, completing Roth conversions, and executing an estate plan) matters significantly less to a client than why they are being asked to take these actions in the first place.
How will contributing to a Health Savings Account help them accomplish their goal of starting a family? Why are you recommending a custodial account instead of a 529 if a client tells you they value flexibility and autonomy for their children?
Taking this approach reassures the client that you have their best interests in mind and that you hear and honor their personal goals.
Start with the End in Mind
Before you go about putting together the individual pieces of a client’s financial picture, it’s imperative that you take a step back and focus first on designing their destination. Without an end goal in mind, especially one that evokes emotion and meaning, the client is more likely to use your carefully crafted plan as an expensive paperweight instead of the roadmap it’s meant to be.
To help facilitate this process, I use George Kinder’s “Three Questions” exercise in my practice to encourage the client to dream bigger – and to uncover what matters most. Rarely, as adults, are we given the space to pause and simply ponder what we want from life. We get so focused on stockpiling money into our investment accounts that we forget the real purpose of building wealth: Being able to use our money as a tool to live our most meaningful life.
The “Three Questions” are as follows:
Question 1: I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is…how would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete, that is richly yours.
Question 2: This time you visit your doctor who tells you that you have only 5 – 10 years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life and how will you do it?
Question 3: This time your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did I miss? Who did I not get to be? What did I not get to do?
These powerful questions, and the order in which they are asked, allow the client to gain clarity and confidence in their desired path in life. It is recommended to have each client fill out their answers ahead of your meeting and separately from their partner, if they have one. The “Three Questions” exercise is one of the many tools available for financial planners from the Kinder Institute of Life Planning.
Once you’ve co-created a vision of your client’s ideal life, only then does the real financial planning process begin. Taking this unique approach not only leads to a more satisfied (and successful) client, but the personalized nature of your relationship will lead to many more referrals down the line.
Related: Unlock Wealth Like an Emperor: Why This Roman Ruler Is Your Perfect Financial Partner