“The whole financial planning process is wrong,” says George Kinder, widely recognized as one of the chief educators and influencers in the financial planning profession.
But what exactly does he mean, and how does he justify this bold statement?
First, let’s separate the work of financial planning into two different elements–let’s call the first quantitative analysis and the second qualitative analysis.
Quantitative analysis is the more tangible, numerical and objective. It’s where planners tell clients what they need to do and, perhaps, how to do it. For example:
- “Your asset allocation should be 65% in stocks and 35% in bonds.”
- “You need $1.5 million of 20-year term life insurance.”
- “Have your will updated and consider utilizing a pooled family trust.”
The qualitative work of financial planning is the intangible, non-numerical pursuit of uncovering a client’s more subjective values and goals, and, hopefully, attaching recommendations like those above to the client’s motivational core–their why.
If quantitative work is of the mind, qualitative is of the heart.
Qualitative planning often has been dubbed “financial life planning”–or simply “life planning.” It is defined in Michael Kay’s book, The Business of Life, as the process of:
“I just really wish I’d taken more risk in my investment portfolio,” said no one–ever–on their deathbed.
Life Planning guru, George Kinder’s, famous three questions are elegantly designed to progressively point us toward the stuff of life that is the most important–to us. The final question invites us to explore what benchmark life experiences we would leave unaccomplished if we only had one day left on this Earth. And as you may suspect, achieving a more aggressive portfolio posture never comes up.
Meanwhile, most of the answers to this question represent experiences (not things) that are often outside of our comfort zones. Question answerers almost universally wish they’d have taken more risks in life–personally, educationally, relationally, experientially, professionally, and vocationally.
Similarly, those most meaningful experiences they had enjoyed thus far in life were the ones that pushed the boundaries of their comfort zones, expanding their personal risk tolerance.
But what about financial risk tolerance?
My favorite discovery in the field of behavioral economics confirms what we already knew deep down, even if it contradicts “common sense”–that experiences are more valuable than stuff. I recently put this finding to the test:
Concert of a Lifetime
Those were my wife’s words when I called her from the road, rushing to discuss what I termed “the concert of a lifetime.”
I’d just learned that living legends U2 were touring in support of the 30th anniversary of their most celebrated album, “The Joshua Tree.”
(Photo by Andrew Chin/Getty Images)
The greatest live band of a generation playing the soundtrack of my youth from start to finish.
Andrea was on board with going to the show–she’s a big fan, too. But what invited her claim of insanity was my insistence that we take the whole family to Seattle to see the show. We live in Charleston. South Carolina.
Do you live in fear of your email inbox? It is such an effective tool for information exchange that it can render us completely ineffective in our attempts to control it.
I fear that I’m going to miss the proverbial wheat because of all the darn chaff overstuffing my inbox. You, too?
Well, apparently we’re in good company. As a student of behavioral economics and finance, my ears always perk up when behavioral economist Dan Ariely has something to say. He struggled so much with managing the daily email harvest that he decided to create two apps, one that helps people send him better emails and another that helps him prioritize the emails he receives.
This inspired some colleagues and me to ask: “What are the ways that we might be contributing to the chaff in the inboxes of our business associates and friends?”
What are the often unspoken rules of good email etiquette? Here’s what we came up with…
The 10 Commandments of Business Email:
1. Thou shalt not gratuitously “cc.”
You’re on it–they know.
Parents have sacrificed their financial futures on the altar of their children’s education. Fueled by easy federal money and self-interested colleges, the result is a student loan crisis that appears already to be eclipsing the catastrophic proportions of mortgage indebtedness leading up to the financial collapse of 2008.
Please allow me to disclaim a few things:
- I’m not anti-education. In fact, I valued my college education so much that I went back to teach at my alma mater, Towson University, for seven years.
- I believe that a college education is a) inherently valuable, b) an enhancer of career prospects and c) fertile ground for unforgettable life experiences beyond the classroom.
- I’m a parent. I’ve encouraged my two sons, 13 and 11, to strive for a college education, and I’ve also offered to share in the financial burden.
- I’m not a prognosticator. Therefore, I’m not predicting an imminent crisis akin to the Great Recession, led by student loan defaults. Crystal balls don’t work, and anyone who claims to have one is selling something.
I’m also not a conspiracy theorist, but the facts, according to a new Wall Street Journal article, are indisputable:
Just for fun, Google the words “market pullback.” There are more than 11 million results–many of them market predictions that are worth even less of your time than it took to Google “market pullback.”
However, despite their worthlessness, market predictions remain as predictable as market opens and closes. (And I predict no end in sight.)
First, there’s a clear profit motive. Apparent urgency leads to activity, and activity is still how most of the financial services industry makes its money.
“Bullish predictions encourage investors to pour fresh money into the markets, helping asset management companies to enjoy rising profits,” the New York Times reported, noting that the Wall Street forecaster’s consensus since 2000 has averaged a 9.5% increase each year. They accidentally got it (almost) right in 2016, but in 2008, the consensus prognostication missed the mark by 49 percentage points (an outcome that makes your local weatherman seem like a harbinger of accuracy)!
Of course, not everyone’s positive either. My colleague and the co-author of the new book “Your Complete Guide To Factor-Based Investing,” Larry Swedroe, analyzed Marc Faber’s perpetually cataclysmic proclamations and rendered the good doctor “without a clue.”
It’s old news that we’re busy and that we wear our busyness as a badge of honor. But a new study found that Americans, in particular, are actually buying it. Specifically, the study concluded that Americans who always say they’re “busy” are actually seen as more important. Unfortunately, it’s all a charade.
Busy, busy, busy
Numerous studies have shown that busyness isn’t actually good business, and here’s the big reason why: It makes us less productive. We’re all susceptible to it, but If I’m saying to myself (and I have), “Woo, I’m busy; really busy,” I’m likely being distracted from the most important, most productive work that I could be doing. I may feel like I’m doing more, but the net result is actually less. And it often feels like it.
But not everyone wears busyness as a status symbol. In response to the research and their own well-informed gut feelings, many are finding enjoyment in more productive work at a less busy pace. I wanted to know how these people recognize when they’re devolving into busyness and what they do to stop the downward spiral, so I asked 12 thought leaders who’ve inspired me two simple questions:
- How do you know when you’ve gotten too busy?
- What is a technique that you use to “unbusy” yourself?
Here’s what they had to say:
In 1967, the Beatles released the song, “When I’m Sixty-Four.” The lyrics are a preemptive plea to secure a relationship even when the realities of old age set in. Now, as the nation’s largest generation whistles this tune into retirement, the question seems less rhetorical:
Who is going to take care of us in retirement?
Not everyone will need long-term care insurance (LTC), but everyone needs a long-term healthcare plan. Your long-term care plan should incorporate the following: facts about you (and your spouse, if applicable), your age, your personal health, longevity of lineage, your retirement income and assets, your tolerance for risk, the costs and demographics of long-term care in your geographic area and information about any long-term care insurance that you own or have considered owning.
This post is the second in a two-part series. You can read the first on Long-Term Disability (LTD) by clicking HERE.
Long-Term Care Insurance
One very important thing to remember is that Medicare does not cover the costs of most long-term care needs. Allen Hamm, in his book, Long-Term Care Planning, shares the following statistics:
- 71 percent of Medicare recipients mistakenly believe Medicare is a primary source for covering long-term care.
- 87 percent of people under the age of 65 mistakenly believe their private health insurance will cover the cost of long-term care.
As an educator in the arena of personal finance, I generally avoid matters of public policy or politics because they tend to devolve into dogma and division, all too often leaving wisdom and understanding behind. But occasionally, an issue arises of such importance that I feel an obligation to advocate on behalf of those who don’t have a voice. The issue of the day revolves around a single word: “fiduciary.”
At stake is a Department of Labor ruling set to take effect this coming April that would require any financial advisor, stock broker or insurance agent directing a client’s retirement account to act in the best interest of that client. In other words, the rule would require such advisors to act as a fiduciary. The incoming Trump administration has hit the pause button on that rule, a move that many feel is merely a precursor to the rule’s demise.
Why? Because a vocal constituency of the new administration has lobbied for it—hard. They stand to lose billions—with a “b”—so they’re protecting their profitable turf with every means necessary, even twisted logic.
The good news is that informed investors need not rely on any legislation to ensure they are receiving a fiduciary level of service. Follow these three steps to receive the level of service you deserve:
The Trump administration’s move to delay implementation of the Department of Labor’s fiduciary rule has inspired me to delay implementation of my commitment to remain silent on matters of public policy and politics. It’s that important.
It seems pretty obvious that those in the financial establishment who oppose the rule do so primarily out of self-interest. After all, it’s estimated that they will lose billions in profits if the final rule goes into effect. I get it.
But I was fascinated recently when a member of the media wondered aloud if my advocacy for a wider fiduciary standard was also simply an outgrowth of my own bias.
Indeed, who’s to say I’m not just grinding my own axe on this issue? Maybe I’m in favor of all financial advisors being held to a fiduciary standard because I’m a fiduciary financial advisor and part of a national community of financial advisors that supports the fiduciary standard.
That would be a convenient rebuttal from the anti-fiduciary community, but here’s the (huge) problem with that rationale: