Are We Making Financial Advice & Portfolios More Complex Than They Need To Be?: Kitces & Carl

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Kitces and Carl Podcast for Financial Advisors

 

Oftentimes, individuals seek out the services of a financial planner because their lives have become increasingly complex, and they need help to get organized, simplify, or at least just ‘make sense’ of their situation and what to do next. However, some clients don’t even realize just how complex their finances and lives have really become, and therefore may not fully appreciate the extent their financial advisor actually works to create a comprehensive financial plan that simplifies their situation in an easy-to-understand narrative and manageable to-do list.

In our 34th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about how many financial advisors feel compelled to illuminate the complexity in a client’s financial plan as a means of justifying their value, and whether the ability to simplify complexity, especially as pertaining to the client’s investment portfolio, is really what defines an advisor’s value in the first place. Because while clients do find value in the solutions their financial advisors bring to them, for many clients, it is their advisor’s ability to understand who they themselves are and the goals they are trying to achieve (and why) that is even more important than coming up with solutions themselves. And so in many instances, the fear that offering a simple solution to a complex problem may end out encouraging a client to take a do-it-yourself approach (and thus losing the client in the process) is generally misplaced, because helping clients to simplify is still a tremendous value unto itself.

Even so, there are many financial advisors who have encountered prospects who already had well-diversified portfolios that need little, if any, adjustments, sometimes prompting them to question themselves and what value they can actually provide to a client who seems to already have their investments in good order. These situations can be opportunities for the advisor to reflect around their own value proposition outside of portfolio design (e.g., all of the elements aside from investment management involved in a truly holistic financial planning process), and how they might best present their services to clients. As while the value in knowledge and technical details is unmistakable, there is also a huge value proposition in an advisor’s ability to help their clients identify and clarify their goals, and then to help them manage their behaviors and the use of their capital to achieve those goals.

Another common question facing advisors is how much complexity they actually should share with their clients, which depends on where the client may lie on the ‘complexity curve’ of understanding how complex their lives actually are. As for many clients who are far along on the complexity curve are fully aware of how much their lives are embroiled in complexity (though their concern is not so much in understanding that complexity, but just in getting help to manage the complexity), other clients who  at the initial stages along the complexity curve are completely unaware that their situations are anything but simple, and don’t understand the effort it takes to bring some real simplicity back to their financial situations (and thus the actual value their advisors provide to them). These ‘early-curve’ clients may benefit from their advisor sharing the level of detail involved in developing their financial plan, thereby moving farther along the complexity curve… not as a ‘scare tactic’ to reveal how complicated their lives actually are, but just as a way to walk them through the rough terrain that must be traveled to get from their current situation to a workable, simpler outcome.

Ultimately, the key point is that financial advisors have the freedom to delve into varying levels of complexity for their clients, depending on how much the client needs (or wants) to understand and participate in.  And by asking simple questions at the start of the relationship to identify why the client sought an advisor in the first place and how the client believes an advisor can help them with their goals,  an advisor can leverage how they share complexity as a means to further strengthen their relationship with their clients.

 

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MICHAEL KITCES BIO

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning NetworkAdvicePayfpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

 

 

 

CARL RICHARDS BIO

Carl Richards is a Certified Financial Planner™ and creator of the Sketch Guy column, appearing weekly in the New York Times since 2010.

Carl has also been featured on Marketplace Money, Oprah.com, and Forbes.com. In addition, Carl has become a frequent keynote speaker at financial planning conferences and visual learning events around the world.

Through his simple sketches, Carl makes complex financial concepts easy to understand. His sketches also serve as the foundation for his two books, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money and The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money (Portfolio/Penguin).

 

 

 

This podcast first appeared on the Nerd’s Eye View at Kitces.com at https://www.kitces.com/blog/financial-plan-complexity-advisor-value/ and has been reprinted here with permission.

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