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Aligning Client Money and Values with Carl Richards

With both product sales people and RIAs labeled as “Financial Advisors” it is difficult for the general public to understand the difference (the public is generally unaware that we are held to higher ethical standards). As RIAs, we educate prospect-by-prospect—it’s vital when selling our services—but does the fiduciary vs product pitch debate have anyone championing our message?

On this Elementality podcast Reese welcomes Carl Richards—you may have seen his “Sketch Guy” column in the New York Times. As one of our industry’s most visible public defenders, Carl explains his passion for fiduciary advice and his vision for client planning that aligns money with purpose. Find out how he promotes both through his simple illustrations and easy-to-understand personal finance books.

Show Notes
https://behaviorgap.com/

 


Podcast Transcript

Carl Richards:
We’ve heard this story a million times, all of the research says you absolutely… The things you regret on your death bed better are thing, not something you did that failed. Never. It’s something that you didn’t do. The things that you didn’t do, the time you didn’t take your daughter to lunch, the trip you didn’t go on with your son. It’s those things that you regret. We know it. And we have cliches that we say all the time, like, “Nobody regrets not spending another hour at the office.” And then we go do it.

Abby Morton:
Welcome to Elementality. I am Abby Morton, CFP and producer of our podcast here at Elements. I love being a financial planner, but I know it’s a challenging profession as well. That’s why the number one goal of our show is to help you prosper as an advisor, as you better connect with your clients. We know your time is very valuable. Plan on a good return when you spend it here with us.

Reese Harper:
Welcome to another episode of Elementality, everybody. I’m your host, Reese Harper, and here, today, very excited to meet with a special guest, who until recently I did not know lived right around the corner from me, Carl Richards. Carl, welcome to the show.

Carl Richards:
Thanks, Reese. Super excited to chat with you today.

Reese Harper:
There’s so many different angles and directions I would love to take this interview in. Kind of one of the, I guess, primary… I mean, most people are going to know your background and keeping up with your sketches and they’re going to have read your book and probably dialed into most of the philosophy that you carry. But there’ll be a few out there who are like, “Who’s Carl?” And so let’s just have you briefly walk through just a little bit of your background. If you don’t mind, I think it would be interesting, some people won’t know that you actually have quite a long history as both a financial advisor and a thought leader. A little bit the evolution of your career and kind of how you arrived at where you’re at today.

Carl Richards:
Yeah, for sure. So I got into the industry, whatever, 25 years ago, kind of by accident. I mean, the short version is in Salt Lake City, Utah, I applied to be a security guard. I thought I was applying to be a security guard. The ad actually said securities, not security. And I didn’t know the difference. So I thought I was applying to be a mall cop. It turns out I was applying for a job at Fidelity Investments call center in Salt Lake; got the job, which is a whole nother story, went into training and I was like, “Well, geez, I’m not a security guard. What is this job?”

Carl Richards:
I was trying to figure out what the job was. And all I could sort out was that it was a math job. We were studying spreadsheets, calculators. This was when I was an undeclared major at the University of Utah. And so I was trying to sort it out and I thought, “Okay, math job. I can do that.” This was ’95 and that was about the time, like after four weeks on the job we had been in training, there’s a big event in the equity markets. Don’t even worry it, but it was when Netscape went public. And if you don’t know what that means, don’t worry about it. Please.

Carl Richards:
It’ll take us too long to explain what Netscape was. But the point of it was, it was like a big deal. And it got so busy on the phone that they called us out of the training room to go out and answer phone calls on the trading floor. And I remember when I walked out of the training room where everything made sense, out onto the trading floor and got on the first phone call, I was like, “Whoa, this is not math anymore.” And I didn’t make any grand conclusion of it. But I just remember being a little bit struck by the energy, the feeling, and thinking, “Well, I don’t know what’s going on here.”

Carl Richards:
I got in the industry accident, but I stayed because of that experience. This sense that there was something more; it wasn’t about spreadsheets. I left Fidelity. I went to work for a big brokerage firm, had my own clients. And then you fast forward a couple of years. And I remember sitting in a conference room with some really… I remember who they were, Dave and Diane, the clients. He was an emergency room doctor. She was a technology sales person. I was trying to explain a concept that was really important for them. These were smart, successful people. And I was just getting blank stares back.

Carl Richards:
So they’re smart and successful people. It wasn’t their fault. It was my fault. I couldn’t figure out how to explain it. And out of an act of desperation, I’d never really done this before. Out of an act of desperation, there was a whiteboard in the conference room, I stood up and I was like, “No, like this.” And I drew circles and squares and some arrows. I remember, they said like, “Oh, I get it now.” And that little moment was like the next little moment where I was like, “Ooh, what was that?”

Carl Richards:
So I started sort of trying to replicate that. I would just figure out a concept, diversification, life insurance, asset allocation, whatever. I would write it. And what really happened, Reese, was like, every time I got asked a question twice, I would write down the answer the second time. And then I would post it on this little blog and I would try to draw, just using a sharpie, I would try to draw some illustration of it. And sort of irrationally, I continued to do that despite the fact that no one cared and no one was listening except my mom and my sister.

Carl Richards:
And I did it for like two years. It wasn’t even that long, a year and a half, which seemed like an eternity. And I’m still at the big brokerage firm. Then I left that firm to start my own independent RIA firm and continued to write publicly and thought no one was reading it. And then I got an email, and I still have the email because nobody ever believes me. I still have the email from the editor at the New York Times, Your Money section, Ron Lieber. And the email just says, “Hey, I love these. Would you do them for us?”

Carl Richards:
And I knew enough from like my security art backgrounds to say yes and figure things out later. So I said, “Well, of course.” And that started a relationship that went for every week for 10 years. And after doing that for maybe a year, I got an email from Penguin. I mean, same sort of thing, just playing in traffic. I would have never tried to write for the New York Times or to write a book. I got a phone call actually from one of the editors at Portfolio, which is the business imprint at Penguin Books saying, “Hey, I’ve printed out what you’ve written. I’ve organized it in chapters. Would you consider writing a book for us?” And I was like, “Well, sure.”

Carl Richards:
And so we wrote the first book and that went well. And then the second book. And right when the first book came out in 2012, I sold my RIA firm to another big firm because I had to make a choice at that moment. I never thought I would sell my firm. In fact, I was like, “I told you I will never sell it.” But I had to decide. I was in a position where I was like, I either can keep writing and doing public work or I can serve clients.

Reese Harper:
I spent 30 minutes before this kind of digging into, like, where have you been in your career? And I kind of saw this moment where you went from financial advisor to, I don’t know if it was BAM or it was somebody that seemed like they must’ve been the acquirer. But you were like the client education director or something there. And I figured there must have been a moment where you decided to follow your passion. Something that was just like, there’s a crossroads there, right?

Reese Harper:
The side of like public work that you’re talking about versus the security or kind of the predictability of whatever this firm owner, client advisor work is. I’ve been in those shoes a little bit where I’m like, I’m giving up one thing to go after something I’m more passionate about. And it’s just been cool for me to kind of see that you actually did… A lot of your values in financial planning that you share, there’s this point where you had to pick your purpose and you had to find your underlying career motivation.

Reese Harper:
And it seemed like it leaned more towards literacy, public advocacy, financial literacy, teaching, and educating, as opposed to… Not that people don’t do that in an advisory firm, but you almost can’t coexist in those worlds very easily because client service is a full-time job too. So was there like a big decision that you had to make at any point, or does it just look like that more from the outside and it really wasn’t that significant?

Carl Richards:
Yeah. It’s really interesting. I mean, I think we’re really good at sort of crafting narratives looking backwards, and I wish there was some grand plan. I mean, I can look back now and see that there was a couple of decisions. But largely this is a story of playing in traffic is all I really know how to do. There’s nothing that I could repeat about getting a chance to write the column with the New York Times.

Carl Richards:
I’ve been asked a hundred times, like, what advice would you… The only advice I have is play in traffic because maybe you’ll get hit, and there’s not even like a guarantee, right? Like just maybe. And the same thing with the decision to sell the firm. I remember going home and telling my wife, because we had three different places that sort of were interested in buying it and all kind of for the same reason, like come be the national spokesman sort of whatever. And I went home.

Carl Richards:
I told all of them no. And one of them came back and said, “Carl, my mother taught me,” in a Brooklyn accent, this person said, “My mother taught me to never turn down an offer I hadn’t seen.” I was like, “Oh, okay. I guess that’s reasonable.” So I went home and told my wife and my wife was like, “Hey, you know what? I think this business, we’ve always thought of it as a security blanket. And it feels to me like it might be an anchor right now.”

Carl Richards:
That was the conversation where I was like, oh. So it was super scary, and continues to be that way. In fact, if it gets… I have a whole belief around this, and it has largely to do with imposter syndrome playing a part in my life. If I go a month or so without my friend imposter syndrome showing up, which we can dive into if we want to, but I think something’s wrong.

Carl Richards:
I’ve largely crafted my life around the idea of doing things that may not work. And if I’m doing stuff that’s always going to work… We built the entire business around doing things that may not work. An so I wish there was like a moment that isn’t largely… I just kept playing in traffic. I guess the only thing I’m good at…

Reese Harper:
When you say playing in traffic, can you define that a little better for somebody who might not know?

Carl Richards:
Just doing work in public. And I wish more advisors would do this. It’s the only way we’re going to solve the problem, and the problem is like the people out there don’t feel any better about money than they did 10, 20, 30 years ago. They might feel worse actually. The only way for them to find out that this little secret band of real financial advisors exists, because they don’t believe that real financial advisors exist. No one does.

Carl Richards:
They all think we’re all crooks and criminals. They don’t realize there’s this group of real ones. The only way for them to find out, unfortunately, you can’t wave a flag and say, “I’m real. Trust me.” Because the first person who says that is the person that everybody runs from. The only way to change that is for people to do more public work, to tell stories. And that’s email newsletter, LinkedIn, Twitter, Instagram, like whatever, TikTok, I guess. I don’t know, whatever. Just doing public work is what I’m talking about.

Reese Harper:
Well, tell me then, as you look at… Anyone who’s listened to you, including on this episode right now, or seen your videos, or read your content, they can feel the passion that you have for the subject matter and for the industry. I think that like bleeds through really authentically in who you are, both like your public advocacy. I’ve heard you in several circumstances mention that your passion for the end client is almost the real passion, as much as it is for the advisor. I love all of that. I’m kind of curious, what’s the real challenge for you that you’re trying to solve in the industry? What’s the real challenge that you’re trying to solve?

Carl Richards:
Yeah. I mean, there’s a series of different opinions that I’m trying to forcibly insert into the industry, but the primary one is just the definition of real financial planning. And to me, that’s this ongoing process of aligning someone’s use of capital. So if you were to think of this as a Venn diagram with no overlap at first, like just two circles on a page. In one circle, use of capital.

Carl Richards:
And I would put an asterisk next to capital and define that as money, time, energy, and attention. So somebody’s use of capital, aligning that with what’s truly important to them. So getting some overlap on those two circles. So use of capital, what’s really important. And you could say money in values, if you want to even simplify it a little bit. And that to me is what real financial planning is.

Carl Richards:
There’s a ton going on here, right? So first of all, most people have not made the connection in our industry. And this is crazy given this audience, I bet you won’t believe this, but I have thousands of these interactions. Most people go to see a “financial advisor” and all they hear is pitch, pitch, pitch about product. And it might get more sophisticated. In fact, I had a friend, his name was Jeff.

Carl Richards:
Jeff retired from an investment bank, had a bunch of money. He’s an investment banker. He had a bunch of money. He had enough money that he could interview basically any firm he wanted. He goes to five firms, including the bank he was at, which you would recognize. And then after meeting with those five firms, he called me one day and he’s like, “Carl, your industry is so messed up.”

Carl Richards:
And I’m like, “What do you mean?” He said, “I’ve met with firms.” He told me who they were. “And I’ve got this pool of money.” And he said, “Not one of them.” And this is crazy. Hopefully everybody in this audience is just like me. He said, “Not one of them linked my money with the goals I want to achieve.” I was like, “What do you mean? What were they talking about?” And he said, “Well, their strategic asset allocation, their research team in London, their research team in New York, the portfolio, two-inch thick pitch book.”

Carl Richards:
So this happens at the low end of the scale and it happens at the top end of the scale. We think it’s about writing prescriptions, like, just checking prescription. You don’t like blue, Reese? Oh, that’s okay. I’ve got green. What I’m saying is like, first, we have to diagnose. Now, the problem is it gets deeper. If you ask somebody, okay, cool. I want to be a real financial advisor. I’m going to ask them what their goals are. If you ask somebody what their goals are, they don’t know.

Carl Richards:
Humans don’t know. And in fact, they don’t like being asked. Because they feel pressured, I’m supposed to have goals. It’s actually like helping somebody sort out. There’s a circle that says use of capital. There’s another circle that says what’s really important to you. You would think that it’s not part of your job to help them figure out what’s really important to them. It turns out it is.

Reese Harper:
Yeah. That’s where I want to start. I mean, we’re going to hit goals in a little bit, but I want to stay on this purpose concept. And if you wouldn’t mind, let us keep unpacking that a little more because… Let me just ask you this. For you, what’s so important to help advisors understand this purpose concept? Why do you spend so much time trying to help advisors understand the purpose idea?

Carl Richards:
Yeah. So I refer to it as a statement of financial purpose. So one part of a one page financial plan on the top line or two, I just think of it as a statement of financial purpose. I like purpose because it feels a little more enduring. There’s actually some research around purpose versus the use of values, but it doesn’t matter. Whether you want to talk about values or purpose, that’s fine.

Carl Richards:
It sits underneath. So let me give you an example. And I have been asked this question like five times a day, so I’m going to try and use a different example. So here’s one. A client of mine came in and we had these conversations early on around why? And all you have to do is go read Simon Sinek’s work to understand why this is important. So why are we doing this? So I have this series of questions that I used to ask.

Carl Richards:
And I’ll point you to Dan Sullivan, Bill Bachrach, or George Kinder. You can find your own questions you’re comfortable with. I had these questions I’d ask in the first 15 minutes of the first meeting to uncover why. And this particular client said to me, “I want to spend more time with my kids.” He had two daughters. He wanted to spend more time with his daughters. That’s the reason I do everything.

Carl Richards:
Is there anything else more important about money to you? Nothing else more important. What would be some ways you could spend more time? Well, it’d be really cool to coach their soccer team. So we had that written down. And you fast forward. It wasn’t a couple of years. It was just like a year later. He couldn’t coach the soccer team because he had to work so much.

Carl Richards:
Came in wanting to buy a new car. Okay. So this is this amazing opportunity where we can go into this gap between what you said was important and what you want to do. No one else has permission to enter that gap. Is your spouse going to do this, like a good friend? So you have permission. He said, “I want to buy a new car.” I said, “Well, the current car is paid off.” “Yeah, I know.” “And the new car is going to require a lease.” “Okay.”

Carl Richards:
This is just one example of the value of being able to go in and say, I used to say this all the time, like, “You may fire me for the conversation I’m about to have, but you should definitely fire me if I don’t. And when we first met, you told me that this was really important, to spend more time with your kids. And the reason you’re not doing it is because you have to work so much. And now we want to take on a new expense for a new car.”

Carl Richards:
Now, it’s not my value. I’m not judging you. I’m just saying, if you didn’t buy the new car, could you coach the football team? So that’s an example of an opportunity to say, hey, how can we get these things more aligned? Now, if you say, “Ah, things have changed. I want the car.” That’s fine. They’re your values, not mine, but it was my job to bring it up. And I can tell you sort of story after story after story of that kind of idea, like Jerry. Jerry, at the top of his statement of financial purpose said, “I never want to be a burden to the kids.” So this is like Tom Brokaw’s greatest generation. He wasn’t going to cry in my office. It was all duty.

Carl Richards:
I don’t want to be a burden to the kids and I’d love to leave something for them. Well, it didn’t need to be deeper than that. But the fact that that was written down helped us both in 2007, 2008. And subsequently, a couple of years later when Jerry wanted to get out in 2007, 2008, whenever that was, 2009 ish, and he wanted to invest more after things had recovered. And both times we could go back to that and go, “Hey, Jerry, let’s just keep our eyes on the ball here. What would you do differently if we… You’re already there. You’re not a burden to the kids.” So that’s the idea, is something that sits underneath the goals, and then we can work our way up to goals from there.

Abby Morton:
I know one of your biggest challenges is delivering a consistent financial planning experience to your clients on an ongoing basis. You get off to a good start, onboarding a client, and then what? There just doesn’t seem to be a good process for nurturing the new relationship. The Elements Financial Planning System can help you easily organize and evaluate client financial data. Then, based on key indicators of their financial health, deliver timely insights to your clients. Using our system gives you the structure you need for ongoing planning. To learn more, schedule a time to talk to us today by going to getelements.com/meet.

Reese Harper:
How do you know when you’ve uncovered the real purpose for a client, or not? Did you ever know that? Is it hard to know? I think for me, that’s hard to know about myself. I feel like that’s a hard for me to know, and I’m a financial advisor that has an easier job discovering that from my clients than I can my own self. And even after therapy for a decade, I still don’t know if I could really say what that is. I’m just curious how you’ve reconciled all that because…

Carl Richards:
It’s hard. I think there’s two problems there. I mean, the first issue is… Discovering it for yourself is a whole nother subject. That’s a whole nother subject. I’m really, really good with other people’s money. I mean, I’m terrible with my own. But here’s the real point is, no, you don’t ever know. And that’s why I think this is such a beautiful, beautiful job, is we’re just guiding people through small bets.

Carl Richards:
Okay, let’s try that. Why don’t you go spend a weekend in the A-frame with a hammock? Oh, interesting. I didn’t love it as much as I thought. Okay, great. Why don’t I do this? We’re just guiding people through small bets and we’re never… And I think this gets to the planning part too, right? We can’t sit around and be precisely correct about a 30-year line we’re drawing on a piece of paper.

Carl Richards:
And so it’s much easier to say, hey, why don’t we take a guess? Why don’t we take a guess? We’ll act. When we act, we’ll get new information. When that new information comes up, it’ll inform our next step. I mean, we used to think that we loved going out with people. We’d go to dinner and a movie. It’s the thing we were in for years. And here’s the other problem: this whole thing about like your goals and values, the reason it’s so hard is we don’t know.

Carl Richards:
From the youngest age, we learned what we wanted by watching other people. You learn what you desire by watching what other people desire. And it’s only gotten harder with Instagram, right? Getting clear about what you want is really, really hard work, which is why goal clarification is so valuable for people. But we used to think that, well, doesn’t everybody love going to movies and dinner? And we were like, well, why do we like that? Well, because we like to talk and connect with people.

Carl Richards:
So we’re going to go to a movie or to dinner, where we’re rushed. And then we’re going to a movie where we don’t talk. So we tried a little bet. We’re like, hey, what if we just invite a couple over to our house? We buy the ingredients and we make dinner together. Oh man, that was way better after. Oh, that was terrible. Or that was way better. We learned by just making little bets. It turns out I don’t like reading books.

Reese Harper:
You like the idea of reading a book, but not the actual reading.

Carl Richards:
Oh, I like being seen. So this is Rene Girard’s work on the mimetic desire. I like being seen as a person who reads books, but I don’t actually like reading books. James Clear is a guest on our membership call Thursday. And I’ve had his book is my bag forever.

Reese Harper:
I can’t read this. I already know the end.

Carl Richards:
He’s written one fantastic book. I’ve watched like 15,000 YouTube episodes instead of read. So anyway, sorting that is so valuable.

Reese Harper:
I mean, for me, when I first started getting exposed to your stuff, I was surprised at how philosophically rooted it was for someone who’s… Wasn’t your bachelor’s degree in finance?

Carl Richards:
Yeah.

Reese Harper:
So like, where did you get the art philosophy side of exploring purpose and human existence and all this stuff? Because I can tell your life has been a series of small experiments in this beautiful journey, like embracing and accepting it. And your philosophy on finance is also this way. Most people with a finance undergrad or most people that come into the industry through Merrill or a channel, kind of a left brain analytical channel.

Reese Harper:
They’re not immediately pivoting to this philosophical, kind of almost spiritual framework that you’re kind of bringing up. I’m just curious, where did that come from, do you think? And when did you start noticing that that was an important dimension?

Carl Richards:
I have no idea. I mean, I’ve never read… I try every once in a while. I’m like, oh, I like philosophy, apparently. I should read some philosophy books, and I buy them and then I don’t read them. So the only thing I know is I’m just a massive fan of people who are living intentional lives. And I think of this more as like, I don’t have any of these fancy words for like intentional lives. It’s more like people who are doing a thing.

Carl Richards:
And maybe this is from my spiritual or religious upbringing, but I believe that everybody has a thing. I’m thing agnostic, meaning I don’t care if your thing is knitting or if your thing is badminton. And I had that experience. I was staying at a lodge in New Zealand and the New Zealand badminton team was staying at the lodge and they were playing badminton. Then I had conversations with them over dinner. And these guys were so passionate about badminton.

Carl Richards:
I could care less about badminton, but I was so jazzed to be listening to them. And then I had the same experience with somebody who was knitting. And that’s when I realized, like, I’m thing agnostic. I don’t care what your thing is. I just think everybody should have one. And so that’s led me down that path of just like, how do you live a life… I just look around and so many people… What was that old quote, that most men are living lives of quiet desperation? Most people are walking around half asleep and we’ve kind of been trained to be half asleep. And when I see somebody who’s not, I’m way into that. And that’s all I know. I don’t have any other fancy words for it.

Reese Harper:
You were passionate about being a financial advisor and you could do that again tomorrow and probably be passionate about it, but at some point you also were passionate about content creation and sharing your ideas and public advocacy of finance. By following what you’re passionate about, it seems to be a path for happiness that’s much better than the path of show me this perfect path towards financial security forever so that I can then quit or be done. I mean, that just seems like what I see happening more often than not though.

Carl Richards:
And it’s completely broken. I don’t know how long we’re going to keep doing it. It’s completely crazy. First of all, if your security is dependent on money, no amount of money will be enough. No amount of reassurance will be enough. And that’s why our industry sells certainty because everybody wants it, but we can’t ever deliver it. I mean, go back to January 2020 and look at your plans for 2020 and tell me how they worked out for you that year.

Carl Richards:
So I think to me, that’s been the big wake-up call over the last year and a half, it’s like, do the thing. Now, that doesn’t mean you have to be reckless. In fact, I want to comment something real quickly. I’m actually becoming a fan of reckless financial planning. And the reason I became a fan of this lately is I was just looking at some of the wisdom teachers and particularly around how Jesus lived and what he taught.

Carl Richards:
I mean, Jesus was, and I’m saying this with all the admiration and humility I could muster, he was a reckless financial planner.

Reese Harper:
He was just a radical ideologist too.

Carl Richards:
Yeah, to say to people, like, what are you doing building a second barn? What manner of man would have a barn, and then when it was full, build another one? That’d be silly. Look at the lilies. He was continually pointing to the idea of emptying yourself and being reckless. And I use reckless in a loving term of endearment. So I’m increasingly like, look, I can’t believe how many… We’ve heard the story a million times. All the research says, absolutely, the things you regret on your deathbed are not something you did that failed. Never. It’s something that you didn’t do.

Carl Richards:
The things that you didn’t do, the time you didn’t take your daughter to lunch, the trip you didn’t go on with your son. It’s those things that you regret. We know it. And we have cliches that we say all the time, like, “Nobody regrets not spending another hour at the office.” And then we go do it. And I think largely our job is to… And we’re playing into that.

Reese Harper:
Well, especially when we’re modeling money for Monte Carlo simulations that require certainty. And we’re like, look, happiness is in the certainty of an end point to end point plan. Our entire industry, like research shows that people are only happy when they embrace their thing, their present life, their day to day. Take the philosophy of lilies of the field. Take Eckart Tolle, take Deepak Chopra. It’s about today, and then again tomorrow, and then again the next day.

Reese Harper:
But it’s one day at a time of like just embracing the moment that you’re in and your thing. But then as an industry, what do we do? It’s like, well, I need your social security statement. And then I’m going to need your inflation rates. And then we’re going to have to put investment assumptions in here. And we’re going to run like a 30-year projection to create massive amounts of anxiety about the future for you.

Reese Harper:
But then we’re going to… And regret about your past too, because you’re going to see from this model, or I’m going to show you either. You don’t have enough and life’s not going to be enough, or you’re going to have plenty and life’s going to be great. None of that’s true. All those messages, they’re not true. They’re just guesses. But we’re delivering them in the thousands per day. I don’t know if there’s tens of thousands of these a day going out, a hundred thousand a day. But how often are we doing the path that you’re suggesting, which is just like it… Anyway.

Carl Richards:
No. I don’t know necessarily think it’s a problem of the tools we use. It’s the way we use them.

Reese Harper:
I agree.

Carl Richards:
I mean, my most…

Reese Harper:
They’re usually used badly.

Carl Richards:
Oh, they’re almost always used badly.

Reese Harper:
It’s like, maybe that’s why I need the tool.

Carl Richards:
I went through a whole phase of like a three-year thing where I was speaking a bunch, where I was talking about no plan planning. The one-page financial plan is an upgrade. Because for a long time I was talking about no plan planning, like, what if… And it was started by a friend of mine who’s a venture capitalist who said the first thing he does when he gets any pitch is he flips to the projection section and tears it out and throws away.

Carl Richards:
And I was like, huh, wow, that’s fascinating. Here’s somebody who’s investing a bunch of money. Because we just don’t know. But then it turns out to me the plan, the values, the goals, even the use of the Monte Carlo all give me a sense of direction and a little bit of gravitational pull. And if I communicate that correctly, like, I end up saying, I can’t remember how many thousands of times… Well, it probably wasn’t thousands, but hundreds of times I said, look, here’s the Monte Carlo number.

Carl Richards:
But I would say, what that means to me is we’re in the ballpark. We’re in the ballpark. Now, what do we want to do? What does this mean? What are you going to do differently? Let me just one quick story. Dave and Diane, the same clients, actually, that I sketched for the first time. They came to me one time and they’re like, “Hey, we think…” They had three young kids, twins and a daughter. And they were all under eight. Maybe they were under 10 at this point.

Carl Richards:
They said, “We think we get this all backwards.” Dave was a busy ER doctor, Diane technology sales rep. You work, work, work, work, work, work, work until your kids are like 20. And then you have a little bit of time. And by then, they have nose rings and purple hair. And he was like, nothing against that. But he’s like, “I think we have it backwards. We would like to know if we could take a sabbatical now,” like height of career.

Carl Richards:
“Could we take a year and rent an RV? Our family all lives back east. Could we rent an RV and just tour the country? We’ll homeschool the kids while we’re going around, geography, history, like the whole thing.” And I was like sensing an opportunity to align somebody’s use of capital with… I said, hey, I already knew the answer. The answer was absolutely. Money will be no problem.

Carl Richards:
But I said, “Look, before I start doing the calculation, can we just a quick conversation? I can’t guarantee you that this will work out, but if I can say that it’s at least not stupid. Now I would be like, at least not reckless, except that I’m a fan of being reckless. Would you do it?” If I come back to you and say, “I ran the plan and it looks like it’s going to be fine, would you do it?” And they were like, “Whoa.”

Carl Richards:
They looked at each other and said, “Yeah, we would.” And of course I said, “Give me three days because this is really complicated.” They left. They came back and I said, “I can’t guarantee it’s going to work, but it’s not stupid.” So they did it. And I still have the postcards they mailed me. There’s nothing more valuable about financial advice than that.

Reese Harper:
I agree, man. I agree. I want to share this to support your thesis there, is that in our software, a lot of listeners understand this, but there’s a score. There’s a KPI called Total Term. It takes someone’s net worth and it divides it by their spending per year and gives us a score. That just essentially measures the number of years someone could kind of approximately last on their net worth if they just like spend it and all that.

Reese Harper:
If somebody has got like a 10 score, that means they get like 10 years worth of net worth piled up. They spend their home equity, spend their liquidity, spend the retirement accounts. If somebody got a hundred score, it’s like insanely wealthy. You could have a client with a 30 score, a 40 score, a 50 score. The higher the number of years that someone has piled up, the more likely they are to never run out of money.

Reese Harper:
But what I have found in my interactions with clients is mathematically at the point at about a 35 score in that indicator, that’s about a 3% withdrawal rate roughly on net worth. That’s pretty much sustainable financial independence forever. But I don’t like tell people that that’s the point. I just kind of know that that’s the rough point, where it’s likely that they’ll never run out of money.

Reese Harper:
And I’ve found that no matter what the score is that someone has, they could be at a 40 or a 50. They could have 50 years of spending piled up and be 60 years old. They could have a hundred years of spending piled up. It doesn’t matter what the number is, they still look at me with the same sense of insecurity around living in the present, doing what they want, living that life, making that choice. You just referenced that your client sent you a postcard over.

Reese Harper:
And whether they’re at a 10 or a 15 or a 20 or a 50 or an 80, which these are relative wealth levels that are literally like exponentially different, like just crazy different, it doesn’t change the uncertainty that people have. I’ve got clients that are very, very wealthy and I’ve got clients that are not. I don’t feel like there’s a significant difference in living their present life and living their journey.

Reese Harper:
It doesn’t matter that wealth level. And I feel like consequently, like the journey, the beautiful part about being a financial advisor is if you understand that, you see that your role is largely helping them discover what will unlock their purpose, make them feel content, feel present, feel happy. That’s a much more fulfilling career to be in than the one that just tries to prove through math that people are good.

Carl Richards:
One of my clients, Dan, who got let go early from his job at 58. He wasn’t retiring until he was 60. I have a picture of him paragliding. He always wanted to learn to paraglide. I have a picture of him paragliding in the paw with those eight foot wingspan birds next to him. Denise and Brian, Denise always wanted to build this pottery studio in her backyard so she could hold neighborhood pottery classes. Got the pottery studio. That’s your portfolio.

Carl Richards:
If you were a photographer and somebody went to your website and clicked portfolio, it would be those stories. And then there’s always the person who just won’t spend it. And you’d have to say, hey, I’m booking the flight for you. Hey, it’s time to go start golfing. Hey, let’s just make a little bet. What do you think about volunteering at the nursery? Because I know how much you love plants. Hey, would you like to teach at the dental school?

Reese Harper:
So there’s a few people listening right now that are just like, oh my gosh, everyone’s going to have no money. They’re going to run out of everything and there’ll be broke and destitute and they’re not going to be happy. How do you respond?

Carl Richards:
Well, first of all, none of those clients, that was all like… Again, Allen’s clients, she could have done that for 40 years.

Reese Harper:
Yeah. So you’re saying, look, man, I’m not going to advocate for people being irresponsible if their financial circumstances don’t allow for it.

Carl Richards:
Well, no. Look, I don’t know what our number would be on your little score, but it wouldn’t be 30 if we packed up and moved to New Zealand. So I don’t know. That’s for everybody else to figure out.

Reese Harper:
Well, I like that framing. I always ask myself, how much would I need to have in the bank to not worry about money anymore, at the minimum level? Like, not that you don’t have to worry about money. You’re going to have to worry about money at some point or you’re going to run out. But everyone’s got a number that like in their head, they’re like, “I think…” It’s relative. But some people are fine with literally like one month worth of spending. And at the point they have that, it unlocks…

Carl Richards:
I talk to real people sometime. I have friends who I was talking to them. I was like, “Oh, I can’t believe we’re going to go do this thing because we’ve only got X.” And he was like, “Carl, if I had that much money in the bank, it would mean it was time to take six months off and travel and climb.” I don’t know what that means. Look, I’m not advocating being irresponsible. I’m just saying most of the things that I’ve worried about never happened.

Reese Harper:
Mark Twain.

Carl Richards:
Whatever his quote was. It’s a great quote, right? And then the other thing I know is as soon as you hit that number, there’s a new worry. It won’t work. You’ll change the number.

Reese Harper:
Yeah, I agree with that. I think that’s what’s so hard. It’s so hard. We have an industry, Carl, of financial wealth maximizers. That’s what we are. A lot of us are just maximizing wealth. We’re not engaging in this type of conversation near as much as we are like, hey, I could show you how to have tax-free income from a life insurance policy.

Carl Richards:
For what? Peter Attia is a doctor that has an amazing podcast. He talks about instead of lifespan, he talks about health… No. Maybe instead of health span, he talks about life… Whatever it is, is like, I want you to live a long time, but I want you to live happily a long time. It doesn’t matter if you’re alive but not able to move. And so I think, like, for what? What’s the point of having a hundred years of… We know that you’re going to be on your deathbed saying, “I wish I’d gone on that trip with my kid.” We know.

Reese Harper:
It’s great to have people like you reminding us of this. It’s so valuable to have these types of conversations. Thanks for all that you’re putting out there consistently. That helps orient, I think, the industry in a really positive direction. It’s a big sacrifice. People probably don’t realize how much goes into literacy and education. That ultimately feels a lot like a service project a lot of times.

Reese Harper:
And I just value what you’re doing deeply and just super grateful for the hours and years of contributions. I know you get thanks probably quite often. But for me, I really appreciate it because I know it comes from a place of sacrifice and passion and energy, effort. It’s what you love. There’s a lot of things you could do with your time and this is a great… We appreciate the effort you’re putting in.

Carl Richards:
Thanks. It was super fun.

Reese Harper:
I’ll let you leave the last word with everybody today.

Carl Richards:
I mean, the only word I have is I would just be thinking, I would imagine that for a number of you during or after listening to this conversation, there was something. And we’ve gotten so good at smashing that thing down. We start getting trained in like, I think it’s around fourth grade, like, just no. Fit in the thing. Go back to being an accountant. Not that there’s anything wrong with that.

Carl Richards:
And every once in a while we get these little stirrings, this little you could be at a concert, pianist, performance, it could be at a dance. I don’t know what it is. I think that’s why we all love art so much is because it reminds us just a little bit of the thing. And so I’m just suggesting maybe if you’ve had just a little spark, listen, you don’t have to be heroic about it.

Carl Richards:
It doesn’t mean you have to quit your job. You don’t have to move to New Zealand. But just maybe this time, instead of saying, maybe just… I call it dancing with dragons. Maybe just dance with it a little bit. Could you just write it down in a notebook? You can put it over there when you’re done writing it down. I bet there’s a thing. And for some of you, it may be the way you want to do financial planning for others.

Carl Richards:
I wrote a column for the New York Times about this and I asked for emails and I got 800 emails. And they ranged from I’m moving to Ireland to write poetry in a castle to, Carl, I just want permission to leave work at two o’clock on Friday to spend it with my daughter. And you get a sense of that, like, whatever that little thing is for you, I’ve got my permission granting wand here. Permission granted.

Reese Harper:
It’s so hard, Carl. It’s so hard. I mean, it doesn’t have to be, but it does take these little bets, these little practices.

Carl Richards:
Go try once.

Reese Harper:
You have a sketch that if I remember right, there’s two bar charts. On the right-hand side, it’s something like with a person is easier. That bar chart is higher. And the one on the left is like, without a person, like without accountability, without a partner, without a financial advisor, it’s like really hard. It’s not quite on topic for this, but it’s close in that I just think sometimes it takes a buddy. It’s better with a buddy. It’s easier with a friend.

Carl Richards:
Yeah. If you can find somebody that you can just sit down and go, “Hey, man, I really want to do this thing.” I’d like you to just check in on me. I have a friend like that. I have a couple of friends like that. They’re checking on me and are like… And these friends have gotten to the point where they’re really good at it because they’ll say things like… My friend Rob the other day was like, “Hey, you’ve been telling me that, like, why you didn’t do it.

Carl Richards:
I was like, “I’m really tired. I’m really busy, whatever.” And he was like, “You’ve been telling me that for like three months.” He’s like, “That’s cute that you think you’re really tired and really busy. But I think we got something we got to dig in here because it’s time, brother.”

Reese Harper:
That’s cool.

Carl Richards:
Yeah. So gently find somebody, but find a thing. First, just dance. You don’t have to commit. You don’t have to tell anyone, just allow it to be there for a bit and see what happens, and then place a small bet. A small bet like, hey, I kind of want to start… I have a friend who wanted to start a fish store, like a fish store, aquariums, like fish. And I was like, well, cool. What would you do that would be the smallest bet you could take? I could get an aquarium. Cool.

Reese Harper:
Start there.

Carl Richards:
Right? Like next smallest step. So anyway. Thanks, Reese. It was super fun.

Reese Harper:
It’s been awesome, man. I really appreciate it. And look forward to catching up again soon. Thank you so much.

Carl Richards:
For sure. Cheers.

Abby Morton:
Next time on Elementality.

Reese Harper:
I think advisors need to have more confidence that most of the people that are with you right now, they want to be with you. They don’t want to churn. They’re not looking to go somewhere else. But what they do want is they want leadership from you around where you’re taking them and where you’re going, what you’re going to do. They don’t want to feel like they’re driving the show.

Abby Morton:
You can learn more about the Elements Financial Planning System at getelements.com/meet, and schedule a time to speak with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Chad Jardine. Elementality is produced by Abby Morton and directed by Jordan Hanes. Have a good one.

 

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