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The Planning Process Is Too Complex. Now What?

When planning we are used to doing everything all at once and all up front. The result is that the outputs of the work we do, and what we deliver to the client, are too complex and too focused on one event—retirement. Scenario analysis and simulations related to future wealth are not wrong, but for most prospects they are overkill and too complicated, often causing confusion. What most prospective clients want is a targeted conversation that helps solve their most acute financial problem and clarifies their financial purpose.

On this episode of Elementality, Reese and Carl examine this output challenge and highlight a quicker way to involve prospects in the planning process using the Elements scorecard.


Podcast Transcript

Carl Richards:
These overly complex tools to model certainty really don’t deliver that anyway. So we’ve got complex. The other thing we have is oriented around retirement. Let’s just briefly talk about, how did we get to the spot where it feels like we don’t have a financial planning industry, we have a retirement planning industry? Why is retirement the central point of every single discussion?

Reese Harper:
I mean, this was where the industry made its money for 20, 30 years.

Carl Richards:
It’s this story we’ve been telling.

Reese Harper:
It’s about the boomers, it’s about the IRA rollover, it’s just asset management fees in AUM, and now we’re in a world where that generation that’s comfortable with that model is transferring wealth to the next generation who’s uncomfortable with that model.

[music]

Jordan Haines:
Welcome to Elementality. I’m Jordan Haines, Financial Planning Specialist at Elements. Each episode, Reese Harper and Carl Richards will explore the major challenges faced by financial advisors and the things they can do to manage the functional, emotional and social jobs of delivering real financial advice to real clients. We hope you enjoy this episode.

Reese Harper:
Welcome to another episode of Elementality, everybody. Shoot, good to be here with Carl Richards in the afternoon. Carl, just appreciate you coming out of them thar hills to come down here with the commoners.

Carl Richards:
You’ve a whole thing going on, like, “Shoot, good to be here.”

[laughter]

Carl Richards:
What happened? Like you’re so… Excited to be here, Reese.

Reese Harper:
It’s Carl Wednesday.

Carl Richards:
There we go. Perfect.

Reese Harper:
For those of you don’t know, I did grow up on a calf ranch/potato farm, depending on the summer. Sometimes grandpa took me to the calf ranch, sometimes dad forced me on the potato farm to work.

Carl Richards:
That explains a lot.

Reese Harper:
And we decided that farming and ranching was not the career path that would pay the bills. And so, of course, I went into finance.

Carl Richards:
Right. So you could solve some problems.

Reese Harper:
Solve some new problems.

Carl Richards:
That’s right.

Reese Harper:
Yeah. So the problem today that we’re gonna be covering is in a series. If you haven’t checked it out, you might wanna go back and listen to a couple of episodes ago, we kind of introduced this new future, new business model, and a series of conversations around the main problems that are stopping us from reaching the 99%. I think that’s kind of at the core of what we’re trying to do here is help you help more people and do it in a way that’s sustainable and profitable, but really expand access to people that traditionally have been out of the conversation.

Carl Richards:
Yeah, and so the problem today in this episode that we wanna talk about is this idea that the outputs of the work we do… So we’ve got these tools, they generate this fancy outputs, the outputs are the things the clients see, the outputs are two problems. The outputs are often almost always complex. I mean, after all, we’re using a tool that was designed for the atomic bomb. So, the outputs are complex, and they’re almost always… This is such a fascinating thing to me… Almost always oriented around retirement. It’s almost like we don’t have a financial planning industry, we have a retirement planning industry. So the problem, outputs are too complex, and they’re almost always oriented around retirement. So let’s talk about that a little bit.

Reese Harper:
Well, if you listened to last week’s episode where we kind of introduced the idea that a more holistic and quicker, speedier way to get to great conversations would be through our Financial Vitals, the Element Scorecard. That’s kind of the foundation of what we built, where we’re building on this week. If we’ve got a main thing that we wanna kind of touch on this week it’s gonna be that, again, we’re trying to serve more people. We’re trying to do it at a cost-effective way so that we don’t price people out of the conversation. I think the challenge is that we’re also used to doing everything all at once and all upfront. And I think the solution is we have to start having smaller, more focused conversations that just aren’t…

Carl Richards:
More targeted…

Reese Harper:
More targeted conversations.

Carl Richards:
To a specific question.

Reese Harper:
Mm-hmm. And the Scorecard that we’ve built helps us focus the conversation from the question that the person has into a more focused answer. It’s a more targeted conversation as opposed to using a complex output that’s retirement-focused to sort of be the backdrop of all of our conversations, and then have to explain what that is and have to go through it and talk about assumptions and sort of like how we use that.

Carl Richards:
Yeah, give me an example of like… So, there’s two places I wanna go. One is, I wanna talk about, what does it mean that it’s too complex? How does that show up in the world that it’s too complex and targeted around retirement? And the second place I wanna go is like, let’s just talk about some examples. ‘Cause I know in a couple of episodes ago, we talked about showing up at the Emergency Room with a… I hate this example, but showing up at the Emergency Room with a knife in my leg, and the doctor says, “Hey, it kind of depends. First, I’d like to just see where your cholesterol levels are. Have you had any history of problems with your ears?” and I’m like, “Brother, I’ve just got a knife in my leg. Can you just get this out?”

Carl Richards:
And I think this idea of smaller, targeted conversations comes back to… I’ve got an acute question. I’m a client, I’ve got an acute question. I’ve got an acute financial problem I want solved. And if I show up in a traditional financial planning setting with traditional tools, traditional service models and traditional business models, I get basically told like, “Hey, it depends. Can we check and see when do you wanna retire?” You’re like, “No, no, I just am trying to figure out how much can I afford for my daughter’s apartment in New York.”

Reese Harper:
Yeah, and to answer that question, traditionally, we’re using scenario analysis, that has a lot of underlying assumptions. We’re using simulations that are related to their future wealth, which is still not really at the heart of their question, right? The heart of their question is just like, “Is this smart or not?”

Carl Richards:
Well, we’re only doing all that because we needed that context to actually get, to be able to provide the answer. So it’s not like it was wrong.

Reese Harper:
No.

Carl Richards:
It’s just overkill and…

Reese Harper:
And it’s complex.

Carl Richards:
The only reason we’re only doing that is because we didn’t have a different tool to use. So talk to me just a little bit first about like, “Why is it complex? What are we even talking about when we say the output is complex?”

Reese Harper:
Well, if in a world where minutes matter to serve more people. That’s what we’re talking about here, guys. This isn’t like you could probably persuade me that you have a more complex, a more in depth accurate projection if you use the tool that Carl affectionately referred to as the influence for the… Atomic bomb.

Carl Richards:
Atomic bomb… Yeah. Yeah.

Reese Harper:
But if we want the hundred million households that are underserved and not working at all with advisors in most cases to engage, we’ve gotta engage them at their question level. And so, and we have to do it in a way that’s really cost effective. And so the reason the existing tools are too complex is because they’re not targeted to answer specific questions. And they require more inputs and more explanation, that’s not a visual. A picture is worth a thousand words but a picture that confuses someone or that adds confusion, the confused mind always says no. The troubled mind always says no. So we have to introduce a… If we’re gonna introduce any visual or anything in writing, or we have to have a picture that’s simple. That someone doesn’t say no to.

Reese Harper:
So one thing that we’ve done in the Element Scorecard is we’ve eliminated assumptions about the future. We’ve also eliminated any… So when I say assumptions about the future, I’m talking about inflation rates and rates of return. Any, the scorecard is not a future scorecard, it’s a scorecard of today. And then we can answer almost all the questions from that place. And in the rare cases that someone’s demanding something that they never asked for in the first place, you can rely on a more complex calculator that you’re using to model something in the future.

Reese Harper:
But 90% of the questions that people have don’t, they’re not efficiently answered through any kind of forecast or assumption about the future. That is a… ‘Cause it introduces uncertainty, it introduces another layer now that’s further away from their financial purpose. The place where you want to go is go to their financial purpose and make sure that this decision is in support of that financial purpose. And so it’s really important to make sure we don’t introduce more complexity to the decision than as required.

[music]

Abby Morton:
Hey, Elementality listeners, it’s Abby. The Elements financial monitoring system is revolutionizing how you attract, onboard and deliver ongoing advice to clients. So you can scale your business far beyond traditional limits. If you want to profitably help way more people, make smart financial decisions, head over to getelements.com/demo and schedule a time to see it in action today.

[music]

Carl Richards:
So we’ve got two parts here, one is the outputs are complex.

Reese Harper:
Visually, and there’s a lot of assumptions buried inside of them.

Carl Richards:
And there is… Yeah, yeah, yeah. Like, if you really understand what you’re doing, I mean, the joke about the atomic bomb, like Monte Carlo analysis is pretty, in fact, real quick story. I was climbing one time with a friend of mine, rock climbing, and we were 800, 900 feet off the ground and we’re having this conversation at what’s called A blast station. Anyway, we’re having this conversation. He’s a nuclear, he’s a rocket scientist. Like he’s got PhD in Nuclear Rocket Scientology, like, I don’t even know what it’s called. And I was telling him, I was like, “Oh yeah, we use Monte Carlo.” And I was telling him about using him Monte Carlo tools, and he was like, “Wait, you use Monte Carlo tools for the work you do?” And I was like, “Yeah.” He said, “Do you know, that was originally designed, like it was originally a tool designed to help model the atomic bomb.”

Carl Richards:
And he said, “How many point, how many years of data do you use?” And at this point it was like 85 years, like now maybe we say say 100, 105 years of data. And he was like, “You use that tool with 85 years of data.” And he said to me, “How do you sleep at night?” And he didn’t mean from an ethics perspective, he meant from a risk perspective. He’s like, “How do you tell anything?” So really like these overly complex tools, I’m getting fired up around here. These overly complex tools to model certainty, really don’t deliver that anyway. So we’ve got complex. The other thing we have is oriented around retirement. Let’s just briefly talk about how did we get to the spot where it feels like we have a, we don’t have a financial planning industry. We have a retirement planning industry. Why is retirement the central point of every single discussion?

Reese Harper:
I mean, this was where the industry made its money for, you know, 20, 30 years.

Carl Richards:
It’s a story we’ve been telling.

Reese Harper:
It’s about the boomers, it’s about the IRA rollovers. It’s just asset management fees in AUM and now we’re in a world where that generation that’s comfortable with that model is transferring wealth to the next generation who’s uncomfortable, with that model and so now we’re at a place where they want answers to their questions. And before actually a lot, or many of the questions could have, were able to be answered a little bit better, as long as they were paying a nice AUM fee and there was a lot of revenue there. You could inefficiently sort of use these tools that were designed for persuasion to persuade people to.

Carl Richards:
Save for retirement.

Reese Harper:
Save for retirement, or move their money to you because you are modeling a better return than their current statements, and that the cost of all of that is just not purpose-built… It was purpose-built for a different reason, and we’re trying to purpose-build something that can help you serve more people cost-effectively.

Carl Richards:
Right. So I’ll put overly complex oriented around retirement. That’s the problem. Solution is this idea that we have objective set of ratios, which we call financial vitals, wrapped up in this beautifully-designed thing called a scorecard, but that allows you to do what? This idea of having really targeted, really specific conversations.

Reese Harper:
Yeah, really small targeted conversations because, and I think that’s just… If you continue to have conversations with people that are small and targeted…

Carl Richards:
Over and over?

Reese Harper:
Over and over, their willingness to come back is very high.

Carl Richards:
Right. It’s also a process too, like narrowing in over decades on a potential… Narrowing in the potential range of outcomes on this thing we call goals. The best way to navigate a complex adaptive system is, solve today’s problem, and then get clear and solve tomorrow’s.

Reese Harper:
Yeah. And in that beautifully-designed scorecard of financial vitals, like one of the targeted topics is total… We’ll call it when it’s work-optional, retirement. We’ve purposefully not called it retirement, because some people, especially in X, Y, Z crowd, they’re uncomfortable with the idea of retirement, it’s just changing so much.

Carl Richards:
For sure.

Reese Harper:
So yeah, there’s a conversation you can have about total wealth and someone’s ability to not work anymore. That’s very easy to have and much faster, more efficient to have with a simple present day ratio. And if your ratio right now is small… The current ratio we use is called Total Term for retirement, it measures the number of years that you can kinda live on your current spending if it didn’t grow and if there was no inflation and investments didn’t grow, but you just spent down your networth. And you can kind of tell somebody, if they have a retirement question, you can say, “Well, this number, when it gets to be about this big at some point down the road, that’s when you’re gonna be in a position to probably make work optional.” Done. Retirement conversation is now over. We don’t need to have it every time, and when it comes up, we’ll target our conversation in that area very precisely.

Reese Harper:
But if they ask me, “Can I remodel my house?” Or if they ask me, “How do I finance this mortgage?” Or if they ask me, “Where should I put this extra money?” I’m gonna use a different visual, I’m gonna point them to a different score, a different ratio, and have a conversation about that and show them the relationship between all of these holistic scores that are in relation with each other. We don’t talk about paying off the house without talking about our current liquidity, and we don’t talk about getting a new mortgage without talking about our savings rate. There’s nice relationships between these things.

Carl Richards:
Yeah. But I think one of the things that’s really important to understand is, if I have a question about whether I should remodel the house… For the first time in my career, I now have a tool with an objective set of measurements called Financial Vitals that allow me to have that conversation without saying, “Well, it depends. When do you wanna retire?” [chuckle] That was always that again, too complex, and oriented around retirement.

Reese Harper:
Yep.

Carl Richards:
Well, the solution is, have a set of measurements, objective measurements, wrapped up in this beautifully designed thing we call a scorecard, because that allows me to have a really targeted conversation.

Reese Harper:
Amen, brother.

Carl Richards:
Amen Reese. Thank you.

Reese Harper:
Carry on.

[music]

Jordan Haines:
Next time on Elementality.

Reese Harper:
That wavy line is so interesting to me, ’cause there’s not like, there’s some common themes and sort of my interests and my career.

Carl Richards:
Sure.

Reese Harper:
But there was no straight line for me.

Carl Richards:
Yep.

Reese Harper:
And to go back and paint that picture to my children and be like, “Yeah. You know, I had it all figured out.” It’s like I was just literally like trying to figure this out like a year at a time. I still am. And, I don’t think it’s changed.

Carl Richards:
I’m the same way, I remember still even recently leaning back in my chair at dinner and say, “Gosh, what am I gonna do when I grow up?” I mean like not… So the point here though, is that all of these…

Reese Harper:
That was yesterday?

Carl Richards:
Yeah, that was yesterday. All of these changes drive this problem, which is the modern consumer has more questions more often.

Abby Morton:
You can learn more about the elements financial monitoring system at getelements.com/demo, and schedule a time to talk with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Carl Richards. Elementality is produced by Abby Morton and directed by Jordan Haines. Have a good one.

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