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Why Our Tools No Longer Fit a Complex World

How people live, work, and spend money continues to evolve. Today, a smooth job path is rare as careers now take many unpredictable turns. Look at the growth of the gig economy. An outgrowth of the Great Recession—and spurred forward by the recent pandemic—has resulted in one third of American workers participating in some form of gig work. Because of the increasing complexity in our financial lives, prospective clients have more questions about money and need more answers, more frequently.

On this episode of Elementality, Reese and Carl explain why using planning tools that assume life is lived linearly no longer work. Our solutions must be more agile and adaptable as the only way to navigate our complex financial environment is to first solve for today.

 


Podcast Transcript

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… But there was no straight line for me and to go back and paint that picture to my children and be like, “Yeah, I had it all figured out.” It’s like I was just literally trying to figure this out 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 saying, “Gosh, what am I gonna do when I grow up?” I mean like, not know… So the point here, though is, all of these…

Reese Harper:
That was yesterday?

0:00:37.4 CR: Yeah. That was yesterday. All of these changes drive this problem, which is the modern consumer has more questions more often.

[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. I’m your host, Reese Harper, here with my trusty old co-host, Carl Richards.

Carl Richards:
Hi, Reese.

Reese Harper:
It’s good to see again, man.

Carl Richards:
Yeah, fantastic.

Reese Harper:
You wanna give everyone a little bit of a catch up in case they haven’t listened to this series so far?

Carl Richards:
Yeah, so we’ve been doing this series on talking about the problem, and by problem, we just mean something to solve, right? The challenge that we face in trying to serve more people and we’ve broadly and oversimplified and we, guilty as charged oversimplified. We’ve got systems, business models, tools, and service models all designed to serve the 1%. And we’ve been talking about what are the specific problems and the specific solutions to serving the 99. So if you haven’t heard the last couple of episodes, go back and listen to them. It would be helpful, I think, to go back and listen to them. But today we wanna dive into the next problem that we’ve been thinking about.

Reese Harper:
Yeah. And let’s define this problem as the modern consumer has more questions and needs more answers more frequently.

Carl Richards:
Yeah, modern consumer has more questions more often. Let’s break that down a bit. What does that even mean? What are you talking about?

Reese Harper:
Well, Fidelity has done a lot of research on this. You can go to their website and look at their research from 2019 till now. They’ve got a bunch of white papers out on the changing consumer. Sometimes they’ll reference this as the XYZ consumer. That’s not just younger people, folks. These are anyone in their…

Carl Richards:
It’s really more like the world has changed…

Reese Harper:
The world and it’s particularly prominent for younger generations. But it’s also the case for people in their 70s and 60s, and it’s not exclusive to that market. What they’re showing is that life is not a straight line anymore. Life is a very squirrely line where you thought you were gonna get a job and you move back into your parents basement, or you thought you’re gonna retire and you’re still holding down a part-time job that gives you a lot of energy, and you’re 82 years old. Life is different. There’s the gig economy now. There’s much different financial complexity. Corporations don’t retire people anymore. There’s just not a straight line financially in our lives. And that complexity, that volatility, that change brings up all these questions.

Carl Richards:
Let’s break that down a little bit, ’cause, I mean, there was a time and we hear stories about this, and I largely think our entire industry and the tools have been built around these stories. There was a time where you got a job, you worked for 30 years, you retired, and you died five years later, and you retired with a pension. Most of the people listening to this, at least a chunk of the people listening to this won’t even know what the concept of a pension is. You know what I mean? And I don’t mean that. I’m sure you’ve heard of it and you’ve studied it in your books, but have you run into anybody who worked in a job long enough to get a pension. So there was. And I often think of it as like, Tom Broka’s greatest generation. And again, that’s oversimplifying, but there was a period of time where you got out of college. College was the golden ticket, right? You came out of college, you got a good job, you put your head down for 30 years, you lived in the same house with a white picket fence, you had a pension when you were done, and you lived 5-8 years and you passed away. And that sounds like what’s The Barney Fife? Like Andy Griffith. I would imagine most of us can’t even relate to that, it’s ’cause now how often are we getting jobs? How often are we moving? We’ve got some of that data.

Reese Harper:
And I’m not a young man anymore, but I’m younger. I’m in my 40s, right?

Carl Richards:
I just turned 50.

Reese Harper:
Yeah. And I look back at my career. I was first a music composer, and then I opened up my own music studio. Then I was working as an assistant to an estate planner during college. Then I decided to be an employee benefits broker. Then I started a payroll company. Then I decided to be a financial advisor, to get my CFP, and then I worked for another financial advisor. Then I started Dentist advisors. Now, I’m in Fintech and working on a piece of software. And after this, I just wanna go be some kind of minister or philosophical guy that loves reading, maybe books, poetry, I don’t know. But that wavy line is so interesting to me ’cause there are some common themes and sort of my interests and my career 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, “Oh, I had it all figured out.” It’s like I was just literally 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 saying, “Gosh, what am I gonna do when I grow up?” I mean, like, not know… So the point here though is 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.

Reese Harper:
Yeah.

Carl Richards:
Right. And we’re using a tool that you literally draw a straight line in…

[laughter]

Carl Richards:
Right. And so…

Reese Harper:
And when you present that tool to this consumer.

Carl Richards:
I’ve had this problem. I’ve had this exact response over and over.

Reese Harper:
It’s almost, and I know everyone’s really doing their best with the tools we have.

Carl Richards:
Right.

Reese Harper:
Or had. But you feel a little tone deaf. You come across a little insensitive.

Carl Richards:
I’ve had so many clients and it was… I’d noticed this more with women clients than I noticed it with men, but I had more women say, “Really? You think you know what the next 30 years of my life is gonna look like? Did you know that two months ago we didn’t know that we were gonna be living here?”

Reese Harper:
Exactly.

Carl Richards:
Right. “Like we moved to New Zealand, We didn’t know we were moving to… The thought of New Zealand, the word New Zealand, the country had not even occurred to us 90 days before we were on a plane.”

Reese Harper:
Yeah.

Carl Richards:
Right. “London was the same thing, and back home was the same thing.” Like, “Men make plans, people make plans, and God laughs.” And we’ve got tools built for very specific plans. And so what this brings up, again, in a complex adaptive environment that we live in, we’ve got in a complex adaptive environment we live in. The only way to navigate it, the only way, right from the literature, the only way to navigate a complex adaptive environment is to get really clear about where you are today. And then the literature says, “Solve for the next local optimum.”

Reese Harper:
Yeah.

Carl Richards:
But instead, we’re spending all this time solving for the optimum, every single step of the way for 30 years. So the problem, again, let me just restate the problem. The modern consumer, the world has changed, right? And so the problem is the modern consumer needs more answers more often. So how do we solve that problem?

Reese Harper:
The solution for me, and if you go back a few episodes, you’ll hear me tell the story of having this realization that I needed a more agile, more adaptable visual, a picture is worth a thousand words, right? And…

Carl Richards:
And not just the visual though, but the underlying tools.

Reese Harper:
The underlying tools for those of you who haven’t listened, this may sound a little bit new, but the elements scorecard of financial vitals were a more adaptable tool for me to have those conversations. And for a variety of reasons. One, there’s no right or wrong. There’s no right or wrong here. We’ve designed this in a way that no one’s gonna feel bad and no one’s gonna feel good. It’s just a picture of what is.

Carl Richards:
Yeah.

Reese Harper:
And then when you start from that place it makes it very easy to sort of just solve for that next local optimum like you’re mentioning, because we’re not saying there’s not any implied change required from this. However, the professional can sit there, and it’s quite technical to learn our scorecard isn’t like, I mean, it’s not rocket science. But it does require the professional to be there to interpret it.

Carl Richards:
Right.

Reese Harper:
It’s not consumer interpretable. There’s no way a consumer’s going to look at it and self-diagnose.

Carl Richards:
Well, and and particularly the adaptability of it.

Reese Harper:
The adaptability of it, sort of the, how do you take a question and answer it with this adaptive flexible scorecard.

Carl Richards:
Yep.

Reese Harper:
Right? And if you think about this from a cost perspective, right? If we’re using straight line tools designed for a different purpose, and every time someone asks us a question, we have to go back to that tool.

Carl Richards:
To redo the whole thing.

Reese Harper:
To redo that thing.

Carl Richards:
I Just finished the print. I literally just hit print and you called me the next day.

Reese Harper:
Yeah. It’s the scenario that we’ve modeled that was so accurate a week ago, has now shifted.

Carl Richards:
Yeah.

Reese Harper:
We’re just incurring cost unnecessarily. The client doesn’t wanna pay for this. They never asked for a 30-year projection. They didn’t even ask for five years of certainty.

Carl Richards:
They wouldn’t even know to.

Reese Harper:
They wouldn’t even know to ask that. All they wanted was to get an answer. Am I doing okay holistically.

Carl Richards:
Or can I…

Reese Harper:
Or Can I do this one thing?

Carl Richards:
Yeah.

Reese Harper:
Like question…

[music]

Jordan Haines:
Hey, Elementality listeners, it’s Jordan. 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 more people make smart financial decisions, head over to getelements.com/demo and schedule a time to see it in action today.

[music]

Reese Harper:
One thing I wanna point out is this, I think of it as increasing, and I’m just gonna use the word volatility in clients’ lives, right? And I’m not talking about whether the world is more volatile, but I think just the idea that you, the average person is gonna have seven careers, right? That we’ve got the gig economy now, like income is lumpy.

Carl Richards:
Yeah.

Reese Harper:
Life expectancy is longer. So everything about that previous worldview that we used to build, the tools has changed, but each one of those points increases that opportunity. The likelihood that I’m gonna have a question. So, modern client, modern consumer has more questions more often. And what you’re saying is the solution is a tool that at the very least is adaptable. And let’s just describe an adaptive environment real quickly, an adaptive environment. So we live in a complex adaptive environment, especially humans are a complex, adaptive environment, especially when you collect them and call them a market.

Carl Richards:
So our relationship with money is a complex adaptive environment, and complex would take us a whole episode to describe, but adaptive means that the system… Your interaction with the system changes the system, which I think is really important to understand when you think about this set of financial vitals that are wrapped up beautifully in the scorecard. In the scorecard, you change one thing and you change one part of the… It has an impact elsewhere, but you can see it immediately. That impact allows you to then have the conversation around that change without having to go and I was just joking.

Carl Richards:
We have a financial planner that we hired about a year ago, a new financial planner, maybe two years ago now, and our plan has never finished. I’m still waiting for the grand unveiling of the plan, because the reason it’s never finished is because we talk on Friday, and literally by Monday, we’ve changed our minds. Like I’ve got a new job, a new project, something changed, and so the system that we’ve traditionally used has been continually frustrating for me and for our financial planner for that matter, actually she hasn’t been frustrated ’cause she’s so good and she knows this. But it’s dawned on me that I’m never gonna have a financial plan.

Reese Harper:
Yeah. There isn’t one.

Carl Richards:
There isn’t one. It’s this never-ending process of narrowing in.

Reese Harper:
Well, that’s why I wanted to highlight you. I’m gonna introduce a slight technical nuance to what you said earlier, which is you change one thing here and that changes. That I think that in some cases, you could say that some traditional systems, when I change an input, I can see the simulation adjust.

Carl Richards:
Sure. For sure.

Reese Harper:
But what I wanna highlight there is that we’ve designed this to where the human, the professional, is part of the system, and we’ve created the software to not require inputs and adjustments and changes, so when someone’s question changes, so to get your plan done is just to onboard and complete a scorecard. Now we’re done. You’re fine. Now you’re done. Your plan is done. Now we’re gonna move to the one-page plan, where we talk about just what are your next…

Carl Richards:
Solve for the next local optimum.

Reese Harper:
Solve for the next local optimum. And if the inputs change, meaning your question changes. It’s like I was gonna move to Salt Lake, Greece and we decided to move to New Zealand. Great, I have no changes I need to make to my system, my software. I’m just gonna have a conversation with you about how I think that’s gonna impact. And I’m gonna reference our ratios real quickly, and we’ll look at them together, and we’ll just talk about how that’s going to… ’cause we’re adapting to that question without having to show the result of how that’s gonna look out in the future, it’s just solving for that next local… What do you know?

Carl Richards:
What’s great is, that I decided to move to Zealand. Turns out it’s gonna… Well, geez, that’s gonna cost me a little bit of money to do this. I simply update my numbers in the scorecard. The under and suddenly my ratios change a little bit.

Reese Harper:
That’s true.

Carl Richards:
We right then we have… This is really, really important, and I get so excited about this stuff because there’s deep philosophy behind this, that the idea of allowing yourself to re-orient to the present is so important, and it’s not just… I don’t just mean philosophy, but the literature around complexity theory. Allowing yourself to re-orient to the present quickly, because the first thing I have to do to navigate a complex adaptive system is I have to know where I am today. And then solve for the next local optimum, so having a tool to re-orient around quickly is insanely valuable.

Reese Harper:
And it’s incredibly disorienting and anxiety-inducing when you’re using the future to make present decisions.

Carl Richards:
Yeah, yeah, because we don’t… Yeah, and end this over-emphasis, this false sense of precision that we have about what the future looks like.

Reese Harper:
And protecting our futures at the expense of our present. We gotta protect that future.

Carl Richards:
Totally.

Reese Harper:
And so we’re gonna make a different choice. Can you imagine? I mean, that’s not the healthy way to make a choice. “Hey, look at how it affects your future.”.

Carl Richards:
Yeah.

Reese Harper:
“Okay. Well, I’ll make a different choice then.” For real?

Carl Richards:
Yeah.

Reese Harper:
I was just talking to a client last week, they have plenty of liquidity, plenty of money, they really were dying to make this… Buy this land next to their house, so their view of these mountains wouldn’t be eliminated. And they called me, I said, “Look, you’ve got plenty of money. This is something that’s just a choice that you can make. It’s a choice that… It’s appropriate given your level of liquidity, if this is what you wanna do, you’re just moving money from liquidity to this other thing to real estate, and this is how your scorecard is gonna change and it’s fine.”. Two days later, someone else put an offer in and bought the property.

Carl Richards:
Yeah.

Reese Harper:
And when I talked to the client about, Why didn’t you do this? Why didn’t you end up putting in the offer yourself? “Well, we just thought about what was gonna happen. We ran out of money when we were like 85, they’re like 65.” “And I was just worried we wouldn’t be able to do it.” I’m like, “You didn’t call me? It’s only been two days.

Carl Richards:
Yeah.

Reese Harper:
But they were looking at that 20-year moment out in the future.

Carl Richards:
Yeah.

Reese Harper:
And in order to make a decision that they were really frustrated that this happened.

Carl Richards:
Yeah.

Reese Harper:
But they’re just like, “Oh, it was better for us. We’ll learn to”…

Carl Richards:
We’ve been told.

Reese Harper:
“Be fine. It’s… “.

Carl Richards:
Yeah.

Reese Harper:
“But we need to be able to know that we’re gonna be okay.”

Carl Richards:
Yeah. Yep.

Reese Harper:
And we already had that conversation several times during that previous day. But when you use the future, ’cause I didn’t put any modeling in front of them, I didn’t put any forecasting in front of them, right? And using the future to sort of protect your present, that’s not always the right order, but I just feel like people are conditioned to do that to the point to where now what if the next five years of their life they’re spending going, “Oh my gosh, our view is completely gone. We wanted this so bad, we were gonna put… ” I’m not saying that it’s not good for them to make the choice or bad for them to make the choice, they just made a choice based on a future assumption that affected their current present kind of life satisfaction. And I just think that’s the wrong order to do things.

Carl Richards:
Yeah, and if you think about just to bring this back to and kind of wrap up, the problem being that the world has changed and the modern consumer has to make more decisions. The modern consumer has more financial questions more often, and the solution is an agile tool, and what we propose the solution is, is the set of financial vitals wrapped up in this thing called the scorecard, because it allows us to orient around the present and make the next local optimum decision. In other words, it allows us to do reality-based financial planning, not pretend we can project the future. And if you start to think around the number of decision points that are happening in people’s lives now, because like I’ve changed career seven times, I’m gonna move, I’m gonna be in New Zealand, I’m gonna do this, I’m gonna do that. My income is lumpy, I’m living in the gig economy. What did we say the… A developer is gonna change?

Reese Harper:
Yeah, the average developer’s tenure at a software company is like two years, you know?

Carl Richards:
Right. So if you think about every time that changes in somebody’s life, that’s why this helps bring the cost to acquire and serve a client down. It’s because rather than orienting around some future gigantic projection-based thing, we can say, “Look, here’s how… Here, we’ve got a set of tools right now, get you a clear picture of where you are today, help you make a decision around tomorrow.” So let’s just wrap up with this. The problem is that clients today, the modern consumer has to make more decisions. There’s more financial questions more often. The solution is having an agile tool that allows them to do that.

Reese Harper:
Yeah. Love it man.

Carl Richards:
Amen Reese.

Reese Harper:
Carry on.

[music]

Jordan Haines:
Next time on Elementality.

Carl Richards:
Statistically, the most optimal way to maximize your lifetime happiness with money is gonna be to neither over-accumulate or under accumulate. You’re going to be able to not work so hard in your early years that you miss out, and then you have a bunch of left over money…

Reese Harper:
That you can’t ever spend and enjoy.

0:22:04.3 CR: Yeah. If you happen to be one of those people that lives a balanced life, but then turns into a billionaire because it worked out for you, that’s awesome. But I don’t think most of us would go into our career saying, I wanna overwork in my 30s and 40s so that I can pass away with a ton of money that I never really got to quite use.

Reese Harper:
And spend 30 years later.

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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