At the height of the pandemic, I was listening to Pema Chödrön's audio book, When Things Fall Apart. I remember getting emotional when Pema said, "We've tried a thousand times to tie up all the loose ends, and yet the ground is still shifting beneath our feet." It stood out vividly because I had made a thousand spreadsheets for my life and my family, and none of them anticipated what I was living through at that moment.
And so it is with financial plans. The problem is they are constructed with incomplete information. Even after doing all the research you can possibly do with the best spreadsheet software and most powerful calculators, you're still left with a big pile of unknowns. For instance, what inflation number did you build into your clients' financial plans in January 2022? My bet was 3%. But then, as it does, life happened. Things didn't go according to plan.
When we look at financial plans through this lens, it becomes clear that the ground we're walking on is moving. As human beings and as financial planners, we will do anything to run away from uncertainty — even to the point of denying it exists. We feel like it's part of our job. We try to solve for it by creating ever more complex algorithms and by seeking out the latest fintech tools to create a long-term plan for our clients.
As we use our forecasts and predictions, we can leave our clients with the impression that we know what the next 30 years of their lives are going to look like. We say to clients things like "I'm 90%
confident this is how the next few decades of your financial life is going to look." I would suggest that this false sense of precision is among the reasons that people harbor distrust of our profession and the wider financial services industry. We have become sellers of certainty because certainty is easy to sell. The problem is, it's impossible to deliver.
An alternative mental model
What advisors really need are skills to help them to navigate uncertainty. These include awareness, resilience, mental flexibility and even curiosity. The sooner that we embrace uncertainty like an old friend, the sooner we as an industry will be able to deliver real financial advice to the public.
The act of financial planning has been so frustrating for the people we serve — and for us — because of a fundamental mistake. We have been operating as if we live in a simple system — the one where if we just do A then there will be a process that gives us outcome B. But humans and their money don't live in a simple system. We live in a complex adaptive one where when you do A a process is set in motion that, even with the benefit of hindsight, sometimes you get B, sometimes you get Z. The system is adaptive because any interaction you have with it changes the system, leading to even more unpredictable events. When a client moves from cash to investments or changes their spending rate the system changes. And not just the client's solar system — the entire market universe is affected by every little change our clients collectively make.
The more important part of real financial advice is how we as experts help our clients when the "wrongness" shows up. Imagine you are a mountain guide, leading your clients to the top of a mountain. Of course, you know the trail; of course you've checked the weather forecast, and you've done everything else possible to prepare. Then, out of nowhere, a storm rolls in. Clients are reasonably scared; they don't know what to do. They've never been on a mountain in a storm. Your job is not to prove to them how right your plans for blue skies were. Your job is to show them empathy in this moment and do your best to get them off the mountain safely.
In times of volatility, a true financial guide is honest about a person's financial future and shows compassion to those who have trusted them to lead them through the good weather and the bad. The best way to do that is to ask good questions and give them a space that is judgment-free to respond.
Next best step
When a part of a financial plan goes wrong we feel like we've done something wrong. We feel like we've let people down. We can even feel shame and embarrassment. I'd like to humbly suggest a different way. Invite in the wrongness and actively seek disconfirming evidence that contradicts your plans. Welcome it. You only stand to benefit by embracing honesty and openness with yourself and your clients about it. And you will deliver better financial advice as a result.
Financial planning always involves guesses about the future that will be wrong. If we can accept this, then instead of spending all this time and energy trying to find the equivalent of the law of gravity for financial services, we can live in the reality of what we know is true about our profession and dispense financial advice accordingly.
And it turns out that financial planning doesn't need to be about the perfect answer, because there is no such thing. Yes, 30-year plans matter and give us something to aim for. But once we've done that, we should put them away and get clear about the current reality to solve for the next best step. Financial planning isn't about being precisely correct today, no matter how many designations you have behind your name. Real financial planning is about being less wrong tomorrow.
