I received a call this morning from someone looking for a planner. The conversation went something like this.
“Hi, I am looking to work with a financial planner and I found your name on the NAFPA site.”
“Great,” I said. “How can we help?”
“Well, I am in my mid-40’s. My wife and I have 2 children, one is 14, the other is 8. My wife and I both work. We are facing a lot of financial issues.”
“Tell me more.”
“Well,” he hesitated before continuing. “Up until now, I’ve been handling our money on my own. I have finally realized that I just don’t know enough. I mean, I’ve opened 529 plans, we’ve invested in our companies’ 401(k) plans, and we have an emergency fund that would take us through 7 or 8 months of expenses. But frankly, I am at a loss to know whether we are saving enough, whether our investments are appropriate to our needs, and whether we’ll be able to send our kids to school and retire comfortably. For that matter, I honestly don’t know what I don’t know. It’s very confusing and overwhelming!”
I get it. Comprehensive financial planning includes a thorough understanding of a wide number of financial topics, such as Cash Flow management, Investments, Risk Management, Estate Planning, College Planning, Retirement Planning, Tax Planning, Social Security/Medicare Planning, Elder Care Planning, etc. It’s difficult to know it all if it’s not your full-time profession.
But most of all, financial planning includes a deep understanding of the client, their needs, goals and dreams; and their strengths, weakness, and level of understanding. It also includes the ability to understand the client’s money history and how it impacts their beliefs, behaviors, and habits. Financial planning is part science, part art, and a lot of listening.
While the average consumer can search the internet for information on the cheapest life insurance, what they won’t find is something telling them how much insurance they need, the type they need, and which policy works best for them. Any pre-set formula for such a decision is not only impersonal, but it fails to explore and understand issues that go to the root of the person’s values, fears, or financial wherewithal.
You can research a stock or fund and gather reams of information that will tell you all the historical data you wish to grasp. But what it can’t tell you is what will happen in the future — no one can do that, whether it fits in your portfolio, or aligns with your risk tolerance.
You can search for mutual funds that have the most stars, have the lowest costs, or are sponsored by specific firms. But the stars can disappear with a new market cycle, the managers might leave, and you’ll never know (unless you’re investing in an index) just what’s inside the fund at any given point in time other than historically.
The fact is, there is more you don’t know than you do know. The problem is, we hate and avoid dealing with that issue. The whole notion of the unknown just rubs us the wrong way.
But piloting your financial life is not the same as learning how to brew beer, repair a dishwasher, or learn how to play piano.
Financial decisions are wrapped in our beliefs, our fears, our dreams, and are complex, especially because there is a high degree of subjectivity to decision-making. After all, your goals are unique to you and your family. The choices you make are specific to you and your situation.
“Of course it’s overwhelming,” I responded to his last comment. “You have hit the proverbial wall where you are concerned that a wrong decision can lead to failure. That is an important understanding and not a bad place to be. Congratulations!”