Financial Advisor Marketing & Technology

Marketing & Technology For Independent Financial Advisors

Flower

Life Planning Will Be A Winner In The Financial Crisis

While the economy has escaped the most frightening doomsday scenario, the financial crisis is far from done with us. Department stores and malls remain practically empty in Long Island most weekdays. Getting into fine restaurants on a Saturday night no longer requires reservations weeks in advance. Workers at my local Home Depot are so fearful of losing their jobs that they're actually friendly and service-oriented now. Meanwhile, in our corner of the economy, many advisors worry that over the next couple of years clients who have been disappointed by their portoflio's performance will fire them.


However, the setback suffered by clients in their retirement portfolios and the rampant distrust of financial advisors unleashed by the Madoff scandal are likely to cause advisors to rethink the way they practice. Advisors will reinvent the financial advice business. As with earlier financial crises, change will follow. Progress will come inevitably. And a winner when this crisis ends is likely to be Life Planning.

This school of financial planning is practiced by only a small minority of advisors but is nonethless highly inlfuential in the way planning is performed. With Life Planning technqiues, advice you give clients can be more meaningful and fulfilling–not just to your clients but also for yourself. It can make your business less susceptible to market gyrations. With regulatory changes on the horizon that are likely to further blur the line between fee-only planners and brokers and between fiduciaries and salespeople, Life Planning practitioners will still stand apart from crowd.

To understand Life Planning and the shape of things to come, you may want to attend The Financial Crisis Webinar Series this Friday at 4 p.m. EDT when George Kinder, the inventor of Life Planning, will speak about how this way of practicing can help advisors and their clients through the crisis.

Kinder is an orginal thinker who inpires people. He yearns to bring meaning to his life by making the lives of others more meaningful. I first interviewed Kinder seven years ago for a column published in the August 2002 issue of Investment Advisor Magazine. Below is that story, which seems as timely now as it was then.

George Kinder Interview by Andy Gluck

I’m a meat and potatoes kind of guy. I like facts, clear-cut answers. I like Monte Carlo simulations that project my portfolio’s potential returns 10,000 times to show me that I have a 90% chance of not running out money until I am 112. “The proof will set you free!” is my motto. So I’ve been totally nonplussed by the life planning movement.

For those of you who don’t read Bob Veres’s newsletter and who have missed the trend, a growing number of planners have been asking clients touchy feely questions about their lives and a handful of larger planning firms are hiring a social worker or psychologist to help give better financial advice to their clients. They call what they’re doing life planning. Cynic that I am, I have been challenging the planners I know and respect who espouse this mode of practice to explain what they’re to me. No one could convince me of its value. Then, I met George Kinder, father of the movement.

Reading his book, Seven Stages of Money Maturity, and interviewing Kinder for nearly three hours has made me a convert. And that’s sad in a way. It’s been more than 20 years since the financial planning profession was born, and it has taken this long for planners to realize that there is more to financial planning than numbers. To me, that’s astonishing. But many planners are nothing but left-brain number crunchers who do need to be told to act like caring human beings and not treat their clients like profit centers.

I’m not saying that financial advisors need to play psychologist, and neither is Kinder. I don’t think you need to hire a shrink to work in your office or turn your practice into a money ministry. But getting some training in listening skills and in pastoral counseling could help many planners help people better, and maybe the CFP licensee educational curriculum should place some emphasis on teaching empathy. Kinder makes the case better than anyone.

While reading your book, it became clear to me that you’re one of the most important thinkers in personal financial planning today. But you have a different background than most financial planners. It’s only with great affection and respect for you that I’d let my readers in on the secret that you’re a weird guy. Who are you, George Kinder, and how did you get here?
I am a weird guy. I’m the kind of guy who had an 800 on the math boards in high school––a genius in math stuff––and only got a 580 in English. But I decided to major in English. You see, there’s some part of me that is interested in what I’m no good at. That doesn’t go along with the Buddhism, but there’s a part of me interested in filling the holes, seeing if I can develop the holes into strengths. I come from a middle class background. My dad was a small town lawyer in Appalachia. We were not wealthy. No inheritances, nothing like that. But my parents knew the value of a good education and sacrificed so that my siblings and I could get a good education. While at Harvard, I became interested in creative work––poetry and painting and in the world’s religions. Of course, this was the late 1960s—it from 1966 to 1971 that I was at Harvard.

Then you did something unusual, kind of a sabbatical. Please tell us about that.
Right after school, I made a deal with the woman I was then married to: I could take two years off to do whatever I wanted and she would support me, if I would later do the same for her. So I took a couple of years to do meditative internal work and practice the world’s major religions. Starting with Christianity, moving to Judaism, then Sufism, and on to Taoism, Hinduism and Buddhism, I explored the meditative practices of each. Harvard was intellectual, but I was interested in the experience of these religions, in getting an understanding of the profound experiences they are known for—being born again, attaining nirvana. So I dove into the practice of each religion four or five hours a day, practicing each tradition for several months. And I did a lot of writing and painting. In a way I’m back to that now, but that’s how it all started. I’m interested in human experience, the depths of human experience. These were six different expressions of the way people live at their greatest passion.

What happened after those two years?
I had to earn a living, so I had to move back into Boston. My math skills were still my best skill set, and my parents suggested that I pick up taxes. I’d work part-time at it and the rest of the time I would work on the things I was passionate about. I went back to graduate school at Northeastern for accounting and took the CPA exam. I left grad school one semester short of graduation because it was just too much up in the head and I wanted experience. But I took the CPA exam and received the bronze medal in Massachusetts for scoring third highest in the state. I prepped with a Big Eight firm for a summer and I saw things a lack of integrity in the CPA profession even back then. I didn’t want a life where you work 60 or 80 hours a week and don’t have a moment free to reflect on the fact you’re living without integrity. After purchasing a 15-volume set on the tax laws and tax court cases, I started filing tax returns in the mid-1970s. Clients came in and had problems, but I knew I had the solutions in those 15 volumes, and I got good at helping them with their tax problems and charged less than H.R. Block. I made a couple of thousand dollars the first year and it tripled or doubled each year through the early-1980s.

What led you into financial planning?
My clients would say they needed to know what to invest in but I’d didn’t know and suggested they find an advisor. They’d come back the next year and tell me about limited partnerships they bought and how they were going to save on taxes, but they were just horrible investments, of course, with very high fees. They were sold a bag of goods. I got pissed off that they were being taken advantage of by salespeople, and I started to read about financial planning. At the same time, the National Association of personal Financial Planning (NAPFA), a group of fee-only advisors, was just getting started. I joined NAPFA in 1984 when it was a year old or so, and began to attend their conferences and educate myself about financial planning. That’s how I became a financial planner. People started coming to me because I developed reputation as someone good with numbers who cared about his clients.

People are calling what you’re doing life planning. Does that work for you?
I coined that term in an interview with I did with Bob Veres of Inside Information. I’m not attached to the term. There are people that love it and some hate but it seems to be the one that’s catching on. It’s planning for a person’s whole life and planning for what’s absolutely most important in life. We call what we do financial planning, but that focuses on the math side of what we do as planners. Life planning is human work and focused on the human side.

Give me some practical life planning tips that advisors can use.
The easiest thing for financial planning community to get has been the three questions I ask clients. You ask the questions in progression. You start off with, “What if you have all the money you need for the rest of your life? You’re not as rich as Bill Gates but have all you need. What would you do differently with your life?
After you get the answer, you ask the second question, “Say you discover that you have only five or 10 years to live. You’ll be healthy for those years, but death can come at any time after the fifth year. What would you do with your life? Finally, you as this one, and this is the kicker and that gets to bedrock: “You’re told that you have only 24 hours to live. What did you miss? Who did you not get to be? What did you not get to do? What do you regret? Right there, the answers to that question seven times of 10 is the focus of the financial plan, or ought to be. Instead of focusing on the traditional version of retirement and funding your kids’ education, or buying a second home or downsizing by moving to Florida, the focus is on that question seven times of ten. That’s helpful. Often, the answer is simple, like I regret not spending more time with my kids. That’s most common response but appears in only 40% of the responses—and I’ve asked these questions to about 500 people in my career. Other responses have to do with spiritual life or a creative side to the person that never found fruition. Another common response, in 20% or 30% of the people I’ve asked, is, “I work too hard.” The beauty of this is that what were doing is we’re getting to what is often secret side of a client, a side they didn’t come in to tell us about. They came in to discuss how to get a second home and look at a traditional retirement in 15 years. They’re coming in with expectations of what we do, and there’s probably a bit of them that expects to deal with a salesperson, and often that’s what we are. Often we are pigeonholed as engineers of money or sales people, so clients come in with their guard up. And it means we’ll do a lousy job because they won’t tell us what they really want, what really matters to them. They will be tied to a treadmill longer than they have to be because we never got to what they really wanted. And that’s a hell of a life. Many will die with regrets because we never found out what it is they would regret. Financial planning is really about freedom. Money frees us to fulfill our potential. But its our relationship to money that does that. Most of us can find freedom by downsizing and living more simply. We all talk about how materialistic the world is as if it is everybody but ourselves. The fact is we all get trapped by it. One of my main focuses is looking at whether the freedom a client describes calls out a simpler life and whether he or she already has the resources to make a lot of it happen. I’m not just about asset under management, I get juiced brining someone to what they’ve always dreamed of doing. That’s why emotional skills are useful as an advisor.

Tell me about the interest being shown in your ideas and how it’s affected your work.
After 1999, when my book was published, the first couple of years were an intense on the road experience. There was enormous enthusiasm and a feeling that this was the beginning of something big. In that time, I was looked to for leadership and it was very exciting but also a lot of work and I was on the road too much. I got tired of being out there working long hours and being away from home so much, so I withdrew a bit from the speeches.
What were seeing now, however, is wonderful. It’s another wave of interest is manifesting around what is being called the life planning movement, and you have the coaching movement rising in popularity as well. So there are now many facets of this life planning movement. I kind of pulled back and rearranged how I did business. I combined my planning practice Sherman Financial in Philadelphia, which is run by Spencer Sherman. I essentially sold my firm, so I wouldn’t have to do any more administration and management and could do what I love. When Sherman has a business strategy or investment committee meeting, I’m part of that. Otherwise, I just do client work and none of the administrative work I do not like. This gives me enormous flexibility to get more reflective about the life planning movement and other things I want do. I’m working on several books now. Meanwhile, we’ve sold about 30,000 copies of the book, and by far the majority have been sold to financial advisors. I’ve spoken to tens of thousands of people at conferences and given my three-day seminar to about 1,000 advisors. My six-day training is something I think will take off in next couple of years and I’ve done that with between 50 and 100 people. So there are that many people deep into this, and many of them have joined The Nazrudin Project, a community of about 250 planners that includes many of the leaders of FPA and NAPFA.

Why has the reaction been so strong?
Advisors are thirsty for this knowledge because we’re all faced with these intimate situations where a client comes in and tells you something they’ve longed to do all their life but cannot afford to do it. And the client usually just figures that he’ll delay achieving the goal for another 10 years. Of course, in another 10 years maybe he won’t be alive. Or maybe a couple comes in and wants to do something profound or each spouse wants to do two very different things and you can see the tension in their relationship. One of the things I’ve been saying for years is if we sell a financial plan to couple and they wind up fighting over money, we are selling a fraudulent product. So how do I help a person realize their dreams when they feel caught on the treadmill? How do I work it out with a couple so that their marriage doesn’t fall apart and they come to a great place around money? Couples are a real dilemma. Couples come in and you think you can just do a plan for them. But fighting over money is usually cited as the No. 1 cause of divorce, right up there with sex. We can’t help clients with their sex lives, but we have an obligation as financial advisors to help with the money piece. I think many advisors feel this and are questioning what skills they need to do their jobs right.

Buddhism is mentioned often in your book. A lot of people will think you’re just a crunchy-granola hippy holdover. What’s Buddhism have to do with personal finance?
In my next two other books––one directly related to life planning and one only peripherally related––I don’t mention Buddhism at all. When people when hear about Buddhist ideas, they also think of Judaism, Islam or Christianity. But Buddhism actually is not a religion. It is a way of working with the psychology of the individual and has nothing to do with your faith. It’s a way of approaching the human condition in a psychologically savvy way. A focus is on suffering, how suffering arises as a mental state and ways of avoiding the bad habit of falling into stress, suffering, and anxiety and depression. The techniques used in Buddhism have been adopted by branches of the therapy community in America and throughout the West. It is a way of approaching states of unhappiness using psychological techniques and learning to do that internally rather than going to a counselor. I think of it as an engineering methodology to facilitate reducing stress and suffering, and that’s how it’s related for financial planning. Most people come into to see us because they’re anxious. They know things need to get done and haven’t been able to figure out how to do them. Basic counseling skills, along with the math skills most planners must use all the time, can help all of us bring the client to a place of ease. I think it is incredibly valuable for an advisor to have both skill sets. So I am not prostletizing Buddhism, but I think counseling skills are very important. We can all be good friends to people who play golf like we do, get on a boat like we do and who are a lot like we are. But when people are different, how good are we at listening to them, identifying with them and empathizing so that we can deliver a financial solution to their problems. Buddhism, or basic counseling courses, can help with that, as can contemplative prayer or meditation.

You focus a lot on how attitudes about money are formed in childhood. Why?
As a rule, I don’t go into childhood with my clients although many people I’ve trained do. It’s useful to know how our belief system got formed. If we know that, we know much more about the intensity of the belief system and emotion behind it and how to inspire people to be free of beliefs that are hurting them. A client I have is very skittish around money and stepping out. She just got an inheritance from her dad, who as a child laid her with a lack of confidence by being negative or verbally abusive whenever she tried to do something positive and to express herself. This breaks my heart and my ability to then convey that her lets her know she is not alone and maybe there’s a way out of a habit formed around money. I view one of my jobs as seeing the money helps her as long as it can. But because of her childhood, she is prone blowing the money. She’s shared with me these things because the money is complex because it came from her dad and one way to almost spit on her dad is to go out and spend it. Since she was young, when she would step out and try to succeed, she felt her dad would cut her down or tell her that she would get married one day and her husband would care for her. Anytime she tried to be independent, he would belittle her. I always assume that there is a belief system underlying any situation that is problematic. Then I look at how functional is this construct in relation to where the client wants to go with his or her life. I’ve got a financial plan that will get the client there if only they execute it, but they might not because they have this belief system about life and money. In the case of this woman, she might not execute her financial plan and say, “I’m really angry because whenever I tried to do something good for my future my father squashed it.” If I see people with dreams and they’re not moving for them, I look at why. What is preventing them from doing it. Listening skills and counseling skills become more helpful. You’re not trying to psychoanalyze someone but to show empathy and compassion. By my being able to empathize, this woman can listen more to me and is more likely to change her belief system. Otherwise, I might just sound like a projection of her dad telling her she is not good. If we had more listening in financial planning, it would make an enormous difference in the success of plans.

A lot of what you do and encourage other planners to do involves listening to clients better and talking to them like people and not spreadsheets. Isn’t all of that just common sense?
That’s a wonderful question. And it’s a tough one too. It is about people. And we’re all as planners have a bit of an engineer in us. We all love rate of return analysis. We love the numbers and making them work for people and showing them how numbers get them where they want to go. But somehow when we go into a room one on one with a person or a couple for a couple of hours to prepare for their financial plan, we end up having a pretty important conversation about what is meaningful in their lives. Here we are engineers who sought out this profession with this extraordinary sense of intimacy. I suspect most of us don’t have a counseling degree and yet yearn for the intimacy that financial planning rewards us with. But many of us simply don’t have the skills. Not that we must become therapists, but to the extent we know how to identify with people and empathize and get into our clients’ shoes, we can be their good friend and do a better job. That’s why they’ve come to see us––because we are another human being––not just for a financial plan. They want that supportive mentor-like friendship around an issue that is profoundly important and their terrified all we’ll do is be salespeople and engineers. True, many would be more comfortable with that because they won’t then have to confront why they have not lived their lives more fully. But if we do an honest job for a client, it inevitably leads us to how finding out how we can help them lead life to the fullest.

Some anecdotes in your book get into deep psychological territory. For instance, the story of a woman had been a victim of sexual abuse by her father, which you tie into her powerlessness on money issues. Are advisors capable of dealing with serious psychological issues like this?
I’ve actually had four or five people who shared things that intimate during my career. As financial advisors, if we really are empathetic and connected to client they’ll share stuff that’s is pretty gut wrenching and we don’t need to know how to deal with it as a psychoanalyst might. What we need to know is how to empathize and let the person know we care about them and are sorry they had to go through such a bad time. I don’t ask for this stuff to come out and don’t probe for it. It comes out when a client is feeling very trusting of our relationship, when they know there is a money connection to some trauma they’ve experienced in their life. If I am out of my league, I’ll say, “I’m touched that you felt you could share that with me and I am so sorry you had to go through it, and it’s not something I know about professionally and am trained to work with.” But usually people just want to understand how tough this was for them. This woman who was sexually abused by her father, her father had a powerful money relationship with her. Money was a string he used in the relationship to those activities, a reward and punishment. That is pretty dark stuff, and here I am the next authority figure around money in her life. Most financial planners are not able to go there and many don’t want to. What I find in the Nazrudin Project discussion group is that many planners would like more skills in this arena. They may not want to go to a place of that much intimacy, but want to be able to handle situations with more emotion in them. But I firmly believe that you cannot go with a client where you have not gone yourself. If you haven’t confronted that much ugliness yourself, if you haven’t at some point in your life confronted your own dishonesty and been disgusted by it, seen ugliness in yourself in how you deal with others at times, then I’m not sure you can go to those fractious places with your clients. The only way to do be a better planner is to learn to be a better person. I have to learn over and over again the places where I’m unkind and thoughtless and where I missed something someone said and did something unkind. I need to keep learning those lessons myself.

Have you heard from planners who probed these depths only to have it backfire?
It has backfired for some, and it has for me. For some, it’s too close to the skin. Venturing into an area where the client did not want to go or asking people what they would do if they had five years to live, they bristle and ask what this has to do with why they’re here. I train people to back off. If the defense mechanism is strong, back down. We’re not in business to battle their defense mechanism and if they resist hard, we’re not trained to do it and we’re not paid to do it.

You took two years of your life to make art and pursue spiritual fulfillment. You meditate and teach Buddhism. Most planners don’t have your background. Are you expecting too much of financial planners?
I’m guessing that at least a third of planners don’t want to practice this way. They can do wonderful financial plans. But I believe that their audience will be limited, however, as life planning becomes more common in the profession because they won’t have range in reach. I think the other two-thirds of the profession will want to incorporate life planning into their practice to some degree, and they can. It’s really about being a good friend, being able to be there when your friend is going through a bad time. But it does mean getting trained in how to be with people who have gone through tough times.

If a planner wants to learn these skills, how does he or she prepare to do it?
I’m doing two things now. I hope will be a big help. The six-day training have been concentrating on facilitation skills that can be useful with clients but I’m beginning to shift the training to life planning skills with less emphasis on presentation skills or talking to an audience. I’m also working on a book that links the seven stages of money maturity to a financial planning product. It address how these emotional aspects work with a financial plan and how can you in a methodological way ask questions that get at the belief systems and e emotions the person is dealing with. The second book will be more practical and will be published in about a year. Also, Nazrudin is a good community to join if you are interested in these questions. Anyone can join.

Many advisors are going through a terrible time because their clients are losing money in portfolios they recommended. As a result, many may be attracted to counseling clients on these issues as an escape from giving investment advice and also as a marketing device. What say you?
That would be unfortunate. It’s tough to acknowledge that we’ve blown it. I had a client in my office recently who kept coming back again and again to performance. Finally, I said as much as I’ve warned you about bear markets, I am invested in exactly the same things you are, and I feel it as much as you do and liked having much more money like I did two years ago. The difference is that I know how bear markets work, and understand that this happens. She thanked me and said she was so happy to hear that. She didn’t want to know about 1973 or 1929. She wanted me to connect with her feelings. But if we used life planning as a way to escape from acknowledging that results haven’t been as good as we would like, it would be manipulative. There will be some advisors who use this in an unfortunate and manipulative way but I don’t have fear that many will. I think it is a good marketing device and will become even more so. Just look at the Merrill Lynch ads about trusted advisors. For years, the big wirehouses have been advertising trust and family and it is a marketing thing, but independent planners have been the ones really delivering it and eventually people will see that. This is what people want.

Leave a Reply