Written by: United Capital
In our industry, many advisers assume their job is just to manage people’s money and provide advice about goals that are neatly summed up in the traditional financial planning methodology, like education funding or retirement.
By having a set view of how people’s lives should proceed through stages, they end up giving advice that’s based on a standardized model and routine analysis:
Guess what: this approach isn’t working. If it did, more people would be well prepared for their futures, and adviser satisfaction would be through the roof. Well, neither of those are true based on statistics on retirement readiness, or surveys about satisfaction with the financial industry.
So we set out to understand how people really think and feel, so we could invent a better way to help them. Our study of affluent individuals and families, conducted by Barnaby Riedel, PhD and co-founder of Reidel Strategy, painted a very different picture of people’s financial lives.
Our survey participants were asked to tell us their financial life story in chapters with highs and lows, just like a book about themselves. Turning points typically mark the transition of one chapter to another, and what we learned was that 83% of all turning points involved a trade-off decision. For the most part we’re all making choices every day that can have a huge impact on our lives. A good trade-off can create a “high” in your story, others are, in retrospect, decisions that trigger a “low”.
Here are some examples of important tradeoffs that do have a major financial implication, but they are also choices that touch on values, history and emotions.
These are the topics that can cause stress in marriages, or result in sleepless nights:
- Do I work longer hours to advance my career or spend more time with my family?
- Do we buy a bigger home with a longer commute, or a smaller one which would get me home sooner?
- Do we pay for private school or will a public education keep our kids more grounded?
Very few advisers are equipped to have these conversations. The wealth management industry pushes to get people focused on saving, investing and big end goals like retirement, but the truth is the decisions that people have more control of, like the questions above, have the greatest impact on people’s lives. The adviser can’t make these decisions for you, but she or he can help you if they know how!
What we have learned is that a financial life isn’t about money – it’s about your entire life. And you certainly can’t have it all – no matter how much money you have. It’s about choices that eventually create a high point or a low point as you move through your own very unique story. Most often the memorable moments in your financial life are when you have to choose between money and living your ideal life.
Life is a series of tradeoffs, and more of one thing usually means less of another. There are many variables to our lives – work, family, hobbies, health – and a finite set of resources – time, energy, money. You can’t have it all, but you can make better choices if you’re aware of your values and priorities, and conscious of how your decisions affect your entire life.
That takes the right kind of guidance and perspective and tools that you can really use- and it looks nothing like the old-fashioned advice model.
We call it financial life management.
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