Podcast

Real financial advice: Being a guide in a changing landscape

Episode 112: Carl Richards returns to talk about the rapid shift to "real" financial advice and the emergence of a secret society of financial advisors.
November 2020
Audiogram - BCBO ep. 112 - Real financial advice: Being a guide in a changing landscape

Volatility in the markets. A historic election. A global pandemic. 2020 has thrown us all into an interesting period of irreducible uncertainty, and now more than ever, clients are looking to you to provide them with “real” financial advice in order to navigate these turbulent waters.

Carl Richards returns to the podcast to talk about the rapid acceleration and shift to “real” financial advice and the emergence of a secret society of financial advisors.  Also, if you ever wondered what clients want from financial advisors, Carl shares their perspectives.   

Transcript

Carl Richards – The real financial advisor or financial planner, whatever you call yourself, is not a defender of an outdated map.  They’re a guide in a changing landscape.

Ben Jones – Welcome to Better Conversations. Better Outcomes. presented by BMO Global Asset Management. I’m Ben Jones.

Emily Larsen – And I’m Emily Larsen.  On this show we explore the world of wealth advising from every angle, providing actionable ideas designed to improve outcomes for advisors and their clients.

Disclosure – The views expressed here are those of the participants and not those of BMO Global Asset Management, its affiliates, or subsidiaries.

Ben Jones – The COVID pandemic has been a very interesting period for financial advisors around the globe, and in many cases it has rapidly accelerated trends that have been building for more than a decade.  

Emily Larsen – Today we’re going to have a broad and wide ranging conversation about real financial advice and the future of advice.  Our guest is Carl Richards.  It’s hard to believe it’s been four years and 100 episodes since we last had Carl on the show in episode 11.  Carl is a certified financial planner and author.  You might know him from the popular sketch guy column in the New York Times where he breaks down planning concepts with simple line drawings accompanied by an opinion piece.  Ben asked Carl to catch us up with everything that’s happened since we had him on last.

Carl Richards – It would be probably four years ago we moved from Park City, Utah which is my home town and we love it, but we moved to New Zealand.  Last time we talked I believe I was in New Zealand, and we were on the south island of New Zealand for three and a half years.  It was everything you would think it was, which was just unbelievable and we’ll certainly be back.  My wife had a chance to go to design school.  She applied to a design school in London and got in, and we were all like woah, what do we do?  We decided that she had been putting everybody else ahead of her for 25 years, and so it was time for us to go.  We went, we moved to London in January.  She moved a little bit earlier than that, because school started a little bit earlier and she just wrapped up her design program, and now we’re in London.  It’s been amazing.  That covers the location piece.

Ben Jones – I’m curious how you think about the role of financial advice today and maybe where you see this heading into the future?

Carl Richards – That’s a super good question.  It’s one of my favorite topics.  I have an opinion that almost all the work we do — we started this company called the Society of Advice, and almost all the work we do at the Society of Advice is around this subject.  What does it mean — what is real financial planning?  What does it mean to be a real financial advisor?  My definition of that, and it’s the opinion I’m trying to forcibly insert into the world, is that real financial advice is when you align somebody’s use of capital with what they say is important to them.  Maybe even a simpler way could be when you align somebody’s money and their lives.  It’s not your money or your life, it’s your money and your life.  I think when we start to understand the implications, and there’s one more opinion that I think is sort of foundational to everything else we could talk about around that, is that real a real financial advisor or real financial planner, whatever you call yourself, is not a defender of an outdated map.  They’re a guide in a changing landscape.  That’s always been true, but we’ve just got a massive stark reminder of it over the last six to eight months, because we were forced — I mean the plan blew up.  When the plan blows up — and by blow up I just mean it changed.  Everybody’s financial plan changed.  Some got better and some got worse, but everybody’s plan changed, and we were suddenly forced to face this reality that the line we drew from where somebody is today to where they want to go — and in some cases it’s a 30-year line, but it’s a straight beautiful line that we draw called a financial plan, we realize the only thing we knew for sure about that plan ever was that it was wrong.  We just didn’t know what direction and how, and this was this massive — within like a six-week period we had to suddenly understand that our value wasn’t in the plan.  Our value was in being there for the course corrections and helping guide people through that.  That’s kind of a real broad place for us to start.  That’s my definition of what it means to be a real financial planner, and I think it’s always meant that but it’s certainly what it means today.  I really think it’s going to be the only thing that’s going to be valuable into the future. 

Ben Jones – It’s interesting you bring that up, because I remember 15 to 20 years ago right, you put the line on the paper and then you’d show people how far they’re deviating from the plan.  That was the extent of what financial planning software did back in the day.  It seems like we’ve got to a better place, but one of the things that really struck me in the depths of the COVID experience in April and May was how important optionality and preparedness felt like it became to the planning process, which isn’t something that many people had addressed in their plans.  I’m curious when you think about the work of financial advisors and many of the advisors in your society, how do they think through and help their clients think through optionality and flexibility when it comes to the intersection of their life and money?

Carl Richards – We have a problem, and this problem is called reality.  This terrible thing called reality keeps showing up in people’s lives.  The reality is that certainty is a myth.  If that’s true, like in other words uncertainty is reality.  The fact that things change is reality.  If that’s true, then flexibility is a requirement not an option.  Flexibility and optionality is a requirement of real financial planning, because it’s never going to look like what you said it’s going to look like.  One of the changes that you make, and again these are subtle changes but they’re massive differences.  One of the changes that you make if you understand that your value is in being a guide in a changing landscape and not a defender of an outdated map, one of the changes you make is you let go of this false sense of precision that has been pervasive in the industry.  It’s led to things like selling certainty.  As an industry we’re sellers of certainty, but that’s why so many people are unhappy with the work of the industry speaking broadly, and unfortunately even more specifically like the profession of a financial planner, so many people reflect on their experience with financial planners and they’re dissatisfied.  I think largely — we all know it’s because there’s some nefarious intent inside the broad-speaking industry, but even the best planners with the best intent I think we’ve fallen prey to the ease of selling certainty.  It turns out you can’t deliver on that — ever.  I think flexibility is one of those things that we need — it’s a requirement to be good at this job.  It’s a requirement to be flexible.  It’s a requirement that you — I mean think of this.  You have to be able to guide people in making what feels like mission critical decisions in the face of irreducible uncertainty.  That’s your job.  In order to do that I think you need to develop and cultivate a practice of flexibility, a practice of rolling with the punches.  I think it’s massively important.

Ben Jones – It’s interesting, I think you’ve talked about this a lot but it seems like one of the positive evolutions has been that the industry has gone from selling the solution to helping their clients navigate the challenges that they face.  But we’re not there yet, there’s still a lot of solution-sellers in the marketplace.  What’s the best way you think advisors can help improve their skillset in really understanding the clients’ problems in a deep way that they can provide valuable solutions?

Carl Richards – I think the most important thing we can do is just accept — it’s funny, I’ve had this — Michael Kitces is a pretty well-known person in our industry, and we do a regular conversation that we allow other people to listen to in the form of a podcast.  In one of the episodes I made this claim that you’re not a seller — you’re not in the solutions business.  He had a hard time — I think we all had — I know I had a hard time when somebody first introduced me to do this.  We have a hard time wrapping our heads around the idea, because we all think we’re in the solutions business.  I think that’s step one.  How to get better is what I think of — what I like to call nailing the problem.  Step one to understand that you are not in the solutions business.  Here’s the reason you’re not in the solutions business is no one cares about your solutions.  They care about their problems.  You’ve heard this stated since you were a little kid other ways, like no one cares how smart you are until they know how much you care.  It’s another way of saying the same thing.  My favorite comparison — and then we’ll get to what you can do to be better at it.  My favorite comparison is just to think about your experience with a doctor.  If you have the experience, which thankfully for me most of my experiences with physicians have been good, and they’ve been this way.  Normally when I would leave the doctor with a family member or me, I often would leave with a prescription.  I couldn’t even read it.  I certainly wouldn’t — even if I could read it like the new typed out ones or printed out ones, what I do with that piece of paper that says some words, sometimes I can’t even read, but I never can understand I’ve never heard of them before, I go to another place with other scary people with white coats on.  I give them this piece of paper and they go behind a wall and shuffle a bunch of stuff around and they bring back a bottle of pills.  They hand it to me.  They make me sign some thing that says like if I grow a third arm I won’t sue them, I take it home and I take the medicine and I give it to my eight-year-old daughter.  I don’t do a Google search.  Like have you tried that?  Try Googling the medicine, just don’t click on images.  I don’t do a Google search and I don’t get a second opinion.  Now why do I do that?  The reason I do that is because the doctor nailed the problem, at least I believe that the doctor nailed the problem.  The doctor calls that a diagnosis.  If I feel thoroughly diagnosed I just go take the medicine.  Obviously if I don’t, which I know I’ve read plenty of those stories, people have this experience I just haven’t had it very often, because I’ve gotten lucky or been with good doctors.  If I don’t feel thoroughly diagnosed, you better believe I’m going to Google the medicine, I’m going to get a second opinion, I’m going to do some research.  I’m certainly not going to go fill the prescription and take it if I don’t feel thoroughly — but if I feel thoroughly diagnosed.  I take it.  I think it’s absolutely a fair comparison.  The key to that is don’t get better at selling.  You already know the solution set.  You’re a pro.  Again, I’m assuming given the audience I know you have, I’m assuming we can say it.  You’re a pro.  If you’re not a pro then you’ve got to fix this.  You can’t fake that part, but that’s just table stakes at this point.  Whenever I talk about this I want to make sure that I’m not — I’m being clear here.  I’m not downplaying the importance of the solutions; I’m simply saying no one cares.  They assume you know that.  They’ve given us the benefit of the doubt.  If they came in to see you voluntarily, they’ve given you the benefit of the doubt, you know other solutions.  The thing you don’t know is their problem yet.  Don’t get better at selling the solutions, get better at listening.  Don’t get better at overcoming objections, get better at listening.  Asking really good questions, thoroughly diagnosing, long before you ever bring up a prescription.  

Ben Jones – I love the analogy of a diagnosis.  This is something you can put to work in your client meetings starting today.  Carl also brought up an episode of a podcast he hosts with Michael Kitces who joined us back in episode 100.  We’ll provide a link in the show notes, as they often have different perspectives on the same topic.

Emily Larsen – Carl’s New York Times column grants him access to a wide audience of investors and clients of financial advisors.  Ben asked Carl what he’s learned from the people who use the services of financial advisors like you.

Ben Jones – Now you have — I am curious, you have an interesting position in that you have a column in the New York Times that’s to a broad audience, say not targeted to financial advisors, and then you work really closely with financial advisors all over the world.  And so you get to hear what the public is thinking or saying about their financial advisor, and then you get to work with financial advisors and hear what they’re saying about their clients and the challenges they face.  I’m curious if you could share with this audience, which is primarily financial advisors, what investors or individuals think about our industry and some of the folks that they work with or wishes that you had.

Carl Richards – Ben, you’re the first person who’s tied those things together.  I’ve always, I just realized that maybe five years ago I started to realize that I had a very unique position, because I felt like the double Lorax.  Remember the Lorax?  The Lorax is that guy in the Dr. Seuss book who spoke for the trees.  I felt like I was the Lorax for the financial planners.  I speak for the financial planners, because they are too busy doing amazing work to speak for themselves.  I do that half the time, and then I feel like I’m the reverse of that; I’m the Lorax for the people.  I’m saying hey, the people are telling me they want this from you.  It’s been really fun for me to see that.  I thank you for thinking of it that way.  To answer your question though — oh so fascinating.  There’s a couple of things.  The most common request or complaint or like please tell them to do this thing, is around simplification.  It shows up a lot of different ways.  It can show up like, please tell them to stop talking that way.  I don’t understand the words they’re using.  When we — I always joke, sometimes we will use the word risk in front of a client and we’ll get blank stares.  We’ll try to fix it by going, you know, standard deviation.  That doesn’t help.  And then we’ll go even further and go I mean volatility, and that doesn’t help either.  That’s the number one request I get.  Could you please tell them to make it simpler and stop using those words.  Some more subtle ones that I think are really important is this false sense of certainty comes up, like I don’t understand.  One way it comes up a lot is like I don’t want to go see a financial planner.  I hear this a lot.  I don’t want to go see a financial planner.  They’re going to ask me what my utility bills are going to be 17 and a half years from now.  They’re going to ask me that in the lobby in an intake form.  The other place that shows up is goals.  We don’t seem to know this, but if you just take off your financial advisor hat for a minute and put on your human hat, let me ask you how you feel when somebody says to you what are your goals?  The first thing that comes to my mind, I almost immediately feel a pit in my stomach or a weight on my shoulders.  Humans will say that.  The people will say I don’t want to go see — they’re going to ask me about what my goals are man, I don’t know.  To me the way that plays out is stop using that word and especially not on your intake form in the foyer.  Start teaching people what a goal is, by saying hey you mentioned that one of the most important things about money to you is you really want to give your kids opportunities.  What would that look like?  Oh education, what if we put some framework around education.  Once we put some framework, would it be okay if we call it a goal?  That’s how we do this, instead of what’s your goals?  People don’t know.  Look at Shlomo Berartzi — his work around goals.  He says the same thing, he’s like people don’t know.  He suggested you give them a list of ideas when you ask that question.  Those are some things that people say.  Stop talking to me that way.  Let go of the false sense of precision and don’t ask me about my goals.

Ben Jones – Yeah, we had Steve Moore who’s a good friend on.  I loved his opening question to couples, which I think really hits this right on the head is, what do you want to do that takes time, planning and money?  

Carl Richards – That’s beautiful.

Ben Jones – I think it’s just a great open-ended way to get to the same, maybe even better answers than what is your goal. 

Carl Richards – It’s beautiful.  We need — I think if there’s one suggestion I would have for planners and advisors it would be nail your first meeting and especially nail the first 10 minutes.  The way you do that is to think of a question like that.  There’s all sorts of examples, the Dan Sullivan question, Bill Bachrach’s work, Dan Sullen had some ideas in his book.  But what isn’t is like hey, let’s fill out this form together. That’s not a good idea. 

Ben Jones – Earlier, Carl mentioned the Society of Advice. So I asked him to tell us a little bit more about the not so secret organization and why he felt it was needed.  

Carl Richards – It did start years ago, like over a decade ago. I was speaking at an event. In fact, I was on a panel with Michael — I think it might have been the first time we met — and another friend of ours, Tim Maurer, and I think Bill Winterberg, even. It was like really early days for us. I made a statement. I’d just started doing the column at the New York Times and I made a statement that I was getting really frustrated. I think this was following Madoff and all of that stuff. I made a statement that I was getting really frustrated by what the world thinks a financial planner does and what I was seeing my friends do, and what I hope I was doing too. But certainly what I was seeing my friends — my friends were saving people’s lives and doing this amazing work. I would send my mom to them, that was kind of what I was saying in this panel. I was like in fact it’s like — and I was like — out of frustration I was like it’s like there’s a secret society of real financial planners. That was the first time I ever mentioned it, was at this conference. Right after that, this conference had like self-organizing sessions, so you could write on this board and you could write what you want to talk about and you’re going to meet over here in the foyer or you’re going to meet there under the tree in the courtyard or whatever. And somebody wrote Secret Society of Real Financial Planners. So I was like that’s interesting, I should go to that. I went to it. It was a whole group of like 40 or 50 people. Some of the luminaries like — I consider like our elders, the founders. Everybody was like was does that even mean. What does it mean to be a real financial planner? So I just — I’ve just been letting that simmer for like a decade now, what does it mean. I started the society, so I get to decide what it means. We can all relax. Sometimes people get mad at me about that. I’m like fine, then don’t wear our T-shirt. It’s fine. It’s just a — relax. The way I always talked about how — would I send my mom to you. We sort of even joked about having a T-shirt that like would Sharon hire you. My mom’s name is Sharon. All it was — I’ll tell you one more interesting piece about this. My editor at the New York Times, we’ve talked I don’t know how many times about writing this classic checklist piece of how to hire a financial planner. Every time we get it kind of drafted — in fact, he even wrote it once, published it, and then said I’m going to use it to hire my financial advisor. And then I can’t remember how long it was, it wasn’t more than three years, though — within three years he had gotten a letter from whatever regulatory body was in charge saying that his financial advisor had stolen money from little old ladies. So we’ve repeated that two or three different times where we’ll make a checklist, and then we’ll go look for evidence — just confirming evidence and we find it. The lesson of that is you can’t make a checklist that out of the bottom falls honest. That’s the unfortunate part. So that’s sort of what we said. It doesn’t — I don’t even know how to — how do you look up a real financial planner in the phonebook or on Google. You can’t. I’ve created a society of them. We don’t really do much in terms of qualifying whether Sharon would hire them. We just teach the ideals there, like this is what it means. We don’t care where you work. That’s the other piece that I think is really important in our industry right now. There’s a lot of lonely people doing amazing good work that feel like they have no home, because maybe they work at the big, bad place that all the independents think is the big, bad place. Or maybe they are independent and they don’t have any friends because they don’t have any colleagues. So I think I’m just trying to say look, if you do good work or you aspire to doing good work, come. This is a place for you. We’re going to talk about what it means. We’re going to hold up a bunch of ideals. We’re going to create a manifesto. We created a manifesto called the Fellowship. The Fellowship is just a flag in the ground that says this is what it means. Again, I realize this is all my opinion. If you don’t like it, it’s not a problem. I totally understand. We can still be friends and high five next time we are allowed to. But I’m trying to forcibly insert my opinion in the world of what it means to be a real financial advisor and we’ve done that through the Fellowship. The Fellowship leads to this thing called the Membership, which I can’t talk about. But the Fellowship is a 21 lesson experience that we run through the Society of Advice. That’s — we’ve got big plans. We’re starting a podcast. We’re doing all sorts of fun stuff around it. The main premise is — and I get a lot of these e-mails — thank you for starting a place like this for people like me. And I know exactly what that means, having grown up in the wirehouses, having my own RIA for — I’ve been all over the place. I know what it means to feel like I don’t have a home. There’s a lot of really great financial planners doing amazing work in lots of different ways, and we’re trying to have a place for them. 

Emily Larsen – We’ll have a link in the show notes to the Society of Advice if you want to learn more about it. 

Ben Jones – As we look ahead to 2021, I asked Carl about some of the exciting projects he’s working on, and how he views this COVID period from 2020. 

Carl Richards – My acceptance, at least on a theoretical level — I’m still working on it — around uncertainty. My belief, I always felt this way but I — my belief that we are guides in a changing landscape, and that that is massively valuable. And that you don’t need to — if you create — if you went on — if you went climbing a mountain with a — you hired a mountain guide. And you made a plan and you looked at the weather in the morning and the forecast looked okay, and you got up on the mountain and a storm blew in, you may blame the guide for a little bit because you’re upset and scared, but you know it’s not the guide’s fault. And the guide is not going to defend — not going to spray you with facts and figures, try and convince you that you should be more certain. The guide is going to say you know what, I’m a little nervous too. And yeah, there’s a big storm. My commitment to this idea that we are guides in a changing landscape and my understanding that it’s cute that you make plans — in fact, the short answer is there’s a great saying, people make plans and God laughs. My belief that that’s true has only been solidified. 

Ben Jones – Excellent. Now, for younger and newer investors that are kind of entering the industry, which seems to be a winnowing demographic these days, what advice would you give them about building their business, their practice, and their success in this industry?

Carl Richards – The marketing advice I would have would be to specialize as soon as possible and know later, like now. In other words, pick a niche, as we say everywhere but in the United States, and the narrower, the better. So that’s marketing. Client kind of meeting would be nail your first meetings and learn to ask great questions. And then the retention piece to me, so just thinking about marketing, acquisition, and retention, to me retention would be just to realize that planning is an ongoing process. The sooner you can get that into your head — it’s not an event, it’s an ongoing process. Don’t be a plan, be a planner. That would be my advice. 

Ben Jones – And then, what does it feel like to be the client of a real financial advisor? 

Carl Richards – I am one, just so you know. We have a great — it was two months ago we just hired a new financial planner. She is a rock star. So good. What it feels like to me — she even said this on our last call. She’s like hey, I’ve got you. We got this. I was just talking about the complexity and there’s so much stuff moving around. That’s what it feels like. It feels like you’ve got somebody in your corner. You’ve got somebody who’s like I don’t have to think about that, Christy will take care of it. That’s what it feels like. 

Emily Larsen – 2021 is right around the corner, and Carl has released a new behavior gap calendar, and we’re giving 10 of them away to listeners. Here’s what we’re going to do: over the course of November, please send us an e-mail with your answer to the following question. What topic would you like us to explore or revisit in 2021? Every response will be entered into a drawing. We’ll select 10 entries to receive a calendar and announce the winners next month. To send in your response, e-mail [email protected]

Ben Jones – I want to take a moment and thank Carl for making time to speak with us for this episode. We’re going to put links in our show notes page to all of the items that we discussed today, including the Society of Advice, Carl’s New York Times column, and some of the books and other podcast episodes we referenced. Don’t forget to send us your topic suggestions for 2021 to be entered for a copy of Carl’s 2021 calendar. You can e-mail us at [email protected]

Ben Jones – Thank you for listening to Better Conversations. Better Outcomes.  This podcast is presented by BMO Global Asset Management.  To access the resources discussed in today’s show, please visit us at www.bmogam.com/betterconversations.  

Emily Larsen – We love feedback and would love to hear what you thought about today’s episode.  You can send an e-mail to [email protected] 

Ben Jones – And we really respond. 

Emily Larsen – We do. 

Ben Jones – If you thought of someone during today’s episode, we would be flattered if you would take a moment and share this podcast with them.  You can listen and subscribe to our show on Apple Podcasts, or whatever your favorite podcast platform is, and of course, we would greatly appreciate it if you would take a moment to review us on that app.  Our podcasts and resources are supported by a very talented team of dedicated professionals at BMO including Pat Bordak, Derek Devereaux.  The show is edited and produced by Jonah Geil-Neufeld and Sam Peers Nitzberg of Puddle Creative.  These are the real people that make the show happen, so thank you, and until next time, I’m Ben Jones. 

Emily Larsen – And I’m Emily Larsen.  From all of us at BMO Global Asset Management, hoping you have a productive and wonderful week. 

Disclosures – The views expressed here are those of the participants and not those of BMO Global Asset Management, its affiliates, or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy, or security. This presentation may contain forward looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only, and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors are to consult with an investment, legal, and/or tax professional about their personal situation. Past performance is not indicative of future results.  BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, trust, and custody services. BMO Financial Group is a service mark of Bank of Montreal.  Further information can be found at www.bmogam.com.

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