Financial planning: one size does not fit all
By Peter “Coach Pete” D’Arruda
“If you only have a hammer, you have a tendency to see every problem as a nail” – Abraham Maslow
You will sometimes see the tag “one size fits all” on cheap baseball caps. That’s because they have that little plastic gizmo on the back that has several adjustments on it. Other than that, I can’t think of a case where one size really does fit all, or where I want it to fit anything on me. I guess I am spoiled. I like my things tailor-made — just for me.
If you are dealing with a financial advisor who sells products, you might end up with a one-size-fits-all financial plan. I recommend that you find an advisor who doesn’t sell products, but one who finds solutions. Since you are unique and your goals, aspirations, dreams and your asset picture are unique, the holistic financial planner will have to “measure you” first before he can prescribe a plan. That is, he or she will have to find out what your goals are, what your current financial situation is, and then prepare a plan that will get you where you want to go and keep you there for life. It will take some individual measuring to prepare the tailor-made financial plan you really need. There is no one size fits all when it comes to financial planning.
When I was a boy, buying a new pair of shoes was a once-a-year ritual, but my mother was always diligent in seeing to it that we had sturdy shoes that fit us well. Our job was to take care of them and make sure that we did not grow more than one shoe size per year — a biological feat that I was somehow able to pull off.
The first thing we did when we visited the shoe store was sit in a special chair for trying on shoes. Then, the shoe salesman would come over with a large metal device for measuring feet. I would place my right foot into the metal tray, and the salesman would have me stand, establishing the length of my foot. He would then slide a metal caliper up to the ball of my foot and take a measurement giving him my foot’s width. He'd then disappear into a room and come back with several boxes containing pairs of shoes that matched my shoe size.
It was unthinkable for the process to end with merely selecting a style and color, however. The shoes had to be tried on. Just going on the basis of size could fool you. All shoes were made just a little differently, and two shoes the same size could fit differently. Since the shoes had to last a year, my mother instructed us to allow for a little room for growth in our assessment of the fit, which I did. The point is, the shoes fit, and we knew that by the way they felt on our feet.
Sometimes, you can just sense when financial advice is right for you. Trust that instinct. There is a reason why you feel that way. If you are seeking guarantees, and yet nowhere in your proposal do you hear or see the word “guarantee,” then trust that instinct. Ask questions. Get another opinion before committing to a plan of action that doesn’t fit. Conflicting opinions
It is just as possible to receive conflicting financial advice as it is to receive conflicting medical advice. That doesn’t necessarily mean that the recommendations of one doctor are evil and ill-intentioned and that the other doctor is all-seeing, all-knowing and all-wise. It probably means that one doctor was educated in one approach to the treatment of ailments, and the other doctor was educated in another. While the opinions may conflict, they may both have validity.
I have a friend who visited a doctor who told him that he had developed high blood pressure and was to begin taking two medications right away. My friend is one who eschews any kind of pill as a toxic substance. He rarely has a headache, but when he does, he says he prefers to “just wait it out” and refuses any offer of aspirin. So you can imagine the push back the doctor got from him when he heard the proposed remedy.
My friend booked an appointment with another doctor for a second opinion. Doctor number two told him that it would be a mistake to start taking medicine without trying a more natural approach. The doctor put my friend on a program of diet and exercise. He lost 25 pounds in the next three months, and his blood pressure returned to normal.
Which doctor was right? They both were. They just approached the same problem from two different points of view. But which doctor’s advice fit the patient the best? The advice of the second doctor.
It’s the same way with financial advice. One professional may be trained in building wealth, but not in preserving it and distributing it during retirement. Naturally, that advisor’s recommendations will lean heavily in the direction of solutions that carry more risk, such as stocks, bonds and mutual funds. After all, that is his or her area of expertise and training. Recommendations from that advisor can only reflect what is found in his or her area of scope and focus.
On the other hand, advisors who specialize in retirement income planning are more likely to reflect the spirit of caution and risk aversion displayed by most seniors. When they are making their recommendations, they will generally lean toward financial products and strategies where risk is kept to a minimum and more guarantees can be found.
Is it possible for greed to motivate those in the financial profession? Sure it is. Greed was behind the scandals involving Bernie Madoff and Ivan Boesky. If the greed virus infects a financial advisor, causing him or her to make recommendations strictly because of fees, commissions, or other forms of remuneration, then shame on them. That would be like a doctor prescribing medicine for a kickback from the pharmaceutical company that made the pills. Such things are rare — that’s why they make headlines. As is in the medical community, polarized opinions among financial professionals are generally the result of education and training, not greed. The financial profession has its zealots, as does the medical community, which explains why you may get different solutions to the same problem. Like divergent pathways that ultimately lead to the same destination, it is not uncommon to encounter two opposing schools of thought, each with its own validity. The main thing to make sure of is that the recommendation you choose is a good fit for you.
If the shoe fits…
We know when we have the wrong size shoe on, and we don’t need a measuring device. Our feet will scream it to us. If someone tells us that a size 8 would look good on us and we happen to wear a size 10, we wouldn’t heed that advice, for obvious reasons. In the financial world, we need to explore ideas until we have a plan that fits us well. To do otherwise may be harmful to our wealth.
Finding the right size for you
One way to tell if you are dealing with an advisor who is limited in his or her scope of training and experience is by looking at your statement. If you have several mutual funds and they are all from the same mutual fund family, you are likely dealing with an agent of a firm, not an unbiased fiduciary. If an advisor specializes in one product and one product only, then we can expect that any recommendation we receive will be based around that one product family. Frankly, that makes about as much sense as going to a shoe store that features only one size and style of shoe.
I love the maxim of psychology professor Abraham Maslow, "When the only tool you have is a hammer, every problem begins to resemble a nail." The meaning is clear. If your knowledge or training is limited to one type of solution, then you will choose that solution for every problem you encounter, even if another approach may be more effective.
Another way to tell if we are being advised by someone limited in their scope and focus is to observe the interview process they conduct. Do they begin the relationship by asking many introspective questions — the kind that elicits from us the nature of our dreams, the details of our goals and the exact measure of our capacity to accomplish them? Or, do they spend most of their time convincing us that one particular company or product is the answer?
Just as with the shoes, the time spent measuring is important. It is essential to the decision-making process. We must know clearly how the plan will:
- Provide for our future income needs
- Provide for our heirs after we are gone
- Compensate for inflation
An Armani suit that doesn’t fit well is just cloth. A financial plan that doesn’t fit you well is just paper, words and figures, even if it is accompanied by charts and graphs. If it doesn’t fit you, it could be like the football helmets that were issued to me in the fifth grade. They were ill-fitting and offered little protection.
My head had something to do with it, of course. The coach said it was “too small.” Luckily, I never took a good hit. In those days, helmets were “one size fits all” with only a few adjustments possible — if you could figure them out. Today’s helmets have inflatable padding, so that the helmets fit the exact configuration of the player’s head. The snug fit is designed to keep injuries to a minimum.
When it comes to accepting and following a financial plan, you should expect a good fit, especially if you are approaching retirement. You need one that gives you the peace of mind that you deserve — one that allows for growth and preserves your wealth so that you do not run out of money as you live through your retirement.
Why not get it in writing?
Here’s an idea. If you are presented with a plan for retirement that you wish to be constructed in such a way that it will preserve your wealth and guarantee that you will not run out of money, regardless of how long you live, why not have it in writing and signed by your financial planner. Wouldn’t that be a true litmus test as to the plan’s validity?
“Dear Mr. and Mrs. Client, I do so solemnly swear that the plan I have presented to you on this date shall preserve the funds you have accumulated thus far and provide you with an income as specified herein that you cannot outlive.”
Why not? If your planner refuses to sign a simple statement, it could be that they do not know that strategies exist that would support such a promise. In that case, you should seek help from another planner.