Presenting a financial plan to a new client offers an opportunity for advisors to answer questions and problem-solve… and to build trust between an advisor and their new client. Clients rely on advisors to create plans that provide a clear path towards their financial goals. However, at the same time, advisors know that even the best laid plans can go awry. Plans could be significantly altered by something as small as a 0.5% rate change in inflation, to say nothing of recessions, new laws, and other economic ups-and-downs. Which creates a conundrum, as while advisors want to promote trust in their advice (and in their own expertise), there’s always the caveat that events that are out of our control often interfere with even the most painstakingly crafted plans.
In our 70th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore why advisors experience paralyzing fear around being wrong, how advisors can shift their mindset around their desire to “be right”, and how they can nurture self-confidence in the face of the unknown.
As a first step, it’s helpful to frame up the correct mentality around the plan itself. When creating a financial plan, the reality is that advisors are helping clients make important decisions with incomplete information—because no one can even know for certain what the future holds. To be fair, planning projections aren’t haphazard shots in the dark; advisors have the technical expertise and the right tools. But advisors are up against the uncertainty of the future. In fact, Monte Carlo simulations inherently consider countless scenarios that never happen, and might not even include the one that does!
Instead, financial plans aren’t actually about being right… they’re about being less wrong. Or put another way, when framing up the conversation to clients, it’s important to remember that a Monte Carlo “failure” results in a course correction, not bankruptcy—and that minor adjustments are needed to get a plan back on track. The reality is that it’s highly unlikely that advisors and clients will just wake up one day and see that their plans have plummeted into failure. Financial situations change gradually, and when conversations with clients are ongoing, they can easily be adjusted based on how much risk—and potential for course correction—a client is willing to accept.
Given, then, how adjustments and risk come into play, framing these conversations with clients in black-and-white terms of “success” and “failure” is counter-productive. Instead, it may be helpful for advisors to think of their core projected plan as a line. A line will almost certainly go askew from its projection because it is so narrow. However, a line that has been buffeted with guardrails, with plans for what to do when the unexpected happens, is one that is “successful” at the end of the day. Conveying a guardrail-focused, adjustment-based plan can give advisors more confidence in owning their projections because it acknowledges that no one knows the future; instead, advisors are simply guarding against it.
Ultimately, the key point is that projections are inherently uncertain… and are only the first step. Learning to own uncertainty when presenting a plan to a new client will help set the stage for conversations later on when clients inevitably get nervous about whatever may be going on in the world. At the end of the day, advisors who embrace uncertainty are the ones who are prepared to take action as life happens!