I have always used this story to remind myself to keep discussions with clients practical and in the realm of reality. Reality—now there's a concept. The Greek philosopher Plato, in The Republic, talks about "degrees of reality." There is the reality of knowledge, which is static and just "is," and the reality of opinion, which is dynamic and therefore continually "becoming."
Stick with me; I hope to make this clearer and I do have a point. The concept of a chair, for example, is a universal knowledge, but the thought of the chair is an interpretation of that knowledge or opinion, and is one degree away from reality. The chair itself—the one you're sitting on now, for example—is a subsequent interpretation and therefore two degrees away from reality.
Financial plans have degrees of reality too. The reality for the client is one he or she may not be able to articulate clearly. But as you complete your discovery process, you ask qualitative and quantitative questions to glean the information you need, and through this process the client's future comes into focus. Eventually the two of you arrive at a plan, replete with recommendations and solutions. The plan, you could say, is two degrees from reality; it is interpretation of and opinion about a thought.
PROCESS VS. PRODUCT
Really, it has taken us the better part of 40 years to figure out that financial planning is a process, not a product. But it's only in the past 10 that we have learned to interactively and collaboratively deliver that process to clients so that their reality is articulated in their way and is subject to their interpretations only. The plan is not a means to sell product, but a formalized framework for guiding clients through their decision process. The value lies as much in the journey as it does in reaching the ultimate destination.
I thought about this recently because I read an article on the Wall Street Journal's website by Janet Paskin of Smart Money that discussed the "new approach" to counseling and coaching clients that financial planners are taking these days.
One client described his discussions with his planner and commented that he wondered if he and his wife would get a Prozac prescription at the end of the session. The reporter explained the therapy-like questions advisors were asking and suggested that this crisis counseling mode is in response to the difficult market times.
There is no question in my mind that not everyone is into self-discovery, but I don't believe we can separate the person from the portfolio. The more a planner knows about a client, the more likely the client will follow the plan—because he or she has helped design it.
This does not mean that we all should be buying leather couches for the office and mastering the fine art of answering a question with a question. It does mean, however, that we need to set our expectations with prospects very clearly and know our boundaries; we are not shrinks. If anything, we are masters of critical thinking and communication, with the ability to put financial objectives into reality and action.
INVESTING VS. PLANNING
The thing is, clients don't really know what to expect from financial planners. In fact, just when we believe we're aiming for the same targets, life circumstances and the economic climate change, and our clients are looking for new advice.
Generally, that advice revolves around investments. In the 1990s, for example, our clients were worried about losing out on investment opportunities; today they are worried about lost investment principal. In the 90s, not many were concerned about risk management, tax planning or their wills. I'm not so sure they care that much today, either.
It's so easy to focus on investments, especially when markets are doing well. It's easier still to give lip service to planning while making investment strategies the most important aspect of the relationship. Clients will always follow our lead. If we consistently report on their investment performance while ignoring their planning needs, we will have taught them that investment planning is the most important task we perform.