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Voices

The traps that ensnare planners

What planning advice do you give others but fail to heed yourself? The question might spark a wry smile of recognition. From avoiding paperwork to taking on too much risk, financial advisors fall prey to the same bad financial habits that bedevil clients.

“I was surprised by some of the more simplistic planning steps advisors don’t follow,” says Financial Planning associate editor Amanda Schiavo, who wrote “When advisors ignore their own advice.” Failing to update estate documents is one example, Schiavo notes. “Also surprising were the advisors who don’t put a lot of effort into their own retirement.”

Blame status quo bias. This psychological tendency means we prefer to keep things the same. It results in paperwork avoidance, ducking tough conversations and spending paralysis. Overconfidence, too, plays a role. Advisors who consider themselves experts in financial topics often assume too much when it comes to their own planning, Schiavo tells me.

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“I think planners — and anyone really — can get themselves into trouble when they end up suffering from a mix of both status quo bias and overconfidence,” she says. “When you are advising others and know exactly what must be done, you can end up telling yourself you’re in no danger and you’ll get to it eventually. But at some point, eventually can become too late.”

Succession planning may be one area where planners struggle most with status quo bias, notes consultant Matt Sonnen in his piece, “A new twist on succession planning urgency.”

“The industry continues to remain woefully underprepared,” he writes. “Advisors owe it to themselves, their firms and their clients to build a career track for the next generation of advisors.”

And you owe it to your family to get those estate planning documents in order.

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