My experience is that people want to feel that their advisor can be honest with them—even if it hurts. We are not in your life to spin gold out of straw. Financial advisors never should promise to make a retiree rich. That assertion is unethical. Our job is that of a guide in a jungle, not a guide to some unknown gold mine. Our objective is to be realistic and not contrive a rosy future. One client said, “I want to see the spending plan for the next thirty years in the form of a chart. I like to see colored graphs.” We worked up a plan that showed exactly what income he would have from year to year and where it would come from. No stratified rock formation looked as impressive. Our certified financial planner (CFP) showed every source of spend-able dollar each year—yellow bars for nontaxable money were stacked on green and blue bars for retirement and personal savings. Seeing our illustration, the client’s eyes sparkled as if he were gazing at the Hope diamond. Then I put a little water on the fire. “Remember,” I said, “markets do not produce returns in a predictable upswing slope. So your principal and even income may vary from year to year. Graphs do not tell this side of the story.” If I had not added the warning that returns are not a linear thing, the presentation would not have been balanced.
The really hard message to get across, when looking at graphs, is that forward-looking assumptions had to be made in order for the computer to run the numbers. We have seen these things before. Remember that old insurance policy, the one that was supposed to be worth so much after forty years? Now look at the cash value! Big deal. Same thing here. Because we are addicted to bar charts and graphs, we give them too much weight in an ever-changing and unpredictable future. Computer power can make a few hours of data entry look like a sophisticated life plan, but it’s more like a lullaby that lulls some into dreamland. I tell clients, “I will be with you through the thick and thin. We are in this together, and that is what I get paid for—not for creating fancy graphs.” I then smile, and most nod and smile back with some understanding. A few conclude that I am not the advisor for them.
Tags: investment