BY: DAVID RUSSELL, CFP®, CSA® – Vice President & Trust Officer
(6115) 385-2345 firstname.lastname@example.org
Recently I’ve re-read Carl Richards’ book, The One-Page Financial Plan. It is a liberating book for me because it reinforces the notion that a financial plan isn’t so much a roadmap as it is a compass.
When I started practicing financial planning in 1984, the PC (personal computer) had just been introduced. The Certified Financial Planner CFP™ designation was only a few years old and it was hard to tell who was qualified to give financial advice and who was using financial planning as a ruse to sell financial products. The October 1984 issue of Forbes Magazine played no small role in me questioning the intelligence of my career choice when it featured a chimpanzee in a 3-piece suit next to a chalkboard scribbled with an assortment of financial planning jargon with the caption, “These days, everyone’s a financial planner.”
The firm I worked for used a fancy financial planning analytical program that I fell in love with. Being an exacting person by nature, I loved the fact that I could enter some concrete assumptions about our clients’ assets, savings rates, inflation, retirement date and investment earnings; then produce pages of perfectly aligned columns that showed our 45-year-old clients that by age 65, they would have exactly $892,649.23 saved for retirement. I think back on those early years and hope that none of those clients kept those notebooks we mislabeled “financial plans” because I am quite certain that not a single one of those plans accurately predicted where those clients would be in twenty years. They were all wrong.
Thirty-two years later and not much has changed. I still use some rather sophisticated software to forecast a client’s financial position; the main difference being that the output is now produced on the screen, and I don’t have to switch between two floppy disk drives to run it. In the investment arena, algorithms now tell anyone how they should invest their money, and like the software I cut my teeth on, today’s financial planning tools can predict with amazing accuracy how much you should have saved up by the time you retire and how long your money will last. Unlike that software however, today’s version can be run by the end-user online. Some have predicted these new “robo advisors” will usher in a new wave of delivering advice and replace the snake oil salesman financial planner – the chimpanzee in the three-piece suit.
A part of me understands this thinking. People are still confused by all the professional designations and THE buzzword of the decade – fiduciary (fi·du·ci·ar·y) – is debated and discussed in professional conferences while remaining largely ambiguous to the public the word is attempting to protect. But here’s the thing: just like those plans I produced thirty years ago, much of this new financial planning is still based on formulas and concrete input such that twenty years from now, once again, they will all be wrong. The problem is not with the formulas but with the INPUT. The course of an individual’s life, the plot twists and turns, the curve balls, the infinite what-if’s that – even though they can now be modeled thanks to greater computing capability – will ultimately frustrate the best algorithm’s ability to predict where anyone is likely to be financially over a time period much more than three to five years. It’s not that we should throw away our computers or that an advisor should stop modeling what-if scenarios for his or her client, rather it’s understanding that financial planning has less to do with the concrete input used by financial planning technology and more to do with intuitive “best-guess” decisions on how to respond to ever-changing life. If AI ever achieves empathy, discernment, or wisdom, I’ll know it’s time to quit. Until then, I believe my best value to my clients is as a faulted human being who walks through life’s uncertainties alongside them.
David Russell is Vice President and Trust Officer with Argent Trust in Nashville, Tennessee. He has over 34 years of experience advising individuals and families as a Certified Financial Planner. In 2017, David earned his Certified Senior Advisor designation in order to better serve families facing age transitions.
In 2012, David authored his first book titled What You Need to Know: The Adult Child’s Guide to Being a Financial Caregiver. The book is aimed at the growing numbers of people in the “sandwich generation” who are providing emotional, physical, or financial support to aging parents, while balancing the demands of their own career and family.