Almost everything financial advisors do is about predicting the future, which is impossible, according to Carolyn McClanahan, who is both a financial planner and a medical doctor.
McClanahan, who is founder and director of planning for Life Planning Partners in Jacksonville, Fla., introduced the concept of ‘complex adaptive systems,’ or trying to prepare for the unexpected, including such things as weather catastrophes, changes in world economies and political impacts.
Clients should be prepared for the unexpected but should not be stressed out because of it, said McClanahan, who was a keynote speaker at Financial Advisor's Invest In Women conference in Houston last week.
Like unpredictable future events, advisors should not stress their clients out over future health-care costs, she said. “Our health care system is becoming unsustainable, so something will change,” she said.
Instead of stressing clients out about the future, “flip the question, and ask them if they are enjoying their lives now,” she advised. Clients are going to fall into three categories, starting with those who have more than enough for retirement. “Get them to enjoy their money more now.”
The second group, those who have just enough, should be encouraged to define their wants and needs, and do some of what makes them happy now, she said.
Finally, for those who do not have close to enough, advisors have to get them to “dig deep into their ideas of what they need and what they want and have them spend very carefully,” she said.
“Then revisit your clients’ financial plans [regularly]. If you are not doing that, you will lose your clients to those who do,” McClanahan warned.
She also had advice on fees. Life Planning Partners charges a flat fee based on the complexity of the plan.
“Charge a financial planning fee rather than charging on AUM,” she said. “Your value is the advice you are giving. Advisors used to think the investments were what mattered and they thought people would not pay if they really knew what we charged.”