So to make the couple feel at ease, we developed a strategy for them where we carved off enough of their stock to pay for their desired lifestyle and kept the rest of it to be used for gifting and anything else they wanted. We assured them that if the stock went to zero, they would not have to make lifestyle adjustments. In essence, we blended our bias around a spending policy with their bias around taxes and dividends.
So what is fake and what is real about this plan? Could it be both fake and real?
The couple’s sense of being poor was certainly real to them, yet it would be hard to consider someone with a few million dollars being poor. So the facts made it seem fake, while their feelings made it real. Now consider what would happen if these clients went to a billionaire event. Their millions would be a pittance next to what their cohorts have. Would their feelings of poverty be more real then?
Perhaps virtually everything is fake and real, it just matters to what degree. We are so used to turning things into binary choices that we don’t leave room for the unlimited number of other possible outcomes in any scenario. We also may not consider our own limited experiences or our clients’ limitations. We misjudge our abilities, basing them on ridiculously small sample sizes.
I have had the same business partner for 31 years and the same wife for 35. Does that mean I am particularly good at partnering? Maybe it means that I have a huge belief in commitment that happens to match the beliefs of those I’m committed to. Maybe it means I got lucky twice in a row. Maybe it means I had a good, albeit unstated, process for making big decisions. But whatever story I construct for these successful outcomes, it will be both fake and real.
If everything is both, then we need to be sure we are able to adapt as conditions change. It is one of the reasons I hate making irrevocable financial planning decisions. We are often best off making the smallest change we can rather than the biggest. We recently had someone come in whose partner passed away. She was left in a financially challenging situation—with arguably too much real estate, too few liquid assets and a cash flow that would be difficult to manage if things remained as they were.
But things usually don’t remain as they are. There are many possible things that could happen to change the course of this client’s life, and this is the worst possible time to be making big decisions. Her dire situation is partly real and partly fake. In truth, she doesn’t have to do anything for a while, at least until she readjusts to the reality of her new life. Her perception will change over time. While taking action may temporarily make her feel more comfortable, it also may lead to future regret. If we reinforce her anxiety by making her focus on our spending policy work, that’s not good planning. A better approach is to work through what decisions are best delayed and made once the fog gets lifted. A safe spending policy is more real than fake, but it is not real.
The tension between real and unreal carries into the second problem—wanting what others have. We may say the goal of financial planning is security or legacy or making our actions and values congruent, but ultimately the goal is helping people want what they have. Clients who always want more are never settled. Clients who compare themselves to others will never have or be enough.
Psychologist and author James Hollis believes we spend the first half of our lives focused on social concerns—knowing how we fit in—and the second half figuring out spiritual matters—why we are here. I believe that integrating these two pieces is an important part of the work that we do as financial advisors. Knowing how we fit in and why we are here do not need to be discrete areas of inquiry. They should not be opposed to each other.
How do we help clients relate to both questions? One essential way is by helping them want what they already have. We often talk about how much longer experiences last than material things do, but what does that mean?