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Proper Communication About Planning for Unexpected Events

By Martin Iglesias, CFP 

I’m better off now than I was before in some ways. In the past when I wanted to read a book published in the American market, I had to go to an American site, purchase it and wait a few weeks until I received it in my apartment, in Sao Paulo. Now it’s different, with my new e-reader, I can have a book that would take weeks to have in just a few seconds. 

It happened this week when I heard about a very controversial book called Pound Foolish*. This book aims to show the dark side of the personal finance industry. I started to read Pound Foolish in order to consider a different point of view and correct some mistakes that I might be committing in my financial planning practice. I think being open-minded to others’ criticism while  learning is a healthy practice.

The book had many very important points, and a lot of criticism towards the personal finance industry, however I want to focus this article on issues relating to reputation, which ultimately is what ends up generating the trust of our clients.

Better Communication

All of us know that financial planning is a very important practice for people and their families, however, sometimes we make critical mistakes that can have negative impacts on the well-being of our clients. One topic discussed in the book is the way financial planners communicate to clients and how to best advise them in relation to financial areas we cannot predict.

It seems in our industry, the unexpected always happens, and we shouldn’t think nor communicate that unpredictable circumstances can always be circumvented if our clients have a well-structured financial plan. Often we use rules that apply on average but can vary greatly from client to client. For example, we used to tell our clients to keep a “rainy day savings account” that would support them for six months, but it is possible that our recommendation of six months is not enough.

What if they became unemployed for a long time or dealt with a prolonged health problem? Or, what if the client lives many years beyond what would be expected and their retirement money runs out? Or, what happens if the markets do not generate the expected results in both fixed income and the stock market for long time horizons? The book Pound Foolish says financial planners are not doing the best job possible when it comes to explaining these situations.

Building Consumer Trust 

Certainly, financial planners have no control over these contingencies and we have to try to alert our clients that many unexpected things can happen, and there are risks in financial planning, even if the plan is structured well. This message is a very important one to get across to clients and will lead to a better reputation for our profession and more trust over time.

Obviously, some amount of planning is better than no planning at all. We prepare our clients for at least some things they will encounter in their lives which is better than nothing. We just need to make sure that we make clear the importance of financial planning while emphasizing the possibility of unpredictable circumstances. Every planner should take a moment to think about the messages they send their clients and if they are doing the best job they can in this area.

*Olen, Helaine. “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry”

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