Financial Planning: The Problems With Doing It Yourself

Benjamin Haas |

We see self-diagnosing from time to time with clients, families, and friends of ours. There is a do-it-yourself mentality out there on many different things in life. Is that okay when it comes to your financial life? When would it be okay? And maybe when isn’t it okay?

First, let’s admit that running your own financial life without any assistance is, in many ways, the fault of our industry and the people that have been giving advice in our industry. That’s because so much of “advice” in the past was actually about sales. It’s been about being the holder the information. “We (the industry) are credentialed, you’re not. So, you need us.” People don’t want to be sold things and therefore they do it themselves or seek out their own information. The internet has a wide array of information that is abundant, cheap, and available. A quick Google search and you can look something up immediately. This abundance of information gives people the power to share information. And sometimes that can be helpful (when my dryer stops working and I can Google Search the part that needs to be replaced), but that doesn’t always necessarily translate to personal financial planning.

Investing is supposed to be fundamental. We think it’s fundamental. The advice that we give there is fundamental. Is there a lot of value in what we do in picking investments? Probably not. But when it comes to actual financial planning, there is risk in getting certain things wrong or not getting certain things done in your financial life. You’re not going to Google how to operate on yourself, right? You’re going to go to a very experienced, very credentialed, very well-educated doctor who has been through that operation many different times in their life because the risk of you doing that to yourself and getting it wrong is enormous. For us, financial operations may not be life and death, but the financial planning side is where it’s very hard to get that level of nuance from a blog post or an article on the internet. You read the Wall Street Journal and you think if this person did it, then should I be doing that exact same thing.  Let’s give some examples of why you shouldn’t because I think that helps drill down to our whole point. When we talk about comprehensive financial planning, it’s acknowledging that all these moving parts must work as one. We had somebody who was asking a very specific question. Should I do this stock transfer? And I know we always give the response – it depends. We ask some follow up questions. Is there going to be a capital gain involved it? What’s your business income going to look like this year? Is it good or bad? He also happened to inherit some money last year. So now there’s probably going to be more income that he must deal with. Is there an RMD that needs to be taken from that inheritance? You get the point. There are so many dominoes to that one decision and there’s nothing on the internet that’s going to allow you to plug in your specific situation with everything you want to do, let alone figure out what really matters most to you with your goals to say whether it’s a good idea or a bad idea.  Even if there was a free tool on the internet, or a paid tool that someone could plug in all their information and be super specific and have it spit out the answer, the problem remains that you don’t know what you don’t know. So, the different variables to input into whatever software may not know all of those for my situation to even get the right output. Not only do you not know what you don’t know, but sometimes it’s not knowing what questions to ask. When you go to the doctor you know how you feel. The doctor is going to ask specific questions that are going to help lead to some sort of diagnosis on why you feel that way. So, it’s one thing to not know what you don’t know, it’s another to not know what questions to ask.

Another problem with money in general is that you’re probably emotional about certain decisions that you make. And we see that not only with investments, but when somebody passes away, when going through a divorce, or anytime it’s the first time you are going through something. Now your emotions are involved in what could be a huge financial decision and they could lead you down the wrong path. Anytime there are large, emotional decisions they need to be more calculated. We can separate ourselves from that process and look at the holistic picture with data and calculation, and empathy too! We’ve seen people make bad decisions at bad times, because emotions just got the best of them. It’s an awful feeling for us to have when we know someone is deciding that’s not in their best interest, but emotionally it makes them feel better. And it is human nature, and we recognize that.

There are so many tools out there that I think lead people to believe they’re getting some sort of data output that’s going to support what they want to do. Projections matter. Financial planning, especially for the future, needs assumptions. And what assumptions are we making? You need to have the experience to know what a realistic assumption is and what isn’t.  It’s not just straight-line napkin math or online tool that gives you the number of what you need.  It misleads people and we see it. We know things change over time. We know that there are expenses that pop up that people usually don’t think about. Are we building in buffers? What is inflation going to look like? What’s the rate of return? Where tax rates? Early in the process with us, we discuss together the assumptions are we comfortable making. Then we go back and reevaluate that. We see it with Social Security all the time. We don’t want to fault the government for what they’re doing but they send out these statements that say, at this age, here’s what your benefit is going to be. There are countless assumptions going into that including how long you’re going to work and what you’re going to make. So, there’s a lot of value in having a partner who can be a second set of eyes to the assumptions of the data that you’re using.

Keep the main thing, the main thing. Don’t trip over dollar bills to pick up nickels. There is certainly a subset of do-it-yourselfers that try to over analyze any one decision and then often trip themselves up and get caught in the minutiae of the data or the information before they can even decide. Our job is certainly to help reset the focus. What are you looking to accomplish? What is the actual goal here? We can help sort through all the details behind the scenes to get to what’s important to that big decision. We’ve seen people get so focused on getting those little details right, that they’ve forgotten something that we consider so fundamental. Maybe they don’t have a properly documented estate because they were so focused on getting that estate to millions of dollars.

It’s so easy to read stuff. It’s so easy to take somebody’s opinion on something and believe that’s going to be good advice for them. News is at our fingertips, and it’s meant to solicit a reaction. Last year I was just happy to be the person that people called before they did things because our clients have come to expect us to be the filter and the voice of reason to is this going to be okay. Like the world feels crazy right now. Is this okay? Because this is what I’m hearing. The media is looking to attract eyeballs because that is their job. The media does not have the responsibility of if you take that information, and you act on it in your personal life, you can’t go back and sue the Wall Street Journal because you followed an article that was supposed to be general information. We have a responsibility as fiduciaries to give someone the best advice that we can. And we are held to that standard. And by the way, someone can come back and hold us responsible. Our job is to stop them from making a knee jerk reaction. Maybe it was about politics, maybe it was the crazy stock market that we dealt with last year. We need to play that role of standing in between people and their quick decisions or people in what they read and then make taking some sort of action on that.

To summarize, it’s not to take it away from people that are comfortable being well read, who want to have information and the education to be able to ask meaning questions.  That is a good thing! But having a credentialed professional when it comes to making big, potentially life changing financial decisions, is smart (we know we’re biased, but we think it’s smart!).  More than anything, we want to educate people. We want to be a resource in this industry. We recognize there’s not one way to do something and here’s the product that everybody should have. It is about education, analysis, aligning things. And if you have questions, give us a call.

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