One of the concepts bouncing around in my head for years is that many of the most important things in life are simple but not easy.
Financial planning is simple. Investing is simple. But they are not easy.
There really are only a few things that you have to get right (simple), but because there are so many ways to get it wrong, it seems complex.
It’s simple, but not easy.
Part of the reason for this paradox is because of the tyranny of choice. There are so many ways to invest. So many people willing to sell you crap. So many entertainers pretending to provide advice.
Part of it is because so many in the financial services industry feel like complexity is some sort of intellectual gift (or at least a way to sell more crap). They have spent so much time with complex models, spreadsheets, and charts that they actually fear simplicity. When you have spent your entire career thinking that your value is in complex models, simplicity is not only scary, it is a threat to your way of life.
This is called the ignorance premium [thanks Hugh]. In the financial services industry, the ignorance premium is what you pay (and what they earn) for not knowing any better. But, the ignorance premium is going away. It’s going away because people are interested in engaging in a smarter conversation. When they find out that some salesperson pretending to be a financial planner sold them expensive insurance (to pick one random example) they didn’t need, they tell other people.
Smarter conversations are killing the ignorance premium.
The good news is that there is also a simplicity premium. People value (and are willing to pay for) simplicity. More than ever, the true value of a financial planner is in the impact they can have in simplifying peoples’ lives. Financial planners do so by focusing on those few, simple things that you have to get right, simplifying the process of dealing with money.
A few months ago, a client of mine was telling me about an experience he had one day at work. He is a ER doctor at a hospital that backs right up to some of the most beautiful mountain trails in the world. During his lunch break he was heading out for a run and passed the physician break room and saw his colleagues (that also love to run in the mountains) watching CNBC. He said that he just laughed as he headed out for a great, worry-free run. He realized then that he spent hardly any time thinking about this stuff anymore because he knew that someone else was.
That is the value of having a financial planner.