Thoughts, ideas, suggestions and education from financial adviser Jim Ludwick, Founder of MainStreet Financial Planning, Inc. of Odenton, MD; Washington, DC; New York City, and Santa Barbara, CA

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Sunday, April 17, 2011

As Compared To What?

Many times we financial planners are approached for advice, with the “one quick question” routine.

The question usually goes like this: “I just have a quick question on whether I should rollover my old 401k into an IRA.” Sometimes it sounds like: “I’ve lost my job and need money. Should I cash in my 401k?” Other times it could be: “I have too many accounts and just want to consolidate them.” All these conversations come with the underlying unspoken question, “I just want to pay little or nothing for what I think is a simple question.”

They might be thinking that in the past, teachers, parents, and 401k sales people have answered these kind of questions for no charge. Why should it be any different now?

Expectations are funny things. We all have them and in different roles we act just a silly as the folks that are calling financial planners. For example, why does my dentist have to come in and check my mouth each time I get my teeth cleaned? I see a boat payment each time. Not the annual visit mind you, it’s every time. What are my expectations? The dentist checks once, hygienist three times, and I pay less. That’s my expectation. Now, I’m not going to let my dentist make a defense of this practice here, but I continue to rely on her professional judgment to look around in spite of how I feel. We go to a professional for advice, and we need to let them practice in our best interest in spite of our expectations based on previous experience or wishful thinking.

So, how do I as a Certified Financial Planner practitioner, get the question out in the open. Well, my primary care doctor is a good example and I use her method too. “How long have you had this cold (401k)? Let me listen to your lungs and your heart. I see the RN has taken your blood pressure and temperature. Let me look at your history here.”

So it goes in the doctor’s office, and so it goes at MainStreet Financial Planning. “We might expect our doctor to give us a quick prescription for antibiotics for our cold, but it just doesn’t happen and if it did it might be classified as malpractice. It’s the same issue here at MainStreet Financial Planning. Just giving you a quick and low cost prescription (since we charge by the hour) might do more damage than good in the long run, even if it meets your immediate need (expectation). Maybe you should keep your 401k with your former employer until you get your next position. Maybe we need to explore several other options and for that we will need more information and understanding of what you are trying to achieve in the long run. That takes time and will cost more in the short run, but could make a major difference in the long run.

Here’s where I usually tell a story about someone who makes a quick decision not knowing all the ramifications because it was expedient and cheap (allegedly) and paid for it in the long run. Stories help people understand complex issues. The bible is full of stories (parables) for good reason.

Invariably, the question will be asked, “What will this cost?” The answer is usually much higher than they thought (The same with my last dentist bill). Here’s where my previous questioning about the cost of losses or mistakes in their past now pays off. “Wow, that’s more than I thought”, they exclaim. “As compared to what?” I ask immediately. Pause.

I hope they are reflecting on the dollar value of past mistakes and see the light. (My dentist has to tell me about surgery or teeth extraction.) The value of not making a big mistake is worth something, isn’t it?

The moral of this tale, is to be prepared to answer the underlying cost question frequently tossed at financial planners. When the prospective client understands the need and value of more detailed analysis and alternative treatment consideration before coming to an optimal recommendation for their situation now, and in the future, they will be more inclined to pay your fee. If not, well then that’s a constitutional right.