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Values-Based Financial Planning


March 18, 2022

Traditionally speaking, the value of a financial advisor has often been perceived through analytical and quantitative means. So, I can tell you it was a little jarring to me early in my career when an esteemed colleague told me my analyses would be at best directionally accurate but could never be perfect. I know now that he was alluding to one of the few constants in financial planning. We deal in uncertainties, and if we accept that as true, our analytics cannot be the only value proposition we bring to the table when clients entrust us with their financial futures.

Here’s what I mean:

We’re tasked by our clients to help them achieve their goals: buy a business, sell a business, retire with independence, send children to college, etc... So, we run analyses, worst case scenarios, alternative scenarios with pros and cons for each, and then put our best foot forward to give clients confidence on how to execute and achieve their goals. But the best we can really do is give them a directionally accurate forecast, because so many things in our financial markets will change. Rate of return assumptions over short time periods are nearly impossible to predict. Interest rates will rise and fall, stay low for longer than anticipated and potentially skyrocket at suboptimal times. Geopolitical tensions, viruses, business fiascos and other panic-inducing scenarios will come and go in unforeseeable waves and disrupt smooth-sailing bull markets. At least inflation was stable for 40 years or so…oh wait. I could go on… I haven’t even touched meme stocks and NFTs yet! To top it all off, our clients’ goals and life/financial situations are constantly changing too (more on that later). Where then, should advisors place their focus when helping clients work towards their goals?

Say what you will about Jeff Bezos, but he makes an interesting point on the matter of preparing for the future. On many occasions he’s been asked something to the effect of “what do you think will change over the next 10 years and how will you prepare for it?” He responds by proposing that people should instead be focused on what won’t change over the next 10 years. “When you have something that you know is true,” he claims, “even over the long term, you can afford to put a lot of energy into it.” In Amazon’s case, they weren’t concerned about everything that was changing around them. They simply focused on quicker delivery times and low prices because they knew those were two things people would always want. Their laser-focus worked.

In the lives of our clients there are constants too, but as we’ve already ruled out, it’s not the financial markets and it’s not their goals. It’s their values. And clients today deserve a dynamic and engaging qualitative approach that understands them at their core, compliments the traditional quantitative nature of financial planning, and produces greater, more meaningful results. Five years after fully adopting this approach into our practice, I think the entire team can agree it’s one of the most powerful aspects of our work.

Here’s a quick synopsis— we have a deck of 50 or so cards, each of which has a value with a definition on it. Individuals, families, or corporate leadership teams work to get down to the five values that are most important to their household or business. It’s incredibly insightful (and entertaining!) listening to the dialogue in this exercise and observing the negotiation that goes on as tough decisions are made to eliminate values from the top five. We almost always get a comment at some point during the exercise that it feels like marriage counseling. That’s when we know we’re getting somewhere. That’s when we know the conversation is going to the depth we need it to go and we’re uncovering the things that really matter. Once we’re down to five, we spend some time diving into each value and why it made the list. Our final task is capturing that conversation in their words and creating a document that becomes a frame of reference for future conversations and financial decisions moving forward.

Over these last five years, we’ve had hundreds of these conversations, and enough time has passed that we’ve been able to gather some insights on how it has impacted our work, and more importantly, the lives of our clients. Whether you’re new to the concept of values-based planning or you’ve already embraced it, we thought it would be useful to share five of our top observations on why incorporating values into your financial planning and decision making can significantly change the way you talk about and view money.

  1. Most people have a difficult time clearly defining long-term financial goals.

    If we simply ask our clients what their goals are, we usually get some iteration of “I want to retire in my 60s, pay for a portion or all of my kids’ college, and buy a lake home someday.” These goals are pretty vague and not particularly unique. More than anything, they appear to be socially constructed goals that we’ve heard our peers discuss. Why else do so many people’s financial goals sound the same? On the flip side, we’ve found that values conversations are unique. Over the course of 2021, we went through the values exercise with 42 new families. Remember that there are about 50 different values to choose from. Here are the results for the most frequent answers to prove it:

    Family/Individual Values graph
    As you can see, only three values were chosen by one third or more of families, and the vast majority were unique to less than one in five households. Therefore, we end up getting a far more unique view of our clients through this exercise than we ever do through goal setting, which leads us to point number two.

  2. Studies show that the more salient a goal is, the more likely you are to save for and prioritize that goal. Values create salience.

    Now, we can’t ignore goal setting and goal achievement all together. After all, it’s the number one thing, according to Morningstar, that clients expect help with from their financial advisor. Unfortunately, traditional financial planning goals can be 20+ years away with foggy definitions at best. It’s difficult to imagine what we’ll be doing, who we’ll be doing it with or what’s even possible at that time. Again, we’re dealing in uncertainties. The good news is values can create the salience you need to make your goals feel tangible and ensure you prioritize them.

    For example, let’s assume a 35-year-old client’s values are family, health, meaningful activity, variety, and happiness. The client might not be able to imagine retiring at 60 since it’s 25 years off and so much will change between now and then. But adding values into the goal framework can change that. Now we can ask what living out those values at age 60 would look like, and how important it would be to ensure we create a lifestyle that’s in alignment with those values. The values conversation allows us to take abstract thoughts and turn them into something that is real and tangible now, not just 25 years from now. The specificity and personal touch this puts on goals ends up being a fuel that ignites financial planning progress.

  3. Your advisor will be able to make more poignant and relevant recommendations that resonate with you and will inspire you to act on them.

    Prior to implementing our values-based financial planning, we occasionally had clients that were getting stuck in the implementation phase of our work together. We were showing mathematical support for our recommendations that seemed irrefutable and yet they couldn’t quite take the first step to implement those recommendations. We’ve found that these log jams happen far less often when values are on the table. We’re able to craft recommendations that we know will make the client feel heard. To a client who values independence and family and wants to start a business so they can build greater work-life balance, it doesn’t matter how much the math supports maxing out their 401(k); they’re going to prefer building liquidity so they can prepare to make that leap. Advising otherwise will be met with resistance and doubt, and likely halt progress. Much like fitness, financial planning combines intellectual know-how with raw emotion…both must be considered to create an environment for success.

  4. Documented values are the best form of accountability.

    By writing down your values and having them as the framework for ongoing planning conversations, you become far clearer on your purpose, and you will feel more confident saying no to things that don’t matter. For example, last year we had a client who was offered a significant promotion out of state. It came with an eye-popping raise and the offer had come as the result of long hours and years of hard work. After reflecting on the household values, the client concluded on their own that taking this promotion would get in the way of their number one value, family, and spending more quality time with their kids while they were still in the house. Not to mention, they were already feeling the mental strain which was working counterproductively to their value of health. Finally, they realized they wouldn’t have time to serve in their community, another value, like they had always prioritized. What stood out to us the most was their comment that the decision was relatively easy to make when it was framed in the context of values.

    Values also help us deal with the noise that uncertainty provides. Returns matter. Competent, thoughtful strategies matter. But if we’re clear on what’s most important to us, and have strategies crafted with our values fully integrated, so much of this noise can get cut out by choice, and that’s when quality of life skyrockets.

  5. Having a values-based focus around money makes conversations between spouses more productive and enjoyable.

    It’s not uncommon for one spouse to be disinterested in financial planning conversations or for one or both people to strongly dislike talking about money. Starting with values is an easy way to engage both parties, regardless of how you feel about money discussions. Often, we’re able to uncover why one party may not enjoy talking about money, or why there tends to be discord when discussing money, and once that’s out in the open, walls come down. At the very least, trust is built because questions have been asked that have likely never been asked before, not by a financial advisor and sometimes not even by their own friends and family. These are not common conversations after all! We’re far more likely to make progress toward our financial goals when we can enjoy the process.

Let’s not forget that goal achievement will always remain the number one thing that clients are looking for from an advisor. We’re not trying to change that. It’s still our number one objective when partnering with our clients, but we believe we can accomplish so much more when values are involved. After all, wouldn’t you prefer a financial plan that is both directionally accurate AND aligned with your values?

That’s our purpose at Voyage Wealth Architects – to help clients achieve their goals to both grow and protect their wealth, on their terms, and in alignment with their unique values. So, if you’re ready to gain clarity, purpose, motivation, and enjoyment out of your financial planning journey by discovering what won’t change for you over the next 10, 20, or 30 years, connect with us today.

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