|Financial planners must stand for some inviolable concepts when it comes to lurking evils that threaten us and our clients.|
If once the people become inattentive to the public affairs, you and I, Congress and Assemblies, Judges and Governors, shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions.
You probably emember the story of the three little pigs. To reprise the Disney cartoon version, they started off as three young porkers with ambitions to construct their very own personal residences.
Presumably, as a rational porcus economicus, each wanted to maximize his utilities. Each wanted his house to give him privacy, shelter, comfort and protection. They each wanted efficiencyâ€”at the lowest possible price point but consistent with their personal goals and tastes. For example, one little pig, the environmentalist, built his house of straw (thus employing a common, renewable resource while efficiently utilizing carbon and minimizing his heat bills). Another, the cheapskate, used mere twigs as his primary construction material. Twigs were available off-market. The material was cheap and easy, but it was also vulnerable to attack and deterioration.
The third pig was more conservative. He used traditional bricks and mortar. Obviously, this last approach required more work, time and money, but he thought the structural integrity would be worth it if something went wrong. His brothers mocked him. They thought his approach was over the top. In turn, he thought they were naÃ¯ve.
All the while, there were rumors of a Big Bad Wolf filtering through the woods, together with warnings that great preparation was needed. Nonetheless, the pigs took this as mere chitchat, singing taunting songs like â€œWhoâ€™s Afraid of the Big Bad Wolf?â€ at the top of their lungs as they worked diligently to get their houses functional in time for the first frost.
In due time, the wolf got hungry, and his first thoughts were of pork. The wolf came first to the straw house. After taking a minute to admire its environmental soundness and low carbon footprint, he yelled for the pig inside to come out and be eaten. The pig declined and said, â€œNot by the hair on my chinny chin chin.â€ In response, the Big Bad Wolf roared, â€œI will huff and Iâ€™ll puff and Iâ€™ll blow your house in.â€ Which he did. The straw blew everywhere and the first little pig was exposed.
Some versions have the wolf eating the first little pig right there before moving on. But the Disney version of the story allowed No. 1 to escape to his brotherâ€™s twig house where the same thing took place. The wolf huffed and puffed and blew the twig house into kindling as the two pigs skedaddled to No. 3â€™s brick fortress.
The Big Bad Wolf went for Round Three by getting all huffy and puffy at the brick house. This time though, the house was up to the challenge. The BBW huffed and puffed until he could huff and puff no more. As he slinked into the woods in exhaustion, the three little pigs celebrated another night of life while providing rich object lessons to us personal-finance-oriented denizens of the 21st century.
Namely, this: As financial planners, we need to acknowledge those Big Bad Wolves out there and act accordingly. We need to anticipate their challenges to our planning work and their capacity for blowing our straw and twigs to smithereens. Because we work with real people and their myriad risks and exposures, we see things no one else sees. We can identify some of the wolves and know what they are when others donâ€™t, especially within the financial systems. Even bricks and mortar may not be foolproof, but at the very least we can advance solid construction that anticipates all manner of harm the wolves can do.
But we have not dared speak aloud what Jefferson suggested: that when people are inattentive, everybody can become a wolf. That the wolf threat becomes systemic. That is something other folks donâ€™t see, unless they have the perspectives of fiduciary advisors who work with people and their money one client at a time. This is what we need to talk about with clients, and what we havenâ€™t been discussing: not the threat of the wolf in the forest but the entire forest.
From the natural world we have experienced volcanoes, floods, earthquakes, fires, hurricanes, shifting climates and tornadoes. And in the man-made world we have endured financial crises, political unrest, rickety infrastructure, oil spills, war, pestilence, terrorism and the ongoing sagas of humansâ€™ inhumanity to each other.
But even if we as planners have these insights, how do we talk about them? We are used to dealing with wolves one at a time because itâ€™s part of our job. We can help folks deal with their personal vulnerability and mortality, for instance. We let them know they can get hurt or sick. That they can become unemployed through no fault of their own. Old age is certainly not all canoes and sunsets. We take those issues in stride.
But alas, financial advisors seem to have a terrible time looking at public issues with similar courage. The wolves are not necessarily on our client radar, yet they are everywhere, looking to destroy us in different ways. This is where public issues become our business, because they threaten our clients and our abilities to plan. Unfortunately, we have developed the habits of saying nothing at all. This speaks to our understanding of public policies that affect all of us. Why are we struck dumb when the threats to peopleâ€™s financial well-being stem from families, companies, communities and countries?
It is just numerators versus denominators, after all. Numerators are you and me, units. Each client is a numerator. Small companies are numerators in the context of all other companies. Towns and cities are numerators as governmental units. Ecosystems and currencies are numerators in the context of all nature or all currencies. These are money forces that can work like floods, volcanoes and earthquakes to wreak havoc to all that gets in their way.
And we must think about that when we build, using the sorts of bricks that could resist them. What kind of building could resist industries that have become too big to fail? Or survive the problems of bond dealers, bankers and brokerages who have acted without restraint?
Systemic breakdown is not the sort you necessarily see in wolf guise. And yet suddenly it can cause infrastructure to crumble, ecosystems to fail, immigration to become a problem and war to break out. It can also spur depression, recession, currency failures. And yet, as we all learned in CFP school, you cannot diversify away from it.
How does the financial planning profession play in this world? As we watch the macroeconomic systems increasingly dictate the conditions of modern life, what can we offer to help?
First, to help our clients solve long-term financial problems, we have to look at the sort of world they anticipate. And that means being serious enough to look at these major public issues.
This also suggests that financial planners must stand for some inviolable concepts against the lurking evils of Big Bad Wolves. For example, we might take the stand that all persons engaging in financial transactions of any sort should have access to skilled, knowledgeable fiduciary advice based on a personal relationship. In addition, we might stand for long-term currency stability and reliability.
Currency consistency is a big deal. It seems obvious that prudent planning must take the underlying reliability of money for granted. After all, money is inherent to all that is being â€œplanned.â€ But is money, as currently configured in our world, reliable enough for long-term â€œplanningâ€? This is no idle question. We are asking our 40-year-old clients to steer toward their lives at 80 by primarily relying on the shifting sands of this item. What are the implications? Going back 40 years, we find 35 cent gas, $1.25 six-packs, brand new prestige cars of $2,000 to $3,000 and large $20,000 homes in major metropolitan areas. People retired on $800 per month pensions and sent their kids to $1,500 per semester liberal arts institutions.
Those were different timesâ€”ones of relative stability before we went off the gold standard, before there was an onslaught of baby boomers, before there were computers in every home, before we saw double-digit inflation and interest rates, before the stock market zigzagged in 1973-74 and before the social upheavals of that time. Still, if we do not advocate currency reliability/stability, who will?
We might also, meanwhile, support the notion that people are primarily responsible for their own financial health under most circumstances. But we might also have to recognize that life is unpredictable, and that people canâ€™t always be responsible for health problems, continuous employment, broad demographic trends, natural disasters, the urgent demands of family or other unforeseen circumstances that generate long-term planning problems and hinder short-term viability. These problems may generate appropriate rationales for public intervention or private charity. Or not. Can society afford baseline guarantees? How might financial planners anticipate those Big Bad Wolves? Should we be taking positions on public issues?
Those wolves are out there preparing to unleash awesome fiscal forces, the money forces. When they huff and puff, will our houses be made of straw, twigs or bricks? Will we have taken the wolves seriously enough to have made a difference? And if we do, how will we know?
Or should we just sing songs of denial?
Richard B. Wagner, JD, CFP, is the principal of WorthLiving LLC, based in Denver. He is the 2003 recipient of the Financial Planning Associationâ€™s P. Kemp Fain Jr. Award, which recognizes a member who has made outstanding contributions to the profession.
Originally published in Financial Advisor Magazine July, 2010