Every once in a while you hear yourself say something to someone, and then, inside your head, you immediately hear yourself saying to yourself, Never again: I must figure out a way to be able to never say that again.

Years ago that happened to me when I worked at a conventional financial planning firm and I heard myself say to a client, I don’t do revenues, by which I meant something like I don’t do career counseling, kinda like when a house-cleaner person says, I don’t do windows.

Hearing myself say that out loud, I breathed an internal never-again and kinda shook-on-it with myself, all barely consciously and all within the span of a second, and ever since I’ve done my best to work in a way that encompasses a person’s or a couple’s or a family’s entire financial life, or a business’s entire financial existence — and not just their balance sheets.

(Aside of the inside-baseball variety, which most readers, should skip: By contrast, asset-gatherers, by which-side-of-your-bread-and-butter-is-your-bread-buttered definition, are focused mostly on a client’s assets and, to some, but a much lesser extent, on a client’s liabilities — because liabilities are anti-assets and therefore can be used to either increase assets (by increasing total liabilities) or decrease assets (by decreasing total liabilities, such as by paying down a mortgage) — all of which leaves the part of a client’s life having to do with revenues and expenses a/k/a the client’s P&L at least one large step removed from the asset-gatherer’s revenue-generator machine and, all things being equal, therefore at least one large step removed from the asset gatherer’s purview. And I don’t know about you, but when I’m sizing up a business, my favorite financial statement to look at first is the P&L a/k/a the income statement, and then the cash flow statement and last of all, the balance sheet.)

* * *

This sort of internal never-again whisper happened again a couple of weeks ago, when I was having lunch with a very nice fellow and saying something to him which I often say to put people — normal folks, acting like normal human beings — at ease. But this time the words were slightly different (no two renditions are identical!), and this time time the words went far enough to draw out a no-no-no-no within me. It went something like this:

Look around us. I bet you dollars to donuts (or doughnuts) that half the people you can see right now don’t have their estate planning done — no trust, no medical directives, no powers of attorney, etc., let alone a will.

And if we expand our view to encompass everyone within five miles of here, I’d bet you we’d find the same thing. And this is downtown SF! Expand out to include the whole state and gosh only knows what the ratio is, but I’ll bet it’s even lower — 40% maybe? I’ve never seen stats, but I can tell you that, in the world in which I ply my craft, half the folks coming to me do not have their estate planning done. And that includes people with young kids — the people who arguably need it the most.

So, my friend, you should not feel bad that you don’t have your estate planning done. Lots of people don’t.

You’re just being human. It’s not about you. It’s about all of us humans. We just don’t like going into the belly of this particular beast, do we? The beast we call: death.

…more ►

Friedman’s Law of Triangular Relationships

Thursday, April 4, 2013 at 2pm
By John Friedman

I’ve said it before, and I’ll say it again: the odds of a commercial relationship involving three or more parties going off the rails are far higher than commercial relationhips involving two parties.

There’s a reason for this. Say that three parties, called A, B and C, are working together on a commercial endeavor. The endeavor could be just about anything, but to give context, two classic cases of three-party commercial endeavors are architect/builder/owner and stockbroker/brokerage/customer, while a case of more-than-three-parties is your basic complicated business transaction involving Client 1, assisted by Client 1’s lawyer and Client 1’s CPA , all of whom are doing a deal with Client 2, assisted by Client 2’s lawyer and Client 2’s CPA, and on and on and on for big transactions.

But lets just look at the simple three-party situation without context, OK?

* * *

Why is the three-party-or-more relationship difficult? Oh why oh why oh why is it more delicate, more fragile — more brittle — than a two-party relationship?

Because it’s a triangle, that’s why, and that means there are four different information flows involved.

Let’s count them all, shall we?

First, A and B can talk. That’s one conversation.

And B and C can also talk. That’s a whole ‘nother conversation, separate from the conversation A and B have.

And then A and C can talk. That’s yet another.

And then they can do an all-hands, with A and B and C all in one conversation.

That’s a total of four different conversations, any one of which can get out of synch with any one or more of the remaining three conversations. And that’s where things can go awry, where they can get out of whack. And just think about all the possible combinations that can happen in the two-clients-and-their-lawyers-and-their-CPAs situation I trotted out above. Combinations and permutations and iterations and such, oh my!

By contrast, if the transaction is just a two-party transaction, t’is but one conversation that can take place, and that’s A and B talking.

So the triangle serves up lots of ways for information to travel and slither and slink, while the line affords not much by way of combination; it brooks no permutation nor allows any iteration.

Nuff said. And simple: no synch necessary!

* * *

And then there is the non-commercial side. Think about it, eh?

Let me get personal and historic here (which is a whole lot better than getting hostile and histrionic, right?).

When I was a kid, there was a time when I had a single best friend; his name was Doug. I once accidentally (I swear!) hit him in the face with the sharp, blade end of a shovel. Really. We were snow fighting, throwing shovels full at each other, and one of my shovel-throws happened to have the shovel make contact with his face. Oops.

Later on, though, I hung with Marty and Scott, pretty much equally; we were a trio, pretty much always together. Scott lived next to a little slice of woods between a Burger King (which is still there) and a skinny two lane road (which then as now is called Lake Cook Road, aka County Line Road, demarcating the boundary between Cook County, in which Chicago sits, and Lake Country, which starts about 28 miles north of Chicago’s Loop, and which is now fully a 10-lane divided-highway of a road and surely represents the very worst that modernized suburbia has to offer), and in those woods we surely did play all the livelong day.

Those woods are gone.

But given what I understand now of the ways of the world, looking back I can see that the single-best-friend situation was inherently more stable than the trio was, though nothing could’ve been further from any of my young buddies’ and my thoughts at the time — and, no, the trio never had anything get out of whack and, no, the shovel-hit did no permanent damage (nor the broken window that followed soon after . . .).

We were all just hanging and having fun. Though apart we did eventually grow.

In the commercial world, though, where hanging and having fun and being young ‘uns is definitely not part of the mix, it’s:

Trio (or more) beware and be vigilant!

Experiential Financial Planning

Saturday, March 23, 2013 at 11am
By John Friedman

People often talk about how there are two types of some something-or-others in this ol’ world of ours.

For instance, you often hear that there are only two types of people in this world, after which you hear what those two types are, e.g., givers and takers, or moochers and makers, or fighters and flighters, or, probably the most obvious and certainly among the most age-old, your classic duality of males and females, etc., etc., etc. And then there’s always that puzzle’y, self-imploding one, which says that there are only two types of people in this world: people who make lists of how there are only two types of people in this world, and those who do not.

All of these . . . bifurcs let’s call them, are suspect. All are too simple by half. Even the seemingly tautological male/female bifurcation is less than perfect because there are plenty of folks who do not fit within either of those two genders.

Nonetheless, the twosie bifurc can be a helpful tool for explanation.

* * *

There are two ways to do financial planning.

One way is via data dump followed by plan generation followed by plan dump followed by implementation of the plan. In this process (a) client dumps client’s data onto client’s financial planner, e.g., biographical data, assets and liabilities data, income and expense data, etc., as well as, with good FP’ers (short for financial planners), a whole lot of non-numeric data, and then (b) FP’er takes data and skillfully plugs it into planning-ware, consisting of people and software, and hopefully including a very good knowlegebase and a whole lot of wisdom, and then (c) planning-ware kicks out plan, which (d) FP’er gives to client, after which (e) FP’er and client discuss plan and then (f) FP’er and client make plan happen.

I think of this approach as conventional financial planning. Remember: I am making a broad generalization here. Though no doubt my biases are showing at least a little bit, too.

The other way is via the client having an experience. In this process (a) FP’er guides client through a series of experiences (conversations, exercises, thought experiments, etc.) which help client better understand client’s current financial reality and potential future financial realities, as a result of which (b) client and planner build up a joint understanding of what is, and what is not, working in client’s financial life, together with a joint understanding of what is, and what is not, within the realm of possible future financial lives towards which client and planner can aim their joint efforts, after which (d) FP’er and client jointly put together a plan for how they will direct their efforts towards one of those possibilities and away from the other possibilities, after which (e) FP’er and client make that plan happen.

I call this approach experiential financial planning, or EFP for short. It’s the kind I most often do (you could tell, right?).

EFP is not a perfect fit for everyone. For instance, people who are very busy and/or who are delegators par excellence will feel like the experiences within the EFP process are wastes of their time — that they’d be better off spending their time elsewhere. And for those who feel that way, the experiences usually are wastes of time because the experiences work best when a client lets them in — let’s them wash over and take the client to whatever place they might lead, and then let’s whatever is left after the experience itself is over to then percolate and pickle and ferment and foment and otherwise occupy the deep recesses of the client’s mind and the quiet moments of the client’s thoughtful repose. Of such things do changed lives come.

So for those folks who aren’t a good fit for EFP, I offer conventional financial planning.

But for those who are OK with putting some time into the process and who are actually kinda excited to hear that they are going on a bit of a journey from which they will emerge at least a bit smarter about their financial lives and at least a bit more able to direct where their financial lives are going, EFP can work great.

And the reason it can work great is that experiential financial planning changes people. Experiences change people; pieces of paper typically do not.

And that is why conventional, data-dump-begat financial plans a/k/a turnkey financial plans a/k/a plug ‘n play financial plans a/k/a canned-plan financial plans a/k/a cookie-cuttered financial plans a/k/a boilerplated financial plans a/k/a check-the-box financial plans a/k/a use-the-last-one-we-did-but-change-the-names-and-birthdays financial plans a/k/a off-the-shelf financial plans can end up sitting right back on a shelf — for instance, a top shelf where the client never looks, in the corner of a study where the client never goes. Or, worse still, they end up unread and in the circular file on the floor, waiting to be emptied into the bigger circular container nearby, and then ultimately in the place where all unwanted things go).

By contrast, EFP-generated plans end up, by their very nature, incorporated into the client’s way of being, helping the client lead a better financial life, whatever that might mean to the client.

Yay.

I’ve Got a Problem with “No Problem”

Friday, March 22, 2013 at 2pm
By John Friedman

Today I was on the phone with a customer service person from Vanguard and, sorry to say, didn’t have a great time of it.

Being a customer service rep is a very difficult job. In the late 90s when I worked for E*TRADE (do they still all-cap it? That was the official way to write the name of the company back then) there was a time during which I saw one of the main customer service centers doing its thing, in Rancho Santa Fe, outside of Sacramento, over several days. Back then Rancho was a big CS locale; there were lots of tilt-ups full of lots of CS reps. Don’t know if they made the cut . . .

Back then was the Pleistocene Era in terms of CRM (customer relationship management) tools and software, so I’m sure it looks different these days when you watch CS reps go about doing their work, but probably much is also still the same: they wear headphone phones, they look at screens, they sit in cubicles within big pods of cubicles, they have to know about, or know how to access information about, a great variety of aspects of the business, and, in addition to there being a lot of clocks and timers everywhere, they have their work monitored in all sorts of ways.

Oh, yea, and then there are the customers they have to interact with all day long, many of them (most of them?) irate or at least tending towards irate, if for no other reason than the customer just gave a lot of information to the great telephone menu-tree machinery in the sky, only to find the human at the end of the great telephone menu-tree machinery in the sky asking for the very same info all over again . . .

So you have to hand it to these folks. It’s a hard job.

* * *

And then there’s the Vanguard part of the unhappy call I had with customer service earlier today.

Now, I’ve written before that I think most people should have Vanguard in their life — because, if left to its own devices, Vanguard is better for more people’s financial health than any other financial services provider out there, yes, but also because they usually have very good to excellent customer service.

You can measure the quality of customer service, in terms of direct experience and anecdotal evidence anyway, in two ways. First, you can look at how the CS folks are doing when they’re just doing what they’re doing. And second, you can look at how well they respond when something gets screwed up, as inevitably will happen from time to time if you do complicated enough things with them frequently enough.

I’ve always found Vanguard good on both counts.

There are, of course, other measures of customer service, but they’re typically not measurable by any single person’s direct experience, but, rather, reside within the CS management’s knowledge, derived from all that monitoring of the reps that they do — e.g., the frequency with which they screw up, both at the individual and company-wide levels, and how efficiently they answer questions, both at the individual and company-wide levels, etc.

I’ve never seen numbers like these published by any financial services company. Have you?

So the personal experience, anecdotal approach will have to do.

* * *

Put these two things together — customer service and Vanguard — and what you get is the CS phone call I had with Vanguard earlier today, which really didn’t work for me, for several different reasons.

First off, the CS person kept talking on top of me. Might this be technology? These days most big companies use VOIP (digital, Voice Over Internet Protocol phones, which plug into the Internet rather than into the phone system per se), and I find that a lot of VOIP calls suffer from a lag, i.e., it takes a while for their words to arrive at your ears, and vice versa, while good old POTS (Plain Ol’ Telephone Service) phoneware never has any, i.e., it’s instantaneous, like you’re talking to someone standing next to you in the real world.

The problem, then, is that that lag can get conversations all out of sync, with each person talking on top of the other, much like what happens on a lot of cell phone calls or, if you watch TV, like what you see when you watch a real-time interview spanning the globe, where the lag is often as long as several seconds, so that interviewer and interviewee have to really work hard at waiting for the lag-time to run its course, in order to keep their call and response separate.

Does that sound familiar? Have you been there/seen that/heard that?

And on some VOIP systems it seems like you cannot hear the other person when you’re talking. and vice versa, so there is no barge-in, no way to interject, no way to short-stop anything. It’s one-way talking, rather than two, kinda like how most speakerphones (other than the near-ubiquitous in Silicon Valley and conference rooms elsewhere Polycom batphone and its ilk) sound.

And then on the CS call with Vanguard there was that classic not-good characteristic, which is that the CS rep was not really answering my questions. That’s never a happy thing. But maybe that was me.

* * *

Those two demerits wouldn’t get me a-writing today, though. What did get me a-writing, and what really got to me in a bad way, was what the customer service rep said at the end of the call, after I had routinely thanked the rep (even though I wasn’t really all that thankful), to which he responded by using a simple two-word phrase:

No problem.

No problem. No problem? No problem!!! Argh. Call me Client Eastwood protecting his precious lawn, but there is just some something about that phrase — which these days is more and more taking the place of you’re welcome or the more common, thank YOU — that just totally sends me.

Why?

I think it’s purely a sense-of-the-language thing.

More specifically, I find each of the words in the phrase inappropriate, and I also find the phrase itself inappropriate. That about covers 100% of the possibilities, doesn’t it? First there is the no. A gracious thank you should not generate an in-gracious no-anything. And then there is the word problem. A gracious thank you should not generate anything having to do with the word problem.

Why?

Because both words are negative, and negatives have no place in expressions of gratitude.

But then what really sends me is how the phrase itself, which, to my 50-something ears anyway, sounds, something along these lines:

This whole interaction was about me, and it wasn’t all too terribly inconvenient, because your needs are inconsequential compared to my own, so shoo, go on your way, get outta my hair, and let me get back to what I really want to be doing and what’s really important. To wit: me.

A good attitude for a good customer service rep is the opposite:

This whole interaction was about you, and I’ll do everything I can to help you, so please do let me know if there’s anything else I can do. Thanks!

Does anyone else hear it this way? I’m pretty sure my 80-something mother does. And that’s gotta count for something, right? And then there are also a bunch of other people who’ve told me (when I asked . . . ) that they find the whole no problem thing a problem.

So CS people of the world — non-CS people of the world, too! — please do think about this no-problem thing.

Because, to some of us — maybe all of us born before, say, 1970 — my hunch is that no-problem really *is* a problem.

Paying for Financial Services: The Hidden Balls, the Magician’s Hands, and the Dollars Effortlessly Eased Away from You

Wednesday, March 20, 2013 at 2pm
By John Friedman

I get a lot of value from listening to Dave Ramsey on the radio. His politics are about as far removed from mine as possible, and I often disagree with what he says, but he often serves up a lot of food for thought, which, on a good day, can nourish my financial thoughts and quench my financial curiosities for a good part of that day.

Thank you. Thank you for that, sir.

Recently I mentioned how I’ve done ten thousand hours of writing, and then some, tying in with Malcolm Gladwell‘s idea of full-bore expertise requiring about ten thousand hours of efforting. So how does Dave come out on that scale in terms of call-in financial talk-radio?

I don’t know Dave’s work history all that well, but if we assume that Dave typically does three hours of radio each day, for four days each week, then he would be doing about 500 hours of call-in financial talk-radio hours each year (he takes some vacay, right?). And then, if we assume that he’s been doing it for thirty years, Dave clearly has his call-in financial talk-radio act down cold — and, why, with these assumptions, he’s all the way up to 1.5x the Gladwellian number (one and a half Gladwells?).

Now if only he could be more open-minded about how the government is not all bad . . . especially when you compare it to other large, powerful, self-perpetuating, self-aware, self-interested institutions, and, for that matter, if he could be more open-minded about how there are many, many more ways than just one to skin a peace-financial cat.

* * *

Speaking of large, powerful, self-perpetuating, self-aware, self-interested institutions, the other day Dave was talking about how credit card companies are superbly skillful at coaxing dollars out of credit card users, mostly via the overall remove that credit cards put into the entire purchasing decision — i.e., they divorce the pain of the spend from the pleasure of the buy — but also via all the miles and cashback programs they offer, all of which, he argued, when taken together, lead people to spend a lot more than they would if they were simply spending cash or using a debit card.

No matter how smart or mindful you are, Dave argued, you’ll spend more when you use a credit card than you would if you use cash or a debit card. The Chases and the Citis and the Wellses and the BofAs of the world [did they cabal together and agree to use names that are hard to pluralize in writing?] have got your number, and they’ve got it down cold. So you better believe that they’ll suck your cash right out of you.

I don’t feel as strongly negative towards credit card usage as Dave does (as best I can tell, he thinks no one should use credit cards, not even people who are rich and debt-free, while I think that, other than people with debt problems and people who’ve had credit card problems anytime in the past, everyone should use them). But I do concur with him about what the CCCs (the Credit Card Companies) are good at, i.e., soaking as much of the economic essence out of as many of us as they can, by using as many of their sure-fire economic-essence sucking methods as their fiendish mind-meld plus mind-trick experts can devise.

Because behavioral finance theories can be used for bad just as easily as they can be used for good. Nudges can hurt you. And a mad scientist of the behavioral-finance ilk could make a decent villain in a dark, angst’y Batman flick of recent Christoper Nolan vintage.

* * *

…more ►