Some financial planners carry on as if they were the Wizard of Oz, terrified that allowing clients to see what is really behind the curtain of financial planning would somehow diminish their power or mystique.
In fact, says Dr David Lazenby, principal of ScenarioNow and a psychologist who has worked with elite athletes and the military, the financial planning process should be less Oz-like and more like the Build A Bear experience, which enables customers to design and build a teddy bear to their own specifications.
Lazenby says the more effectively a financial planner can lay bare the financial planning process, and guide a client through it, the better the likely result for planner and client alike.
Lazenby visited Australia last week to speak at the PortfolioConstruction Forum Conference in Sydney. He says it’s not enough to let clients see how the process works, the process also has to be appropriate for solving the problem the client has. And it has to empower clients to make appropriate decisions about the choices they are facing.
Lazenby says an advice process must be designed to match how individuals make decisions on a range of problems. Advice that is compliance and systems-driven, and which forces individuals into a decision making process that makes no sense to them, is unlikely to be satisfying.
Seek but don’t act
Lazenby says this helps to explain why so many clients seek and receive advice, but don’t act on it. They do not buy into it.
“Our research is that most consumers, if you ask about financial planning, they perceive it as a mixture of marriage therapy, math class, and a doctor visit,” he says.
“That’s not something that people want to sign up for. So we’ve got an experience design problem.
“Advisers and the advice industry, their experience design is very poor.”
A response is to use technology to push more and more information onto advisers, under the misapprehension that more information equals better decisions. It doesn’t, Lazenby says.
“So I can look at my account. So?” he says.
“You’ve got this experience design problem. You’ve got this mismatch between the advisers and the companies – corporates or smaller advisory firms – [and] designing a decision process that allows me [the consumer] to have a greater ownership over the outcomes. The problem is that the six-step advice model is not a decision model. I would laugh at it, if I was a decision scientist. It’s six steps and it’s designed from a planner’s point of view. It’s not a decision model; they’re steps.”
Match the problem
Lazenby says a process has to match the problem it’s trying to solve. Not all problems are the same.
“Certainly there are some problems that are simple – like where to go to dinner, or whether to give an allowance of $5 or $10 to somebody,” he says.
“There’s other advice that’s harder, and you might want to study up on a little bit – and that might be choosing between a fixed rate loan on a mortgage or a variable rate. And then there’s some types of problems that really don’t have a right answer and your [advice] is to really just walk through their choices
“I call that being a ‘choice architect’: designing a process that helps somebody choose; and then while they’re choosing you’re a ‘professional reassurer’ – you’re reassuring them that their choice is good enough. That’s where one of the problems comes in: people confuse a good-enough choice with a perfect choice; and their advice processes get mixed up with that too.
“And then there’s problems that have no right answers – problems that just have trade-offs. Most advice falls into one of those types of problems: simple; something that’s just hard; something that’s a little complex; and something that just has no right answers.
“And there’s a gap between the advice processes that are designed by firms and advisers, and the decisions that consumers have. There’s a tendency to throw one advice process at all those types of problems. One of the phrases I use is: ‘It’s not simple, stupid’.”
Doomed to fail
Lazenby says one thing is clear, however: advisers are doomed to fail if their value proposition is based on having access to more information than their clients.
“Those advisers who made a living providing information are really challenged today,” he says.
“Advisers who have an ability to deal with no right answer, or with complexity, those are the advisers and the advice processes that are really going to add value down the line. By value, I mean an experience.
“I talk about ‘experience design’ in financial planning. Most advisers have what I call a ‘Wizard of Oz’ experience design. Dorothy just wanted to go home. So she sought out the wizard and the wizard was the expert, all-knowing; but the Wizard had some of his own needs being met: go out and get stuff, and come back. And the advice process is a lot like that: you can’t come and see me unless you know exactly what you want [and] you’ve got all this paperwork. And then I’ll go behind the curtain and do some analysis; you come back; I present you with stuff. That’s an older school…model.”
Engages consumers
A better model engages consumers by making them part of the decision making process, Lazenby says. It’s how Build A Bear works. Instead of buying a bear off the shelf, the customer gets to work with a Buuild A Bear employee and is involved in the creation of the final product.
“The greatest challenge [for Build A Bear] was having the people who build the bear in front of the child have great conversations with them, and not just run the machine,” he says.
“It seems silly, but that was the biggest constraint to improving the experience. It wasn’t improving the fluffer or improving the type of clothes that you offer – for $10.99 extra – or the type shoes that you offer.
“An advice process designed properly, with technology, you can do a Build A Plan process, where there is that transparency. You see the fluff going in. That’s one advice model – we design those.”
“We’re willing to have greater ownership of that bear, because we built it. Same thing with financial planning. A lot of the times people aren’t involved in the building of it.”
Lazenby says his experiences with the armed forces gave him an insight into
technology has a role to play in helping people make better decisions, but only if it is used the right way.
“I designed war gaming for the navy, and also I designed software interfaces for our Special Forces in the field,” he says.
“For the first time they had Palm Pilots in the field and they had all this data, but it wasn’t organised in a way that they could make decisions.
Very hierarchical
“Decisions in the military were very hierarchical. It wasn’t organised so [they] could make decisions in the theatre. Those are two big cultural decision process changes that had to occur. The generals had to be willing to have the structural decision changes made at the point where the decisions mattered – which was in the field. And the way that the Special Ops people got the information had to be organised so it was useful.”
Advisers face similar challenges, Lazenby says. Technology for technology’s sake, however, is a time waster.
“Monte Carlo [analysis] is a form of hypnosis,” he says. “Just because you can do a gazillion iterations of something may make it precise, but not accurate.
“I spend my time designing advice processes…so I’ve seen advice being made. The challenge is that advisers whose expertise is archiving knowledge, they’re the ones who are going to struggle the most because knowledge is available to everybody.
“So they hide behind the curtain, and they haven’t remodelled their advice process to use technology to improve their ability to give advice.
“Advisers have a tendency to see technology as something that can either get in their way of delivering advice, or automate their advice. It automates simple advice better than an adviser does, and that’s what it’s good for. But it’s not good, yet, for advice where [adviser and client go] through a decision process together.
“Advisers are challenged because they do not have a strong enough skill set to walk clients through an advice process, and they over-rely on something else telling them what to do.
“[That is] a species that’s going to die pretty quickly. It’s just not going to be delivering experiential value for somebody.”
