Carl Richards, CFP, is the author of "The Behavior Gap" and "The One-Page Financial Plan: A Simple Way to Be Smart About Your Money." He also writes the weekly "Sketch Guy" column for The New York Times.
- Asset-allocation suggestions that run out
to two decimal places.
- Life expectancy projects that show up in months.
- Advisors telling clients they’re 97.4573%
confident clients will meet their retirement goals
after using Monte Carlo calculators
It’s not the tools’ fault. It’s us.
We are so dead set on the idea that our value
must come from providing certainty that we will
go to some pretty dramatic lengths to deliver it—
But certainty is a myth.
That’s a problem because humans (you and
I included) want certainty more than just about
anything else. We want someone to tell
us what’s going to happen next. When will the
rain come? Where will the buffalo be next season?
What will the market do next quarter?
We’ve built an entire industry on the idea that we
can come down from the mountaintop with
our version of stone tablets and give the people
what they want. We have bigger computers,
more research staff, and larger budgets. We’ve
designed an industry to sell certainty.
But the reality is that our clients’ lives and
the markets’ movements come with irreducible
uncertainty. The business we’re in lives at the
intersection of those two uncertain paths. When
we promise or imply certainty through things
like algorithms or investment policy committees,
we’re just exacerbating the problem.
People know we’re making stuff up.
They know that the things we call forecasts
or assumptions are nothing but guesses. And the
more we pretend these forecasts or assumptions
are something other than guesses, the more
we’re complicit in the game that results in
Certainty is an expectation that we simply
But here’s a secret: We don’t have to.
I’ve paid attention to some of the best leaders
in our industry, and they’ve stopped playing the
game. They made transparency a priority
(crazy!) and are honest, sometimes brutally so,
about the idea that they didn’t know exactly what
I know that when I made the switch and started
using the word “guess” during client conversations,
people relaxed. People felt less pressure, and
as a result, they felt they could relax. It emphasized
they were in safe company, and we were working
through a process. As a result, they valued my
advice more, not less, because it was reality-based.
May I make a humble suggestion?
Real financial advice doesn’t need to defend
outdated ideas. Instead, we should embrace our
role of being guides in a changing world. We
have plenty of tools and experience to help us help
our clients deal with what we find together.
That’s what real human beings want. That’s what
our clients want. They want a trusted advisor
to guide them through uncertainty rather than sell
them the false promise of certainty.
That’s a job we as an industry can do. The question
facing all of us is whether we’re willing to let
go of the outdated promises we made the
cornerstone of financial advice, and embrace
This article originally appeared in the December/January 2018 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.