Conversations about life and money

Lessons we’ve learned.

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People having conversation about money and life

One year while at university my parents planned our annual trip to the bush. As they drove a sedan and a hatchback they thought it would be a treat to rent a high-clearance SUV for the week, making for great game viewing. I am a “car nerd” while my folks really don’t care for cars, so they asked me to make the booking. After some consideration I arranged a Toyota Fortuner. When it arrived, I wasn’t home, and my mother received the vehicle. She rung me rather disappointed: the rental wasn’t much higher than their own cars. Perplexed I rushed home.

Upon arriving home, I found in my parents’ driveway not a Toyota Fortuner but a Porsche Cayenne. My mother (a capable, knowledgeable and world-wise woman) had received the keys and simply not realised the difference. What she saw was a vehicle that did not match her expectations at all: something low and sleek without the high-ride height and big, open windows she wanted.

When clients meet with us they are on a journey. They come to us because they want advice on the best route(s) to travel and the best (investment) vehicle(s) for their circumstances. Much as my parents trusted me as someone who knows cars to select the best vehicle for their goals and budget.

I would suggest that there are two aspects to a client’s investment “vehicle”:

  • The “engine”. This is what happens “under the hood” like process, blending, research, asset allocation and manager selection.
  • The “experience” of driving the vehicle. Tax, liquidity, income, volatility and returns.
    My mother didn’t want to know about the Fortuner’s engine or how it worked. Her expectation was that it worked: she wanted – expected really – performance and reliability. She didn’t need me to unpack with her how that was generated, she just wanted to trust that I had selected an engine which could deliver it. Similarly, many of our clients are not particularly interested in “how the engine works” – they want to know that it works: that it will perform reliably.

This isn’t true of all clients and for some it adds value to discuss the investment engine. Those clients are “welcomed into the workshop” to see our investment process and “get their hands dirty” working through the mechanics of it. My partners and I enjoy – thrive on – the technical investment elements (much as, when younger, I thrived on learning about cars). We enjoy sharing this, but we are cautious to only get technical to the extent that it adds value for a client.

Irrespective of their interest in the engine, all clients will experience the drive.

For example: how and when tax is paid; liquidity restrictions on the investment; performance, volatility and so forth. A conversation about the drive which sets the right expectations is crucial. I will return to this shortly.

How do we tie this metaphor together?

At Omega Capital we call our conversation one about a client’s life and money. The investment vehicle falls in the “money” side of the conversation. We would suggest that a range of high-quality investment vehicles that a client can rely on to perform is… table stakes. It is the minimum a quality planning firm should bring to the table.

Then there is the “life” side of the conversation:

Our client’s journey. What are their goals, fears, aspirations? Who are the people on this journey with them? What is difficult for them to action or even to talk about? What compromises are they willing to make in balancing life and money goals? What are the hard questions we, as their advice partner, need to ask? Or the tough things we need to coach them towards?

Who is most competent to speak to that?

Our client. So, we try to “shut up and listen”.

Against that framework, as planners, we feel the following is important to be aware of:

Photo of Johannes Landman
Johannes Landman, Financial Planner and Partner, Omega Capital

What is obvious to us is not necessarily obvious to the client.

When my mother received the Porsche keys, she simply did not realise they weren’t labelled Toyota. Similarly, we as planners might think some things are obvious when in fact they are not. Think of the difference between total investment charge (TIC) and effective annual cost (EAC); strategic and tactical asset allocation; passive and active; growth or value style investing.

What is important to us is not necessarily important to the client. As planners, we may be proud to know that in our client’s living annuity they own our best offshore equity managers on asset swap at no extra fee… but the retired couple may simply want to know that their portfolio will give them a healthy balance so no single event can jeopardise their retirement income and that it will grow sufficiently to protect them and their income from inflation. How we “built the engine” may not be important to them.

As planners, beware of getting in the way. My partners and I stress that we must be careful not to impose our biases on the client. When I called Avis to query the Porsche they were puzzled at our disappointment. They thought the Cayenne was an upgrade: a better car for the same price. Because they didn’t understand what we wanted from our journey, they gave us their “best view”, not something best suited to our goals.

Now here is the interesting part: the above is what we expect of ourselves as planners and as a firm.

What about our clients?

Using our metaphor there are a few crucial things. As I mentioned above, we may not discuss “the engine” but we absolutely discuss “the experience” of the drive.

A client must know what to expect from their vehicle. What can the volatility be; what time horizon are they investing for (and assessing the investment over) and what are realistically possible returns over shorter and longer periods. If we get the expectation wrong – the relationship fails and likely also the plan.

A client must know how to “drive” their vehicle(s). What contributions did we plan for over time? Or, inversely, how much can a retired client draw from the portfolio? Critically, will they remain invested when the journey gets challenging – as it will at some point(s) along the way.

The best plan can be destroyed by an investor’s bad behaviour.

In closing, after a conversation with us about life and money where a client has made decisions and executed them, what would we want them to “drive out” with? We expect that they would know:

  • Where they are going: their plan.
  • What ride to expect: volatility, time horizon.
  • How to “drive” their investment: drawdown, contribution, staying invested.
  • Lastly, to the extent it adds value for them: how the engine works.

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