Con­fes­sion Time

Psy­cho­log­i­cal traps keep plan­ners from fol­low­ing the advice they give clients.

Financial Planning - - EDITOR’S VIEW - — Chelsea Emery

What plan­ning advice do you give oth­ers but fail to heed your­self? The ques­tion might spark a wry smile of recog­ni­tion. From avoid­ing pa­per­work to tak­ing on too much risk, ad­vi­sors fall prey to the same bad fi­nan­cial habits that be­devil clients.

“I was sur­prised by some of the more sim­plis­tic plan­ning steps ad­vi­sors don’t fol­low,” says Fi­nan­cial Plan­ning as­so­ciate edi­tor Amanda Schiavo, who wrote our main fea­ture, “When Ad­vi­sors Ignore Their Own Advice.” Fail­ing to up­date es­tate doc­u­ments is one ex­am­ple, Schiavo noted. “Also sur­pris­ing were the ad­vi­sors who don’t put a lot of ef­fort into their own re­tire­ment.”

Blame sta­tus quo bias. This psy­cho­log­i­cal ten­dency means we pre­fer to keep things the same. It re­sults in pa­per­work avoid­ance, duck­ing tough con­ver­sa­tions and spend­ing paral­y­sis. Over­con­fi­dence, too, plays a role. Ad­vi­sors who con­sider them­selves ex­perts in fi­nan­cial top­ics of­ten as­sume too much when it comes to their own plan­ning, Schiavo tells me.

“I think plan­ners — and any­one re­ally — can get them­selves into trou­ble when they end up suf­fer­ing from a mix of both sta­tus quo bias and over­con­fi­dence,” she says. “When you are ad­vis­ing oth­ers and know ex­actly what must be done, you can end up telling your­self you’re in no dan­ger and you’ll get to it even­tu­ally. But at some point, even­tu­ally can be­come too late.”

Suc­ces­sion plan­ning may be one area where plan­ners strug­gle most with sta­tus quo bias, notes con­sul­tant Matt Sonnen in his piece, “Ce­ment­ing a Fu­ture Gen­er­a­tion.”

“The in­dus­try con­tin­ues to re­main woe­fully un­der­pre­pared,” he writes. “Ad­vi­sors owe it to them­selves, their firms and their clients to build a ca­reer track for the next gen­er­a­tion of ad­vi­sors.” And you owe it to your fam­ily to get those es­tate plan­ning doc­u­ments in or­der.

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