This article is taken from our autumn 2020 edition of Equinox. You can view the full version here.
We believe that, as financial planners, one of our core roles is to help our clients find confidence and clarity around their finances. Hopefully, that leads them to being able to make better financial decisions for the benefit of themselves, their families and even the world in general.
In my experience, the level of wealth a person has doesn’t dictate the amount of “confidence and clarity” they have. I have witnessed people with significant wealth who lack both, and even those who are confident that they have enough money can often lack clarity on what to do with it.
One of the simplest questions we ask, which for many people is incredibly difficult to answer, is “what is the purpose of the money?” or, an extension of that, “how would you like to enjoy your money?”
Many people have never taken the time to truly think about this, yet I have found that unlocking the answer can transform the relationship that people have with their money and, in turn, how they utilise it.
We believe that money should be a positive thing that makes people’s lives better – whoever those people might be. Yet, often, we see that money can instead cause stress and confusion.
The credit crunch certainly eroded people’s confidence and COVID-19 has created huge uncertainty for us all, shattering any clarity we might have had!
In order to help our clients, we firstly need to understand how they are currently feeling, as it is often our thoughts that will dictate our actions, especially when those thoughts are fuelled by emotions. The field of behavioural economics is fascinating, and we will be exploring this topic through various communications over the next 12 months or so.
Perhaps one of the best ways to understand how we are feeling is to look at the six human needs as defined by the American motivational guru Tony Robbins. Regardless of whether or not you are a Robbins fan, he does have some excellent material.
According to Robbins, the six human needs are:
- Certainty: assurance you can avoid pain and gain pleasure
- Uncertainty/Variety: the need for the unknown, change, new stimuli
- Significance: feeling unique, important, special or needed
- Connection/Love: a strong feeling of closeness or union with someone or something
- Growth: an expansion of capacity, capability or understanding
- Contribution: a sense of service and focus on helping, giving to and supporting others
When we consider the impact of COVID-19, it’s clear that it has significantly affected how many of these needs are being met.
I think of them as fuel tanks; if our uncertainty tank is low, we struggle to take on more. Some of us have larger tanks in some areas than others, for example, as a business owner, my uncertainty tank needs to be larger than others. However, at the peak of the COVID-19 crisis in March, my uncertainty tank had run dry and I desperately craved more certainty.
I think it’s useful to keep a score of how we are feeling in each area on a regular basis, but for the purposes of this article, I’d like us to look at the bigger picture.
I am guessing that for almost all of us, the pandemic has ensured that our certainty score has plummeted. The level of change has been immense and for many people the sheer scale of the uncertainty has paralysed them, leaving them incapable of making new decisions. On the other hand, those who have been in full lockdown are craving variety and change, which is no doubt why so many DIY projects are being undertaken!
If you are a key worker or able to add value in these troubled times, your significance score would have increased. But, I would suspect, for the vast majority of people it has plummeted. My mum, for example, volunteers at a charity which no doubt boosts her significance, but this has stopped due to COVID-19.
She is also a fantastic mum and grandparent, but even these roles have been reduced. We have all lost connections with friends, colleagues, social or sports clubs and, let’s face it, it’s hard to feel significant when you are stuck in the house 24/7.
When it comes to connection and love, we have all struggled with the lack of hugs and lack of contact and while video calls have provided some much-needed connection, they can only do so much.
Looking at growth and contribution, these vary dramatically depending on individual circumstances and yet I would still guess that, for most, the scores are lower than they would have been.
It’s clear to see that, for most people, the majority of their needs are not currently being met and therefore confidence and clarity have been severely reduced.
Whilst we may not be able to help meet all of those needs, we can certainly help to improve the scores in a number of areas, and even a small uplift in the scores can have a big impact on how people feel.
Our primary purpose as a company is to make people’s lives better. Although we might not be able to wave a magic wand and make COVID-19 disappear or markets rise, we can do our best to make people feel better.
So, how can we help?
Step one: a lifetime cashflow
The first step is to explore all your financial needs both now and in the future, factor in anything and everything that might affect your financial life and, from that information, create a lifetime cashflow forecast to ascertain exactly where you are heading. We can then stress test that forecast with different assumptions around future returns until we have a model that you feel comfortable with.
Having a better understanding of your position and capabilities should reduce uncertainty and increase growth.
Step two: understanding the purpose
Hopefully, your plan will show that you won’t run out of money and will therefore, by default, die with more money than you need. So, the next logical questions are:
- What else do you want to do?
- When do you want to do it?
- Who else do you want to help and how would you like to help them?
We have seen clients spend more on themselves and support children and grandchildren in life changing ways. Hopefully this spending causes a rise in certainty by increasing pleasure and avoiding pain. Supporting others also creates feelings of significance, connection and contribution.
Step three: revisit the lifetime cashflow
We then need to stress test the new plan of spending and giving more to ensure it is robust, reinforcing your comfort and certainty.
Step four: enacting the plan
If you are gifting money, be that income or capital, how do you communicate that to people? How do you make sure that it fits in with their financial plans? How do you work as a family unit?
We usually issue questionnaires to family members so that we can fully understand how any gift can be used for the maximum impact. We also recommend hosting family meetings. These are some of the most transformative and enjoyable discussions that I have ever had the privilege of attending.
This stage can often improve the scores in all six areas.
Step five: clarity on your wills and wishes
If beneficiaries don’t fully understand your financial position, how you got there and the rationale behind it all, it can often lead to confusion and sometimes even frustration:
- Why did you pay so much in inheritance tax?
- Why didn’t you spend more on yourselves?
- Why didn’t you help them earlier when they really needed it?
We have encouraged many clients to write what we have termed “letters of love” to accompany wills, trusts and pension nominations.
The idea is to explain how the money came about, why you have dealt with it in the way that you have, what your hopes are for how the recipients will utilise the money and any other guidance that you wish to give them.
Every single one I have read has brought a tear to my eye. Whilst some don’t want theirs to be shared until they are gone, the ones that have been issued during their lifetime have had an incredible impact for all involved. We have many examples that we can share to help get you started.
This, of course, can increase connection and love, as well as contribution and significance from the support you are providing.
Whilst it is certainly true that money can’t buy you happiness, I truly believe that, with a bit of thought and soul searching, it can contribute to meeting all the human needs, leaving whole families happier, closer and more fulfilled as a result.
Disclaimer: The content contained in this blog represents represents the opinions of Equilibrium Investment Management LLP (EIM) and Equilibrium Financial Planning LLP (EFP). The commentary in no way constitutes a solicitation of investment advice. It should not be relied upon in making investment decisions and is intended solely for the entertainment of the viewer. Past performance is never a guide to future performance. Investments may (will) fall as well as rise and you may not get back your original investment.’