Benjamin Beck, CFP®New visitors to our home frequently comment on our kitchen, specifically on how great it looks. We had it built a few years ago. While my wife and I graciously accept the compliments, every time I hear someone ‘ooh and aah’ over it, secretly I cringe. It’s not that it’s not beautiful – to the first time visitor it is. But every compliment reminds me of the painful process we went through to build it, and how in the end it wasn’t exactly what we envisioned. While this may sound like a ‘first world problem,’ – the kitchen that wasn’t perfect – the reason it gives me pause to write is because the experience reminds me of some of the inherent challenges of the financial services industry.
Back to the kitchen. For my wife and me this was our first time building a kitchen. I’m pretty handy around the house, but I’ve never built a kitchen or anything near as ambitious. As we started researching how kitchen design works, we discovered that there were essentially three paths available to us.
The first is your standard off-the-shelf product, something you might find at Home Depot or Lowe’s, say. You have someone come to the house and measure, you pick the product, and either you or your installer puts it in. Done.
The second is semi-custom. Similar to the off-the-shelf product, it’s based on the size of the space, with additional options. You get to tweak it a little, but you still have to work within the constraints of what’s available from the manufacturer. In case you’re a kitchen novice, let me give you an example. Say you have a space where you’d like to place a cabinet, and the space is 37 inches wide, but the manufacturer makes that particular piece only in a 34-inch width. Well, you get the 34, and they put in a 3-inch ‘filler’ piece to make it all look whole. You get the idea.
The third option is fully custom design. Nothing is off the table. You want a piece that’s 25 and ¾ inches exactly – they’ll build it for you! You want a color that doesn’t exist? They’ll create it for you! It’s all a function of budget and vision.
Mistake number one: WE chose the easy path.
So let me tell you where the trouble started. Once we started going to different showrooms and speaking with installers, we were actually gravitating toward the ‘much nicer’ options. We liked custom, but it looked like it could potentially cost a fortune unless we were really, really disciplined. Ultimately, we decided to go with semi-custom, because it seemed like a little more streamlined of a process, didn’t feel overwhelming in terms of decision-making, and it was clear to us upfront what the budget would be. (Were I to relive this experience, I would want to be invited to explore my own boundaries before committing to a direction, I would no longer choose what necessarily felt easier, more comfortable, or less ‘expensive.’)
Here’s a great parallel to the financial services industry. How often do consumers decide to choose one advisor over another simply based on cost? This doesn’t mean that better advice should cost more, or that more expensive services are necessarily better. However, if you have evidence that a higher priced service does indeed deliver the quality you seek, isn’t it in your best interest to go that path? What’s the long term cost of saving a buck or two today? Furthermore, how well do you understand what it is that you are getting for your money? (I learned this the hard way.)
Mistake number two: THEY chose the easy path.
The more contractors we spoke with, the more it felt like they were guiding us toward the semi-custom option. Looking back, I think they ‘pegged us’ as good candidates for semi-custom. If I were to have a bird’s eye view of the situation, I’d say we looked like we could afford to purchase a step up from the standard model, but not one of the contractors made the effort to really push us to see if we could handle the fully custom option. They may have made certain assumptions about us – or perhaps they just didn’t want to test us. In any event, going semi-custom was a ‘sure sale’ for them, whereas it may have taken some work on their part to ‘steer us right.’
To be fair, this happens in just about every industry that gives advice – from the medical industry to financial services and everything in between. Advisors want to emotionally appease their clients. They don’t like to make recommendations that rock the boat. Why jeopardize a ‘sure sale’ by presenting options that may be a stretch for their client? As consumers we are frequently being sold what we want, as opposed to what we truly need. It takes courage to point out to a client that what they need isn’t necessarily what they originally had in mind. Clients tend to gravitate to service providers who simply want to please them, regardless of the long-term cost (to the client, that is).
Mistake number three: we didn’t want to be bothered with the details.
When we look back on our experience, we distinctly recall the feeling of being overwhelmed each time we went home after a meeting with the kitchen designers and installers. One person would be asking us about dove-tail drawers. Another would be asking us how we felt about the quality of the oak, the level of oak wood, the different types of paint, and the hardness of the paint. So many times we just wanted to scream: “Too much detail! Our brains can’t handle this, can you please make it all go away?” And by wishing away the thinking, we lost control of decisions that we would have made differently now that we have seen the finished product.
This happens in financial services ALL the time. How easy it is for us as advisors to overwhelm our clients with jargon and technicalities in order to demonstrate our expertise, to the point that they throw their hands up in despair, and surrender. “Take it,” they exclaim, and by doing so they confer their power. A good advisor will make sure the client takes the time to digest the details, to ask questions, and to feel like a fully informed participant in the process. In the long term, an educated and empowered client is the best kind of client an advisor could wish for.
Mistake number four: the contractors thought we had a clue about what we were talking about.
You know that saying ‘I know enough to be dangerous?’ Well, that’s a perfect description for carpentry and me. The second the contractors discovered I knew how to wield a saw, they considered me an expert, one of their own. While we were at the table with them, I felt like I understood what they were saying. Then we’d go home and my wife would ask me a question about what they said, and I’d be at a complete loss. It was so frustrating. I can’t begin to tell you how many times we asked them to speak to us as though we knew nothing, but soon enough we’d get lost in a conversation where they assumed we had a level of expertise we really didn’t have.
This too, we see all too frequently in our line of work. The client may know something, or quite a bit, (or they may know nothing at all and just want to look smart.) It’s upon us as advisors to cover the fundamentals every time, and to explain that we are doing so not to insult their intelligence, but to make sure that we are all speaking from the same experience and understanding.
The moral of the story?
Do I want to redo a brand new kitchen? No. It’s too late at this point for us. We already put the money into it and there are probably a hundred things after the fact that we would do differently, from the style of crown molding going around the top of the cabinet on and on. I could go into a million details about what I can’t stand about this kitchen, but there’s a ton that we do like that looks nice, too.
At the time when you’re going through the installation process and all the information is flying at you, you think to yourself, “Okay, this sounds good. I’m going to sign up and it will be just fine.” That’s because you never take a step back and really think about, “What are my needs not only today, but what will my needs be in the next five, ten or 15 years down the road. Will I still be happy with the decision I made today?”
The same is true of your retirement portfolio. The majority of retirement portfolios out there are indeed either completely ‘off-the-shelf’ or ‘semi-custom,’ – just like the kitchen we ended up buying. And if you find yourself in one of those portfolios, ask yourself this: are you in it because some salesperson talked you into it by overwhelming you with jargon that you didn’t really comprehend? Or because it was an “easy fit?”
I will tell you this, there are very few advisors who know how to build a truly custom retirement portfolio, who take the time to educate you on the fundamentals, who hold your hand through the myriad details that you should understand if you are to be in control of your future, and who are forcing you to think about your needs not just today, but well into the future. You’re going to have to do your homework, ask great questions, and take the time to find out if you’re being sold a semi-custom product.
This is your money. This is your retirement. A less-than-perfect kitchen, I can live with for twenty or thirty years or however long these things are built to last. Worst-case scenario (and my wife would never allow this), we can start all over. But when it comes to retirement, this is your life we’re talking about. Twenty or thirty years in an average portfolio that doesn’t really meet your long term needs could cost you a bundle. Very few of us are lucky enough to have the luxury of a ‘do-over’ when it comes to retirement.
Better to get it right the first time.
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.