It’s tough to make predictions, especially about the future – Yogi Berra
Quite often we think a complex problem requires a complex solution but often that’s not the case. “What should I do with my money now so that I can enjoy a comfortable retirement?” seems like a complex question to answer. There are so many options and making the wrong decision could be quite painful. To add to this, fear often propels people to overengineering a solution.
Many financial advisors like to create complexity because complexity creates dependency i.e. you need the advisor to implement a complex plan – you can’t do it yourself. The common perception is that you can charge more for something that’s seems complex.
Unnecessarily complex financial plans create many problems
- Complex plans are more difficult to understand and this increases the risk that you’ll be sold inappropriate or unnecessary products or investments,
- Complex plans are more difficult to implement,
- Complexity creates (compliance) risk,
- Complex plans bamboozle investors to hide fees i.e. fees are less transparent,
- Complexity often creates more fees and costs; and
- More can go wrong.
However, with simplicity, there’s nowhere to hide. A simple plan is very transparent. A simple plan is low risk and often lowest cost. And because simple plans are easy to understand, they make people feel comfortable and empowered.
When I develop a financial plan for a client, I document it on one page. This process forces me to crystalise the plan into simple, easy-to-understand steps. Complexity is avoided wherever possible – but obviously not at the cost of generating more wealth. Sometimes a level of complexity is necessary and appropriate.
It’s a real challenge to develop a simple solution to any complex problem. But rewarding when it’s done successfully.
My One Page Plans cover six key areas
- Summary of your long, medium and short term goals
- Summary of the plan
- Your investment rules – which are very important as they help you resist making potentially costly emotional (driven by fear and greed) decisions
- Summary of your progress to date
- Key future considerations or issues that need your attention
- 12 to 18 month implementation plan i.e. what you need to do.
Click here for an example.
In summary, keep things as simple as possible. If you truly don’t need a SMSF for example, don’t establish one.
If you need help developing your one page plan, please don’t hesitate to reach out to us.
