← AICPA Personal Financial Planning (PFP)
AICPA Personal Financial Planning (PFP)
Wealth, Meaning and the Future of Advice with Dr. Brian Portnoy
00:25:40
Building wealth is one thing. Defining what wealth means is another. In this episode, Cary Sinnett sits down with Dr. Brian Portnoy, one of the world’s leading experts on the psychology of money, to explore why the future of financial advice isn’t...
Loading summary
Transcript24 lines
- [00:00]
A
I'm Kari Sinnott and this is your Personal Financial Planning Podcast. It's one thing to build wealth, it's another to understand what wealth really means. For some clients, the pursuit of money is endless, but the satisfaction fleeting. That's where today's guest comes in. Dr. Brian Portnoy is one of the world's leading experts on the psychology of money. He's the author of multiple best selling books including the Geometry of Wealth. And he spent more than two decades as both an investor and an educator in the hedge fund and mutual Fund Industries. A CFA with a PhD from the University of Chicago, Brian is widely known for reframing the conversation around wealth, shifting it from accumulation to what he calls funded contentment. Welcome to the AICPA's Personal Financial Planning Podcast. I'm Kerry Sinnett. As the manager of the PFS designation, the financial planning credential exclusively available to CPAs, my role is to keep you informed, educated and connected to a premier community of thought leaders delivering trusted financial planning. We explore the full range of planning topics and the current events shaping our profession. If you're an advisor, a CPA financial planner, or simply want an inside look at today's topic of shaping true wealth, this podcast is for you. Brian, welcome.
- [01:36]
B
Hey, Keri, good to see you.
- [01:38]
A
You've coined the phrase funded contentment. I think that's such an interesting phase. Now you use it as a way of defining true wealth. Can you unpack what that really means in practice and, and why it might be a more useful measure of financial success than traditional net worth or portfolio performance?
- [02:01]
B
Yeah. Thanks. So let's start with a really important fork in the road, and that's between being rich versus being wealthy. Those are quite different as I see things. Rich is the search for more. It's having half a million dollars and wanting a million. It's having a million and wanting too. So rich is accumulating money that you can quantify. And that's not a bad thing. Money buys the things that are necessary, in some ways can even buy happiness, which is a whole deep conversation. But ultimately, the search for more is unsatisfying. In psychology, we have this thing known as the hedonic treadmill, which basically says that when you achieve what you want, you want the next thing. And so no matter how fast you sprint on that treadmill, you really don't get much further. So being rich is one thing, being wealthy is another. Being wealthy is being able to afford a life that's meaningful to you. So as you mentioned, you know, I coined this Term funded contentment, to capture the idea that we want to not just have a larger number on our balance sheet or on our bank account. What we want is the sense that we're going to be okay, that we're going to be able to thrive, and that we're going to be able to afford the things that truly matter to us. I think in our world of financial services, as we're out there trying to help people, we focus so much on the number, on achieving more, and I think we need to pivot the dialogue more toward the contentment piece. And once we figure out what's truly important to us, then we can ask the more detailed questions about, well, how can we afford those things?
- [03:52]
A
Research has come out, though, that regardless of where you're at on the income spectrum, that if we just had 10% more of whatever our income is, things would be fine. How do you help a client get out of that treadmill, as you call it, and into looking at how much income they make or how much money they have saved differently?
- [04:20]
B
Yeah, I mean, look, there's certain practicalities to financial well being that we need to, you know, grapple with. The ability to pay your monthly bills, the ability to have an emergency savings fund, the ability to, you know, save for future goals, especially retirement. There's no getting around how difficult that can be, especially in modern society where, you know, it might be difficult to earn a buck. So I'm not saying that those things aren't important, but when we think about sort of the bigger picture of the life that we want to lead, a life that is meaningful and significant and filled with purpose, that has little to nothing to do with the numbers on your balance sheet or your bank statement. That's an opportunity for introspection to come to terms with what's really important to you. That's an opportunity to have meaningful conversations with the loved ones in your life, your, your partner, your parents, your kids, your friends, whomever it might be, and really sort of articulate what's important. Because when all is said and done, when you look at the, the regrets of people who are in older age or about to pass, it's not about having 10% more. It's about having done the things that are important to them. And what we can do right now is ask those questions, sometimes hard, sometimes uncomfortable questions about, well, what's involved with affording the things that are really important to me. And often we find, Gary, that the things that are most important to us don't cost much at all. In some cases, they might Even be free.
- [05:59]
A
Can you give us one or two questions of how you break into that conversation, how you start it? What do you ask the client to help navigate the conversation towards? What true wealth is, what's really important into their life? Give us those two starter questions.
- [06:16]
B
Okay? So, you know, we can look forward and we can look backwards. So, you know, if we look forward, we can ask people to think about their future self and think about, well, in five or 10 or 20 years in the future. If you imagine yourself being in a state of contentment, in a state of calm, having peace of mind, paint a picture of what's happening to you right there. There's something about drawing that mental picture that is very powerful to us. It's powerful from a neurological and psychological point of view. And it also prompts great conversations with us. So conversations with the people that are important to us. And so, you know, so one question would be sort of paint a picture for me of what happiness looks like for you 20 years from now. And forcing us, because we're not very good time travelers all the time. So, so go forward and think about that. Another way to do some mental time traveling is to think about your future self and ask that future self, that future version of you, what are your regrets? What regrets do you have right now? And then, I know this is a bit of a brain cramp, Carrie, but take that future self, that future self has some regrets and the. And then what can you do today, here in the moment to avoid those future regrets? It really creates the opportunity to say, you know what, I really hope that I'm not in this situation in 5, 10, 20 years from now. So I'm going to do these things right now to avoid that future pain or regret or sadness. It creates a great conversation.
- [08:04]
A
Absolutely. So what I hear you saying there is help the client to really change their perspective into their future self. That helps to change the paradigm of instead of looking at how much money do I need? And then that equals a lifestyle to really look at what's important to you, what does that lifestyle look like? What do you value in it? And then find the numbers to get to funded contentment in that future self that, that we described together.
- [08:36]
B
Yeah, can I, and I can I elaborate? Because you just hit the nail on the head. The thing about funded contentment is in some sense it's a process. It's a two step process that starts with contentment and then funded is second. In our money lives, we tend to start with the money, the numbers, the saving, the spending, the income What I'm encouraging people to do here is to start with a definition of a life that's meaningful to you. Not boil the ocean on sort of all the things that could happen and what others think, but what is important to you and what might be important to you. And only after you've gone through that thought exercise, which might take a minute and it might take a whole day of walking with a friend or a loved one just to think out loud about these things. Don't talk about money during that. Just talk about the things that are significant. And then secondly, ask the question about, okay, how do I underwrite those things? How do I afford those things? What do those things cost?
- [09:31]
A
Well, that's so hard. We're, we're technical experts in money. And you're telling us to wait and not talk about that, but talk about the things that are meaningful to the client first, even if that is not related to money, and then come in with the technical expertise. I love that. You know, Brian, every era has its innovations, but, you know, a lot of people would argue we're living through a fundamentally different kind of technological revolution. So from your perspective, how is this wave of change different or unique? And what does it mean for how people experience money work, well being. I know that plays a factor in making sure you're understanding the client before you put the technical expertise to use.
- [10:26]
B
Yeah. So there's this idea that smart people are never supposed to say, this time is different because it's, you know, we've been dealing with a rolling technological revolution for centuries, maybe, maybe millennia. And so we always say, well, this time is different because it's the first time for us in our short lives. But if you look across history, there's one technological revolution after another. So, you know, so implied in your question is artificial intelligence. So how do we think about the disruptive force of artificial intelligence in our day to day lives, our ability to be well? And all I can do here as a very interested observer, is speculate. This feels different to me, even though I'm not supposed to say this time is different. The fact that artificial intelligence is now encroaching on knowledge work. It was one thing for machines to replace labor, it's another thing for machines to replace our minds and our brains. And so I think this has meaningful consequences, potentially huge consequences for the type of work that we're going to do, how employable we are when it comes to profit incentives, what companies are going to do in terms of replacing workers with very smart machines, you know, that's all happening in real time. And we're in the middle of this revolution. I mean, you think about something like chat GPT, it's only what, four years old, three or four years old, and it's changing so quickly. I think maybe connecting back to the funded contentment conversation. This is actually an opportunity to focus less on the science and technology and more on the philosophy and the theology and the, you know, sort of the liberal arts, the humanities that help us to define who we are and the lives that we want to live. So I guess what I'd say is that the advent of AI ironically has compelled us in maybe unprecedented ways to answer the question of what does it mean to be human and what does it mean to achieve human fulfillment? There's no easy answers to those questions. You know, you go back 2400 years and you have Aristotle, you know, sort of philosophizing about happiness and its nature and where does it come from? Well, we're still in the thick of it, but there seems to be a certain urgency now to answering those questions.
- [13:00]
A
I love that you bring that up because the studies are, are really showing a change in the dynamic of what clients are expecting from their financial planners. It has moved from, you know, I want to make sure that there's competency there to competency is an expectation, and clients are now desiring to be heard, to be understood. See somebody who pairs with them in achieving their goals beyond just the numbers. And in some of your writings, you've described the distinction between advisors, as I'm going to call them, mechanics who fix financial problems and those who act as what you were just alluding to, kind of as guides or coaches helping clients navigate life decisions. Now, notice I didn't put money decisions in there, but life decisions. So how should advisors think about balancing both roles? We don't want to lose the technical expertise. But why is that balance so critical today?
- [14:03]
B
Let's step back and think about the last half century of financial planning. I mean, the CFP, for example, came around in the early 1970s and it was a cottage industry that's now become a very big industry. We've been on this, what I call this 50 year arc from what I call from Gordon Gekko to Brene Brown, that this was a brokerage business. We're selling products to clients. A customer is a mark, and hey, I'm going to sell a product to fast forward. It became an investment business and then a planning business and now maybe a coaching business, meaning that you're really digging in and understanding what makes people tick. And really understanding what's important to them. And oh, by the way, you know, to quote a famous line from social psychology, human beings are works in progress who mistakenly think they're finished. So just when you get to know somebody, we change. We are always going through change. And so fast forward to right now. Carrie. It's a really interesting time when advisors are helping clients, other people, you know, sort of move through life journey. And they're doing so first and foremost, I think, as technical experts, because people tend to show up for various forms of financial advice with a specific problem they need to solve. And so technical expertise in investments, insurance, estate planning, tax optimization, selling a business, retirement, you name it, those are technical skills that are non negotiable in their importance. No one, including me, is arguing that those are less important today than they were yesterday. Not at all. The thing is though, it's one thing to build a beautiful engine, it's another to ask are we even driving in the right direction? And that's where the guidance piece comes in. And so we, me and the firm that I run shaping wealth is we coach financial advisors to, to be better coaches and really life guides. To some extent we want to understand, well, what does it mean for one human to help another human navigate uncertainty, complexity and change? Uncertainty, complexity and change is the human condition. We're all going through it every day. And for some financial advisors from different parts of the industry, globally, that's a very comfortable place to be. And for others it's not. And they want to just focus on the investments or on the insurance or some other dimension and, and that's totally fine. Not everybody has to end up being the same type of advisor. But the fact is that there is a certain commoditization to basic planning skills and offerings. And so now there's a bit of a premium on your ability to connect with others, to make them feel seen and heard. And that's where the guidance piece comes in.
- [16:48]
A
And let me lay all the cards on the table. I work for the aicpa, so our group of CPA financial planners, and I'll give the history as well, kind of started in the 80s, has grown substantially. Our group tends to approach the same way you just described as let's take a look at the technical needs. That's how the training has been, that's how the education has been. But now as the profession moves forward, we are being called upon to have more of that emotional intelligence with the client. So I'd like to ask you about that in just a moment. First, I'M going to let those listening know how they could dive deeper. So if you're listening and you want to elevate your practice, you can come join the AICPA Personal Financial Planning Symposium. That's in January 21st through the 23rd in San Diego. Dr. Portnoy is going to be speaking there on the future of advice. While you're there, if you can earn 17 and a half CPE credits, dive into advanced estate tax and retirement strategies, and of course, if you're listening to this prior to November 17th, there's an early bird special that helps you get a little bit off. So emotional intelligence is an area that I think that is going to be especially helpful for CPA financial planners who we want to become more well rounded. We want to approach our clients even though we are experts, especially in tax, from this place of understanding. And of course, for those other financial advisors who are not CPAs, but listening, that's still a valuable component. We're all kind of converging in that same direction. Emotional intelligence, though, is often talked about. But okay, let's be frank and honest here. It is difficult to cultivate. How do I go out and develop that? How do I practice it? What makes I'm going to call it EQ such a vital skill for modern financial planners? And how can it change the way we engage with clients on deeply personal money issues?
- [19:03]
B
Yeah, so this is a really big topic and I guess I'd start out by just maybe reiterating that. The technical skill, whether you're an accountant or a financial planner or some, some other role kind of in, in, in our orbit, the, the technical skills that you have are critically important. It's just that with the pace of technology and I do think AI makes things different. I think AI is going to blow up a lot of things relatively quickly. We already see it. If you're relying purely on technical skills, there is the chance that what you're doing is going to become commoditized. It doesn't mean that your skills aren't relevant. It just means that we might need less of you and that the margins for what you do are less so. Moving to the EQ side, this is where we get along with people. It's where we get to know ourselves and in turn get along with people. I'll say, generally speaking, our IQ is fixed. No one listening to this, neither you nor me. We're going to, we're not going to be smarter or dumber anytime soon. We, we have a, a fixed IQ at the same time, EQ is not fixed, it's more. Yes, we're born with a certain disposition, but EQ is a little bit more flexible. It's like cooking or your vertical leap. With a little bit of work, you can be a little bit better. Doesn't mean you're going to be Michelin chef or Michael Jordan. It just means that you can be a little bit better. And that there's four dimensions to emotional intelligence. Self awareness, self regulation, empathy, and social skills. And people should think of those almost as stations in a CrossFit gym where you can go and work and you can build those muscles. One of the things that we know from the research is that the source of empathy, and by the way, empathy means like you understand where somebody's coming from so that you can connect with them better. What we know about empathy is that its true source or engine is our own self awareness. So working on ourselves drives our ability to connect with others, which is uncomfortable for some, but it's also the work that we need to do if we want to be better at this. And so, you know, full circle to what we've been talking about, the evolution of the practice or the industry, I should say, into one focused more on coaching, connecting with people, truly understanding where they're coming from, what their problems are, how we might help them. Emotional intelligence becomes a critical ingredient to the recipe. And I'll just punctuate all of this by saying that there's an enormous amount of research, credible research, that, from, from organizational psychology, that shows that firms who invest more in EQ or EI in the workplace tend to have better performance in terms of employee satisfaction, customer satisfaction and other critical metrics.
- [22:05]
A
All right, And EI sounds like I'm just taking a stab in the dark here. Is probably emotional intelligence.
- [22:11]
B
Yeah, yeah, emotional intelligence. Yeah, yeah. So we, we say eq, but yeah, same thing.
- [22:17]
A
Okay. And so firms that invest basically in that human side, that emotional side, I'd call it the eq, tend to do better. It sounds like.
- [22:29]
B
Yeah, there's just a lot of data.
- [22:31]
A
Absolutely. Brian, this has been a really insightful conversation. What's the one big takeaway that you'd like our listeners to have as we.
- [22:44]
B
Wrap up in an era of AI? What it means to be human and how to connect with others has never been a more important set of questions. That the machines are coming, they're here. I think we're going to see an enormous amount of disruption to basically every industry on the planet. I mean, I work in the wealth management industry. There's not a single firm I can name that's not doing a serious review of their overall strategy through the lens of what AI can do for them. So this is going to be very material and I would say that investing in sort of your ability to understand and connect with others is going to be at an all time premium in the years to come.
- [23:29]
A
Brian, thank you so much for sharing your insights with our community of listeners. And if you're an advisor listening right now who wants to deliver premier financial planning with confidence, explore everything the AICPA PFP section has to offer@aicpa.org for 269 a year, AICPA members get access to a library of technical guidance, webcasts, planning tools, expert insights like Dr. Portnoy delivered today, all designed to help you serve your clients at the highest level. And if you're a CPA with 3,000 hours of financial planning experience already, consider showing your expertise next to your name by obtaining the PFS credential@aicpa.org PFS this is our podcast together. If this episode helped you in your practice, we'd be grateful if you shared it with your professional community. With almost half a million downloads now so far, the AICPA PFP podcast is helping advance the profession one listener at a time. This has been Kerry Sinnett for the AICPA Personal Financial Planning Division. Thanks for listening and until next time, keep earning trust through clarity, guiding with compassion, and delivering premier planning that elevates our profession.
- [24:58]
C
This content is designed to provide illustrative information with respect to the subject matter covered and does not represent an official opinion or position of the aicpa, the association, or cima. It is provided with the understanding that they are not engaged in offering legal, accounting, or other professional services. If such advice or expert assistance is required, the services of a competent professional person should be sought. The aicpa, the association and CIMA make no representations, warranties or guarantees as to, and assume no responsibility for the content or application of the material contained herein and especially disclaim all liability for any damages arising out of the use of reference to or reliance on such material.