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Seduced by Complexity

Advisors propose complex solutions that raise more questions, making people feel like they’ve opened a Pandora’s box. But why?

Carl Richards, 11/30/2011

Making smart decisions about money is rarely easy. It’s why people look to advisors in the first place. But often we as an industry make things worse. Instead of making things simpler, we propose complex solutions that raise more questions, making people feel like they’ve opened a Pandora’s box. But why?

The financial-services industry uses complexity as a sales tool. Like other sales-oriented industries, it uses the tactic of creating a problem, then providing the solution. To that end, the industry has identified as its main value proposition access to information and transactions, then presents this access as the solution to clients’ money questions. Think back to the early 1990s, before the Internet. It was a challenge to get basic information like a stock quote and almost impossible for people to calculate how their investment accounts had done at any of the major brokerage firms. The financial-services firms were the gatekeepers to information, and they’d set themselves up as the interpreters of that information.

Often, we think that if we have a complex problem, the solution should be complex, too. Some people in professional service industries view complexity as some sort of intellectual gift. Oliver Wendell Holmes said, “I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity.” To Holmes’ point, the goal isn’t to search for the simplistic answers but instead to avoid being seduced by the idea of complexity. For too long, we’ve been accustomed to the idea that financial products, financial plans, and investments need to be complex in order to be effective. So, we start to reject some of the simple, basic concepts that will actually be far more effective in helping people make smart decisions about money.

This isn’t the first time I’ve talked about the value of financial advice that is simple, but not easy. However, I’ve noticed that despite claiming the goal of simplifying people’s lives, we sometimes are scared that people won’t value and pay for that type of advice. It reminds me of the person who goes to the doctor expecting to get a pill for high cholesterol and the doctor instead recommends a change in diet and exercise. It may seem like the pill is the simpler solution, but have you listened to or read the disclaimers that appear on all those ads? Pills are not without potential side effects, but exercise and diet? They’re the simple, but not easy, solution to the problem.

The same logic applies to good financial advice. Often the very things that will make the biggest impact on our clients’ financial lives are simple, but not easy. Saving more, spending less, even asking for simpler solutions are all things we can do. But we often pass them by because we’ve bought into the idea that our value hangs on being the gatekeeper to the complex. But complexity isn’t the silver bullet to financial questions. Isn’t it time we help people discover the simplicity on the other side of complexity?

Carl Richards believes the world is a better place when people make smarter decisions about their money. That’s just one of the big ideas he promotes at BehaviorGap.com, a laboratory of sorts where Richards asks tough questions about financial planning and investor behavior. Richards puts his ideas to work in the real world through his firm, Prasada Capital Management.


The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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