Honest Uncertainty in Financial Advice

Brent O’Mara’s WordPress essay from October opens with a client asking what comes next and if the plan can withstand it, and with the author’s reply that the honest answer is unknown. The piece is addressed to the client rather than the professional, and its claim is that an advisor able to say so, and then show that the plan still stands, is of more use than one with a ready answer for everything.

The reasoning rests on how planning works. A plan, the piece says, is a pile of decisions, and the question just asked bears on some of them. Faced with a family asking what the coming years hold, the helpful reply is to divide what lies on the table into three groups: what nobody knows, what has already been settled in a way the answer does not move, and what the family would change depending on how the unknown turned out. That triage takes effort, often a meeting or two, and the author claims that the bulk of what a family must decide sits outside the unknown. Naming the few questions that truly depend on the unknown, the piece says, is what calms the room.

Figure

Three moves in the piece and what the sources add

	What the piece says	What an outside source adds
The sorting	Unknown, settled regardless, and contingent on the answer	The SEC investor site supplies questions for interviewing an investment professional
False confidence	A market call is a story that has to be replaced when the news changes	The sharpest question to an adviser is how that adviser is compensated
What to listen for	What the plan does if the unknown goes badly	Financially literate older adults prefer professionals and distrust free advice carrying conflicts

The second movement is about the cost of false confidence. A confident statement about the direction of rates or markets is, in the piece’s words, a narrative in place of a decision, one that has to be replaced whenever events stop fitting it. The author would rather hear what has changed in the client’s own life, since that is a question an advisor can act on. Admitting ignorance is no stopping point, though: money gets spent and retirements fall on set dates, so an advisor who stops at the admission has not finished the work, and a client who hears it twice without a plan behind it is owed more.

Public guidance on choosing an advisor points the same way. The Securities and Exchange Commission’s investor site offers a set of questions for interviewing an investment professional, with advice to push for information about an investment’s risks.¹ Writing for The New York Times, the planner Carl Richards argued that the sharpest question is how an adviser is compensated, since the answer exposes conflicts that a fee quote does not.² A National Bureau of Economic Research working paper found that older Americans with more financial literacy sought help from professionals rather than relatives and were less likely to accept free advice carrying conflicts, while those with the highest cognitive scores also tended to distrust advisors altogether.³ And a Times column on emergency savings made uncertainty itself a planning input, arguing that the level of uncertainty in a person’s own life should set the size of a reserve rather than a fixed rule.⁴

The piece closes by telling the reader what to listen for once the admission is made: what the plan does if the unknown goes badly, and which of its decisions would hold either way, because specific answers reveal more about an advisor than any confident guess. The author’s closing thought is that a plan which does not rest on anyone’s foresight is the thing worth handing a family on such a morning.

The essay, Saying I Do Not Know Is Part of Good Advice, is on WordPress.