For some clients, the focus of financial planning is just about protecting the limited resources they've got. For others, it's about maximizing the potential of what their financial resources and their lives can become. The mindset of clients as they approach the world can have a significant impact their behavior.
Yet this mindset of abundance versus scarcity is not unique to clients. In fact, as financial planners our view about the world also shapes our behaviors. For instance, some become active as volunteers in the industry to get involved, give back and even network for referrals, while others see little purpose in getting involved in a professional association with "the competition," even though the reality is there are still more than enough clients out there for everyone.
The challenge is that, just as with clients, an excessive fear of scarcity can actually lead to outcomes that result in scarcity, whether its assets and financial resources, or potential clients for the advisory firm to grow. Extremely conservative investment clients can actually find that inflation undermines their own financial goals, and advisors who are so fearful that there are too few clients can end up wasting time trying to convince mismatched prospects to work with them (even though it won't be a good fit in the end). So what's your mindset, and how does it shape your (business) behavior?
The inspiration for today's blog post was a concept once posed to me many years ago by financial planner Jon Guyton, who pointed out that in doing financial planning with clients, some people seem to have an overall mindset of scarcity in how they approach all their (financial) issues, while others have more of an abundance mindset. The differences in how they plan and prepare for challenges are profound.
For instance, the scarcity mindset that views money as an extremely limited resource may lead to an obsession over hoarding and protecting it, to the extent that the client may be altogether fearful of spending and enjoying it at all. How many of us have seen clients who are genuinely wealthy yet terrified of running out of money, and afraid to use any of their money for their own enjoyment?
An extreme scarcity mindset can lead to severe risk-averse behaviors, often to the point of long-term self harm. For instance, a scarcity view around money might lead a younger person to just save cash flow instead of investing it into themselves and their career, ultimately hindering income growth and making future money more scarce (despite the savings itself). Similarly, a "Money is so scarce I can't risk much/any of it in the markets and have to keep most/all of it in cash" attitude may drive portfolios to be so conservative that the long-term damaging effects of inflation really do make money more scarce in the future!
Sadly, most of us have seen these kinds of problematic and even self-destructive scarcity-minded issues arise with clients.
By contrast, the clients with an abundance mindset are remarkably different. They may be more inclined towards taking risks, recognizing that money lost is something that can be made back again in a world of abundance. The distinction involves more than just risk tolerance. An abundance mindset doesn't necessarily ignore risks, it's more about seeing the opportunities that lie beyond them, and perhaps a recognition that the world is a dynamic place that will always be changing and presenting new opportunities along the way.
Notably, the abundance versus scarcity mindset isn't just about clients, though. It's an issue for all of us, including advisors. I find it affects many of us in how we run our own advisory businesses and conduct our affairs, as much as in how we actually craft advice to clients.
Abundance vs Scarcity in Industry Volunteerism
An excellent example of abundance versus scarcity mind amongst advisors is in our behaviors in getting involved with and volunteering for membership associations like FPA and NAPFA. For some, it's an opportunity to get involved, to give back or to network and build connections. For others, they ask "Why would I want to do volunteer work with my competition?"
I have written in the past that financial planners are experiencing a crisis of differentiation: we say we're experienced, credentialed advisors who provide customized individualized financial plans for our clients and deliver great service, but it's not a differentiator when we all say it. The problem exists only because we have brought it upon ourselves by remaining an emerging profession of generalists and not moving towards specializations and niches (yet).
In truth, we are not literally in direct competition with each other much at all, for the simple reason that there are about 316 million people in the U.S., comprising about 115 million households, of which nearly one-third have more than $100,000 in net worth, not including their primary residence. More than 15 million have at least $500k, and almost 10 million of them are millionaires. So in a world where there are "only" about 70,000 CFP certificants, there are 142 millionaires and over 500 mass affluent households per advisors, while most of us make our living with no more than about 75-125 active client households (and it's not clear our brains can even handle more than about 150 total relationships).
