Why Simplicity Is Underrated in Financial Planning

Key Takeaways  

• No one sets out to make their financial life complicated, but that’s often what happens to busy professionals and business owners.

• Having multiple accounts at different institutions isn't true diversification — consolidation reduces stress and confusion. 

• Clients who understand their financial strategy well are far more likely to stay disciplined during times of personal stress or market volatility. 

  
  

When new clients first start working with us, it’s common to see them holding similar accounts at multiple financial institutions. They often can’t remember why they made certain investments and retirement choices or the last time they updated them. But that’s not proper diversification. More on that in a minute.  One woman nearing retirement age came to us and said, “My situation is not that complex, but I have way too much stuff spread across too many accounts. Can we just simplify things so I can sleep better at night and get on with my life?”  A couple in their late 50s came to us looking for retirement help. They had no children to pass on their assets, and they weren’t very charitably inclined. So, I expected their estate plan to be quite simple, but it turned out to be one of the most complex documents I had ever seen. They had nearly 25 nieces and nephews that they wanted to take care of, all with different allocation percentages, needs, and timelines. There were multiple trusts in place for various beneficiaries, and the couple clearly didn’t understand the plan.

Over time, we broke down each part of the plan in plain English so they could see if it aligned with their wishes about how their assets would pass. For instance, the plan should clearly state how much money each beneficiary would receive and if there were any stipulations requiring the money to be used only for health, education, maintenance, and support. Through this process, they realized that money would not flow the way they thought it would, so we collaborated with an attorney to simplify it and correct it. 

Multiple Accounts at Different Custodians Doesn’t Mean You’re Diversified

The single woman I referenced earlier had retirement accounts at three different custodians. Her SEP IRA was at one, her IRA was somewhere else, and her Roth was at a third. Once we got all her accounts consolidated at a single custodian – we use Schwab – I told her: “It’s not only going to make our job easier, but you're going to feel better knowing that you don’t have to keep tabs on so many different accounts (with different logins and passwords).” I could see her shoulders loosen and neck muscles relax after I made that simple comment.  By the way, having multiple accounts at multiple custodians does not mean you are well diversified, especially if all those accounts are invested similarly, say in the S&P 500 index. That’s a very common mistake. simplicity in financial planning

Simple Plans Help People Stay Disciplined.  

When investors understand their strategy, they’re less likely to panic or make emotional decisions during market swings. Research from the CFP Board Center for Financial Planning indicates that clients who understand the logic behind their financial plan are 67% more likely to stick with their strategy during market volatility than clients who aren’t clear about their plan.  We work with a highly compensated executive whose primary concern is his spending. He knows he has a lot of money coming in and going out, but until he came to us, he wasn’t sure if he was overspending or not saving enough. We told him, “Our job before you retire is to figure out what your actual living expenses are, so we know we’re planning for the right outflows when you stop working.”  As complex as his situation is, with all his different stock options, grants, and investments, all he wants to know is if his spending is in line with what he’s planning for. And if not, he wants to know where he is overspending. Just knowing the answers to those questions gives him peace of mind. 

Simplicity Drives Good Outcomes  

The biggest drivers of successful plans are staying invested, managing risk, controlling costs and taxes, and aligning investments with goals. For instance, when new clients come to us, we start analyzing their portfolios. The expenses they’re being charged by the funds they own are almost always much higher than what they’ll pay with the portfolio we recommend. We can usually find ETFs or other low-cost funds to accomplish the same investment objectives with much less drag on their performance. Real sophistication is simple.   The best plans cut out unnecessary decisions and focus on what matters. This way, investors can follow their plan for the long run, no matter what the markets or economy is doing – that’s not easy to do as a do-it-yourselfer. Having an accountability partner like a skilled advisor on your side can make a big difference. It’s like having a personal trainer for your finances who keeps you on track and prevents you from making excuses. 

Most of you are highly intelligent people who lead busy lives. We know you didn’t set out to make your financial life complicated, but that’s what happens when you’re not monitoring things regularly. If nothing else, we can help you unwind the ball of yarn you wound up.

Conclusion 

Life is complicated enough. Your money shouldn’t be. Don’t hesitate to reach out if you or someone close to you has concerns about your portfolio allocation, retirement readiness, or the custodians you use. I’m happy to assist.  

Contact Us

BRENDEN LEESE, CFP®, is a Wealth Advisor at Novi Wealth Partners