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Planning Made Simple

Do diversification charts actually help your clients make decisions?

Think about the pie chart that’s on one of your client’s statements. It’s probably very colorful with a lot of slivers to a pie in varying percentages.

Question: do you think your client can take the information that pie chart is showing to actually help them make financial decisions? Well, if you believe the answer to that question is yes, you’re probably kidding yourself because all they see is a colorful pie chart.

Now, what you might see is something that helps you paint a bigger, broader picture of how you do your job. However, here is what they are thinking when they are looking at that pie chart, “…well, he tells me that’s a good thing. I guess it’s a good thing.” Or “it looks like I have a lot of investment in a lot of different places in the market”. What it is not doing is helping your clients make smart financial decisions.

So that begs the question: Are diversification charts really important? Well, I believe they are, but the reality is there might be other things in their planning process that are a little bit more important, most notably, retirement income planning. In Simplicitree, there’s an aspect called retirement income need, which I personally believe is more important than any diversification discussion. Now it might just be slightly more important, but, nonetheless, it’s very important and it helps your client understand the realities of what they really need to plan for, their retirement income.

So, the next time you feel the desire or the need to really dwell on the diversification discussion, take a moment and make sure that your client understands what’s really important in their life. Show them you have planned for their income needs and that planning process has helped you develop an investment strategy that is not only diversified but will generate the income they need.

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