There is this pervasive idea in the financial advisor industry that everyone should be “optimizing” their financial strategies. This buzzword is marketed as hugely valuable such that every person should want it. It’s a differentiator for financial advisors and it encourages the feeling of FOMO if people somehow miss the boat.

Once something goes completely mainstream, it’s my nature to question whether it’s all it’s cracked up to be. Mark Twain said,

“Whenever you find yourself on the side of the majority, it’s time to pause and reflect.”

What if clients don’t want to optimize every little piece of their financial life? What if they’d value optionality more than optimization?

Before we jump into the battle between optimization vs. optionality, I want to spend a brief moment on the idea of optimization because the very idea makes the assumption that it’s actually possible.

Projecting the Past Into the Future

Every financial decision we make is based on a projection. That projection is always based on past data as that is obviously the only data that exists. For instance, when using financial planning software, we are making future decisions based on what we know to have been true to this point. It often assumes a constant tax structure, similar market returns (even Monte Carlo projections can’t account for every possible outcome), client life expectancy, general health, and a limitless number of other variables that we truly have NO IDEA about given that the future is completely unknown.

Want proof? Imagine the couple that has “optimized” everything for years and one spouse suffers a stroke that turns their world upside down. What difference does it make that they “optimized” things? Their life and financial plan just got completely up-ended. The important question at that moment is whether they were prepared for this possibility, not whether they optimized things for the prior decade.

Let’s call all optimization and all financial planning what it is: educated guessing.

Does this mean planning isn’t a useful endeavor? Of course it doesn’t mean that, but it’s an iterative process. Does it mean that attempting to optimize things is a fruitless endeavor? It certainly has value, but let’s not say we are doing something that cannot be done. We cannot know what is optimal until the future gets here. Period.

What If Clients Prefer Optionality or Simplicity?

Beyond the general impossibility, my beef is that “optimization” of all types is that it is presented as the holy grail. It makes me wonder whether clients are being presented with any other option. What if, instead of optimization, clients prefer building a financial plan based on future optionality?

What if they’d prefer to forego the tax benefits of a 529 plan for the control and flexibility that a taxable account may offer?

What if they’d prefer a long-term investment portfolio based on simplicity rather than trying to squeak our every ounce of return?

What if, instead of dying with the largest net worth, we make annual spending decisions based on how the markets develop rather than 20+ year projections?

What if, once they have significant tax-deferred/Roth assets, they desire to forego additional benefits there to build a substantial taxable account for flexibility purposes?

What if there is more to financial planning than optimization, like control or even just personal preference? What if we optimize for optionality rather than for perceived certainty?

While we can offer guidance and pro/con lists, in the end, it is our client’s financial plan. It’s not up to advisors to make the decision but to be sure clients are aware of what’s out there and offer some guidance through the process.

I believe it’s much more valuable for clients to optimize for their life and their preferences, rather than for perceived certainty around a future that is completely unknown.

Stay the course,
Ashby

If you liked this post, subscribe down below. 👇👇

This post is not advice. Please see additional disclaimers.