Episode 391: How Assumptions Shape Financial Planning Outcomes

25:57Breaking that down, how did we solve that problem? We had to first identify the component of the aircraft that would have the biggest impact on solving that problem. And then we used software to come up with a new design that minimized those vibrations. And we can do that because that's a technical problem statement. And the software is going to churn out some sort of crazy design that doesn't make a whole lot of sense. It's our job as engineers to take that mathematical solution that the software spits out and then to use common sense, essentially, which is understanding what can be manufactured, how the manufacturing processes take place, and make sure that we can come up with a design that actually works and is actually feasible and that actually gets us to where we want to go, which is the quieter, more comforting ride.

26:50The key point that I want to make on that is that we're taking the mathematical solution from the software and we're using it to inspire a real practical design that we can actually implement and get on the aircraft and solve the problem. When you think about it that way, there's a lot of parallels in terms of the financial planning process that first we need to understand the client's goals and what they actually want to achieve with this relationship. we need to analyze that mathematically in the software but then we also need to unpack that and make sure that we can actually implement a plan that the client can adhere to that takes into consideration some of those practical behavioral constraints that the software is not capturing so from the planning perspective we really need to understand the limitations of the software what the software is solving for and what it's not solving for and then use our expertise as planners to be able to come up with a plan that actually makes sense and is inspired by the raw data and the math that we're getting from the software.

27:50So it's really the job of the planner to reconcile both of those together and come up with something that improves the client outcome and also is feasible to implement. Joe, I'd be interested to hear from you on, we're kind of talking about the differences between spreadsheets and reality. How do you see that in your practice from an actuarial perspective where you've got the sort of dark art of actuarial science and then reality, where do you see that difference affecting how people plan and live through retirement? So let me remind you that I don't work with individuals. I work more with corporations with large pension plans.

28:22And so when we look at the planning process, again, I think our clients become more comfortable around uncertainty and around stress testing. And I think it's really just a conversation around, this is where we are today, but let's check in in three years and see where we are then. And that's kind of more my experience. Brayden, how do you think the assumptions should change based on the question that we're trying to answer? I'm going to cite a conversation that I had with Melissa at PWL. And I know Ben's mentioned Melissa on this podcast before, so some listeners might be familiar with the name, but she brought up a really good point that illustrates this question quite well.

28:59How do we make decisions based on the optimal sequence of withdrawals in retirement, given the longevity assumption, and I'll be more specific here at PWL and following the FP Canada guidelines, we use a more conservative longevity assumption based on the 25th percentile. That assumption can have a meaningful impact on this one decision. Holding constant that the plan is viable either way with the 25th percentile longevity assumption, if we're trying to answer the question of which accounts to draw down first in retirement. From my perspective, I think we need to be using the expected outcome to answer that question, which means instead of using the 25th percentile outcome, we use the 50th percentile outcome because that's the expected outcome.

29:44We're just trying to be more conservative with the plan to make sure that the plan is viable for longer life expectancies. But if we're making decisions based on which accounts to draw down, that can have a meaningful impact on the sequence of withdrawals. It's a bit of a nuanced question, but I think it's important to specify what question you're trying to answer and then make sure that you're using assumptions that are in alignment with that question. Another example, and this is sort of an extreme one, but if you're modeling insurance needs, you would change the assumption about the expected date of death to like now.

30:18Different way to think about it, but that's another case where you'd be changing the plan's assumptions to answer a totally different question. Aaron, can you talk about limitations that you've seen with financial planning softwares and what kind of workarounds you've seen? Just to pull the thread that you guys were just talking about, the question that comes to my mind is, why are we modeling that? And sometimes the answer to that is, why are we modeling that? But sometimes it is actually, in Braden's example, why are we modeling that? Well, is it to stress test the plan to age 100 or 95 or whatever the case may be?

30:49Or are we modeling this right now to show what's the optimal retirement drawdown strategy. So understanding the why we're doing something, I think, is critical, and it kind of feeds into this answer. Software is getting increasingly sophisticated all of the time. We use some pretty in-depth software at my prior firm, but looking at it going, are these actually software limitations or are they human planner limitations? I think part of the answer here is let's make sure we don't get lost and we can't see the forest for the trees. We think about some of those more complex, high-risk tax strategies The government's disallowed recently, but I had to get these questions from my team.

31:27Like, are we going to model all the steps in this? Why are we modeling that? If we can get a good sense from the accountant, both good or bad, what's the good outcome here? What's the bad outcome? Let's rely on our professional relationships and figure out that because you can imagine all of the steps involved in doing something really high risk and complicated. How can we be absolutely certain we got that right? Everything else may be well beyond the scope of most CFPs work. So software is getting way more sophisticated, but we used to even measure our files on a one to four complexity scale.

32:00We worked with physicians and their families. So level one being we've got a corporation. Level four being there's dynamic and overlapping complexity here. I think it's often in those complex cases that the planner's value really shines if done well, but it's not for the reason that we think. Like, I think sometimes there's a tendency to go, oh, there was a ton of work and clients do appreciate the work. But I think what the planner really brings to that is if you can actually simplify that complexity without oversimplifying it and then explain that really well to the client so they have a much more holistic understanding.

32:39Well, I think that's really key. So software itself isn't so limited these days, although when you've got hold codes on numbered codes, on trusts, on whatever. There's obviously upper limitations. I think the more we look at that, the more we understand it. If you've got a dividend flowing from company five down to company one, well, if you understand the structure, do you need to model all that? Or is it just here's the end result in company one? There's a lot that can be done. Those 10 % of hold my beer, this is super complicated cases. Increasingly, I found a lot of the time, There was so much complexity there that modeling was likely to be quite inaccurate by the time you factored in 20 businesses and everything else.

33:22This isn't two teachers with a pension where it's a relatively predictable outcome. Meanwhile, we might have completely overlooked the family dynamics issues, the child with a substance abuse. These are the things that actually matter. And sometimes the structural and other complexities might even distract from that. Yeah, that's really interesting. So it's like the software is probably not that limited these days, which I agree with. You can model pretty much anything and say like a conquest, for example. But I love that question of why are we modeling this? My old team's listening to this. I think they got that question a lot.

33:56I like that. Adam, how do you handle biases and client assumptions? We kind of touched on something similar to this earlier, just on how clients react to assumptions. But if a client wants to use like a really high inflation rate, because we just live through a period of high inflation, what do you say to moderate that? Or do you accommodate it? I think this is probably one of the toughest parts of realizing clients are coming in with their own assumptions, behavior is going to change the plan. Do we just adapt the plan based off of what they bring in with them? Or do we take the time to educate a little bit?

34:30And this is where I sometimes find, at least with some of the assumptions, inverting the assumption and asking the opposite can sometimes help them reframe it. So someone comes in with inflation, you got recency bias going like crazy right now. So they're going, OK, because prices are going up so much, we want to assume higher prices later. But asking the simple question, OK, if prices were actually going down, which would be horrible for the economy, but let's assume it actually was. Would we then actually want to decrease inflation below where the expected rate should be? I find a lot of people, when you pose that question to them, would say no, because even though it would feel really good, it wouldn't feel conservative enough.

35:16It's almost like arbitrarily just saying, okay, well, if we're going to lower inflation, which would make the numbers look a lot better, we could also just arbitrarily throw a million dollars in your portfolio too. We don't necessarily want to just make stuff up because it would feel better. And I find just having that conversation with them and helping them actually understand why they're feeling what they're feeling without necessarily having to use phrases like recency bias. You can really navigate them through a conversation that helps them at least validate that their feelings are real. Because right now, it really does feel like inflation should be higher.

35:50And I do find that behavioral data is also incredibly important. I wish we had more of it to work through some of the discussions, and maybe I just haven't found enough of it. But that one comment about retirement spending decreasing, that is a great conversation to roll into that inflation so that you don't have to change the assumption. You can change the expectation that the client came in with and help them leave the plan with a more realistic internal assumption, one that matches what we're going to use. Do you ever just run it with their desired assumption? I don't think that this is what we should be using, but here's what it would look like if we did.

36:32I think it can help them see that it's going to cost them way more money. And I think that can be helpful. I'm just probably one of those people that's more inclined to dig right into why they're feeling what they're feeling as opposed to, I can show you this, but I don't think it's going to solve the problem you're actually having. I wouldn't want them to just look at how much more expensive retirement would get if you raise inflation and say, well, we just don't want that. We don't want a more expensive retirement, but that's basically what they're suggesting when they say raise inflation. They're asking for a more expensive retirement.

37:06I don't want them to change the number just because they think it's not too costly. Let's just deal with the problem that they're having instead. I like that. So have confidence in your assumptions, but dig into the reason why a client is feeling uneasy about the assumptions that are being used. But a lot of that does come down to being confident in your assumptions, which we spend a lot of time doing that at PWL. And I know FP Canada does too. I'm involved with FP Canada and doing that. But yeah, having good foundational assumptions that you can back up and justify and feel comfortable with is super important.

37:35I know I've gotten questions since I've been on the FP Canada Projection Assumption Guidelines Committee from financial planners who will come to the PAG committee and say, hey, I think your assumption on this is wrong. Here's why. I've always been able to explain, well, no, I don't think it is wrong. And here's why. that's always led to them feeling more comfortable, but you have to be able to back up what your assumptions are and have really good reasoning and logic behind it, I think. Braden, can you talk about how to handle uncertainty about future planning assumptions? We sit down and we say, okay, these are the assumptions, like use the FP Canada projection assumption guidelines.

38:09We know what those are today, but FP Canada updates those numbers once per year. So they're going to be different next year. How do you think about incorporating that into projections. I'm going to start by just continuing the thread a little bit, talking about when someone comes in and challenges the assumptions and the inflation assumption that Adam was talking about. I agree with everything Adam said, but I do want to make one distinction. And I think that the planning software is a very useful tool for two areas. One is to analyze strategies and to help make informed financial planning decisions.

38:44And then the other one is as a communication tool to help show the client and communicate to the client what your future might look like under different situations. So from the perspective of challenging the inflation assumption, for example, I would still, of course, base our decision making around the expected outcome that's backed by all of our due diligence that went into informing the assumptions. I think it's still worthwhile to show that unexpected outcome as a communication tool to the client. If they come in asking about inflation, I think it might be worthwhile to show that. Of course, still talking about or trying to unpack all the behavioral reasons why they might think that way in the first place.

39:28But I think it's also worthwhile to show that your plan is still okay. We don't expect the inflation to be 5 % for reasons X, Y, Z. But if that actually does happen for some unexpected reason, you're still going to be okay. That peace of mind is also pretty important. And then, Ben, to the question you're specifically asking about the evolution of planning assumptions, I think that's a really interesting question. For sure, the projection assumptions are kind of a point in time assumption. We expect markets to return 7 % as of now, but that might evolve in the future. it'd be really cool to have a software that dynamically accounts for that in a volatility analysis but none of them do that i'm aware of so for example if we're randomizing returns and based on the pwl expected return methodology there's the historical data component but then there's the market-based component it'd be really cool if inside of that projection if markets do really well then the expected return would decrease but again we're not there yet that is also an important conversation to have with the client and also for the advisor to or the planner thinking about the limitations of the software.

40:39If we're running a projection today, using that expected outcome, it's important to know that those expected returns are staying constant. And all of those thousand simulations that were running inside the Monte Carlo, they're not evolving like in the real world, they would. So we would expect that as the plan evolves over the client's relationship with us, we're going to change those assumptions based on how markets do. And that's not the only assumption that we're going to change. We're going to change your spending assumptions. Another really interesting conversation I've had with advisors at PWL previously is just this notion of spending assumptions.

41:12And it's such a critical assumption to the plan, but especially for new prospects that show up to our door, it's kind of like throwing a dart at the wall. We have no idea what they're actually spending because they have no idea what they're spending. What's really interesting about that is that the uncertainty and that spending assumption will actually decrease over time. As we develop the relationship with that client, we get a better sense of their tendency to save or spend. And then also at PWL, we have data on the client's income and how much they're saving in their accounts with us. So we actually can make a data-driven assumption based on their actual data, which I think is cool.

41:51All that to say, I think assumptions are going to evolve. It's important for the planner and the client to understand that. It is one of the main reasons why financial plans are not a point in time exercise or financial planning. The process of is not a point in time exercise. It's something that happens over time and evolves over time as reality unfolds. Because when we do a financial projection or a financial planning conversation based on a projection today, for all the reasons you just mentioned, and as we've talked about throughout the earlier parts of this conversation, everything's going to change.

42:24Expected returns are going to change. Spending is going to change. Life expectancy might change. It's not really a point in time exercise. It's an ongoing process. Joe, what's your actuary perspective on moderating client biases around planning assumptions? When we talk about client biases, how do we recognize it as a bias? Maybe it's your bias and not theirs. Maybe they're the one that's got an accurate view of the future. The first thing you want to do is know that you've got some good data behind what you think is the preferred assumption. But with that said, if someone says, you know, I'm going to plan to live to 80 and that's it, telling them what the mortality tables say, I don't think is a great conversation piece.

43:04And instead, I think what you want to start doing is, as Aaron says, pull on the thread of why do you think that? It could be that they've got a lot of good ideas around that. I think what was interesting is when Adam said earlier that he was surprised in the FP conference, how many people get pushed back on the longevity assumption, that doesn't surprise me at all. The longevity assumption probably isn't as critical as investment return and inflation, but investment return and inflation are hard for most people to get their head around in terms of what drives it. They know what just happened to them in terms of inflation.

43:39They know what just happened in their savings account over the last three years based on their investment portfolio, but they don't really know what drives it. Whereas with longevity, they have family, they have friends, they have their own parents and their longevity, and they tend to form relatively strong opinions about what's going to happen on the longevity front, notwithstanding the fact that it's enormously unpredictable. That's where it's a conversation around what that planning is. And honestly, for me and Mr. Chapman, there is yes money, but I think a lot of people do backload too much to this long life that might occur.

44:17And I think back to the planning, the spending summaries and things like that. If there's a couple, one of them might live to 90, 95. I'm not sure there's a lot of spending going on at those later ages. And so just taking a singular spending strategy that might make sense at 60 or 65 or 70 and projecting that out to 95, I think might backload too much. So maybe intuitively people are like, that's nuts to save all that money. Maybe it's just intuitive, but maybe it isn't so wrong. So I think it's a conversation and I think it's just figuring out what works for the client. It really does tie back to Adam's comment earlier about expenses not necessarily tracking with inflation.

45:01Clients can be spending more in real terms earlier in their plan because they're going to spend less later. The other thing I say should be part of the planner conversation with a client is what problem do we want? Do we want the problem of running out of money at age 80 because we plan for 80, but we're going to suddenly find in our later years, as Adam suggests, you start to get past some inflection point and you start to think, oh, I'm going to live a long time, but I haven't kept enough money. That requires cutting back spending, some level of hardship potentially, depending on perspective.

45:34The other outcome is I saved a bunch of money. I ended up only living till 73 and 75. And some other beneficiaries in this world ended up with a little bit of a windfall that I wasn't planning? Is that an outcome that's better or worse than the other outcome? And people will have different views on that. And I think that that's another key part of planning is figuring out which unexpected outcome are we more comfortable with? Because as Braden sort of alluded to in all of his comments, the outcomes are unexpected and we can try and sensitivity test, but it's which way do you want to lean? Is it the 25th percentile or is it the 75th percentile?

46:11Yeah, I love that. Financial planners can provide base rate probabilities and they can present clients with trade-offs, but the clients ultimately have to decide what trade-offs they like. Correct. I like that. The way you described it, I thought was great. Aaron, what about you? How have you handled client biases in these types of conversations? I'm going to pull on one in particular. I think it really dovetails into exactly what we're saying here. As much as this conversation is about assumptions, really, I think what this is about is discovering your clients and then co-creating the future with that client over time.

46:44Conquest, we mentioned that earlier, does such a beautiful job of being able to do that. You get a 90, 95 % plan and then you can really show your client, here's the possible outcomes, here would be the impact. So it's exciting the technology that's out there today for doing this. But the one I really wanted to talk about was actually licensing effects. Now, I like behavioral finance. I am very much of the opinion that being able to name 72 different biases isn't even that helpful, but I wanted to specifically mention licensing effects because of FP Canada's implementation gap study. When this came out, I think it was 2019, it really changed the way I thought about planning in some really key ways.

47:26One of the key findings of that study was a client will walk into your office and usually they have one or two, maybe three things on their mind. And what the study found was planners typically deliver zero, one of those priorities for the client in the plan. I did an informal poll at our Epic Canada conference session. I said, approximately how much time are you spending collecting data versus going deeper with your client and discovery? When I've done this in front of live audiences too, I get a similar range of results. anywhere from like 0 % of the time going deep with your client and understanding them, their goals, up to 75, 80, 90%, which I think is the gold standard and what we should all strive for.

48:06But what's interesting about this is you would assume if you're delivering a plan on zero to one of the things the client actually wanted, they'd be kind of upset about that. Except they weren't. Here's why. Licensing effect. So much like if I eat like a salad and some chicken for dinner. It might give me a license to eat a whole chocolate cake and drink a six-pack for dinner. The plan itself becomes something the client did. They're like, I've done a plan. This is great. Except it's not because it didn't deliver on what they wanted and didn't really understand or speak to them. So then they do nothing with that.

48:41And that's what creates implementation gaps, or at least one of the key things. So I would say the solution to this is going deeper with the client, taking the time to understand their core motivations, kind of like what we've been talking about testing and validating assumptions with that client is key too. We talked about inflation. If a client's really concerned that inflation is going to be 5 % indefinitely, yes, we could show a scenario and go, here's why that may not make sense. But it's really, I think, meeting the client where they're at and then that overlay of the advice and recommendations and expertise, that's what we bring to the table.

49:15And I guess I'll conclude on one other thing, which is this idea of when we really understand what's important to our client, we can then hire advice back to their goals, preferably even in their own language, with an understanding of who they are as people. And it's not about the client comes in for a retirement plan and you notice they have no insurance in place and they've got a large family. That's a material thing. That's important. We can't ignore that. But if we picked up from the conversation that families are number one value and it's super important to them. Well, let's tie that back to that.

49:49Let's tie it back to what they told them. So licensing effects, I think, are still prevalent at that thread of discovery that's going through all of today's conversations as a solution. I've never heard that term before. Licensing effects, and the way that you described it is people who get a financial plan done gives them the license, I guess, to feel like they have had all of their needs met, even though they have not had any of the questions or few of the questions that they wanted answered by the planner answered. That's a crazy phenomenon. Put simply, it's a good decision or good behavior now results in worse outcomes down the road.

50:23That's exactly it. Yeah, that sounds like interesting research. Joe, we've talked with this idea that the map is not the territory, that reality is typically going to unfold in a manner other than what was initially projected. How do you think advisors should be approaching that fact? My simple answer is every single plan presented to a client should say this plan is wrong, But it's the best we have today. What's been great about this conversation that we've been having as a group is that really what we're trying to, I think, convey to both clients and planners is to talk more about that uncertainty and about the range of outcomes, etc.

51:01To me, more than anything, planning is a process, not an event. And I think that we've talked about this earlier. We just need to convey more and more to people that it's create a plan, see what unfolds, evaluate the plan, adjust the plan, rinse and repeat. And I think that if we just continue to convey that kind of idea, especially when you're talking about people that are 25 and 30 and 35 years old, if we can get them into the game of having their first plan and then come back around after a reasonable period of time and look at the plan, what worked, what didn't, how do I feel about some of the assumptions we talked about the first time?

51:43Certainly to Adam's point earlier, if you talk about longevity for five, six, seven, eight reviews of a plan, people are going to start to get more and more comfortable with the data, with whether their assumption's a good assumption. After a decade, you'll have a decade of life experience behind you that maybe informs that assumption a little bit more. Make it a living process, really. I've got three more questions that I want to do as a bit of a round table. I want comments from each of you and we'll keep the same order for each one. So we'll go Joe, Adam, Braden, Aaron. So Joe, starting with you here, how frequently do you think financial planning assumptions should be updated?

52:20Yeah, I think that's really age dependent. When you've got a 25-year-old, if you can get them to sit down, and I get that it's probably hard to get a 25-year-old into the office to think about long-term things like retirement 40 years later, but if you can get someone to sit down and put together a little bit of a plan, again, And the mistake is saying, hey, and if you save$370 a month, the next 40 years, you'll be able to retire. You say, hey, here's a starting budget. Is that work? Can we work with this? But I don't know that you need to redo the whole plan for that 25-year-old. I think you're probably more in a phase in those early years around budget review.

52:56Hey, how much did you save this year? How much did you spend? Did you get a raise? Are you saving more? Can you save more? And I think in the early years, it's much less about the assumptions and much more about the habits. When you get to a 62-year-old that can't decide whether they're retiring now, next year, the year after, you probably want to do a lot of frequent updates around, well, what's our plan and what's our input data? What is the RRSP balance this year versus last year? So that'd be my take on it is frequency increases with age. I like that. Adam? Yeah, it's funny. Aaron brought in this really cool study that I actually hadn't read, but I now need to read.

53:36Because the way that we do it in our firm, because we're mostly working with retirees or people just on the approach, I kind of leave the assumptions up to the people who are much smarter than me to come up with like when to change the actual technical assumptions. But we rebuild the plan every time the question changes. And so when I say the question, I mean, what the client is asking themselves, the thing they might try to figure out on their own by hitting Google AI now, there's sort of a common practice to look at milestones or transitions as the time you update a plan or get a new one. But I like to think of it in terms of what is it you're trying to solve?

54:13What are you asking yourself? We get plans where people that are five to eight years out, it's like, are we there yet? It's actually that simple of a question. And then all we have to do is answer that question, as opposed to trying to build an entire comprehensive plan that solves too many questions that they actually don't have or don't need answers to yet. And then you can start adding in the just before they retire. Okay, how do I replace my salary? Let's answer that question. Then we do one that's probably our sort of more specialized one, which is how much more can I spend? And that's the two years after you've retired, when people are finally starting to get in the groove, you can rebuild the plan that answers that specific question.

54:56And so that's how we at least do it in our firm is more based around what we know our clients are already starting to think and ask themselves. So then we just dive in, build a plan, whatever technical assumptions have changed over that time period. I mean, we're still doing updates and stuff in between, but a full rebuild on the plan is I think necessary every time that question shifts. Brayden, what do you think? I think we need to rebuild the plan anytime something meaningful changes about the plan. Like Ben mentioned earlier, we think of planning as a process rather than just like a one-time, one-shot deal.

55:38We have already mentioned planning assumptions could change. Adam said the planning question could change the question we're trying to answer or the client goals could change. Another thing in our world is that research changes. When I think about when I joined PWL in 2020 and we did compensation planning research and lately we've done asset location research, our knowledge base as planners also evolves over time. So if you think that there's a new way that you can add value to clients based on the latest research, then I think that's also a good time to revisit the plan and see if there's ways that you can improve client outcomes.

56:16I like that. Aaron? I agree with everything everybody's said so far. The only thing I'll add to that is the concept I brought in earlier, which is materiality. And we often think about technical assumptions as we should, like longevity and rate of return and all of those things. But there's many, many more assumptions that go into a plan. And I would just add the overlay, Adam, to your point. Has the question changed? Has our job here changed? Yes, those should absolutely be triggers. also significant life events or something that's really materially changed in their goals would absolutely be something.

56:53But the other thing I would look at there is, could any of the assumptions that we've used alter that client's decision? So again, going back to our definition of materiality, so if something shifted within their plan, let's say they're in a business and the tax rules change, that could absolutely materially impact their decisions on how they're approaching their retirement goal or their wish to give money to charity or whatever it is. So I would just put that materiality overlay on that. You guys all gave way more holistic answers than I thought of when I read this question. I was just thinking about how frequently to update financial planning, like expected return assumptions, because that's what I spend a lot of time thinking about.

57:33At PWL, we update them twice a year, which is fine, I think. But the other thing that we do is in extreme events, COVID was a big one. We will update our assumptions at that time. The reason being that asset prices are functions of expected returns and expected future cash flows. And if expected returns go up because stuff got crazy like it did during COVID, asset prices come down. If you go and update a client's financial plan at that time using the old expected returns and the current asset prices, the financial plan is going to look a lot worse when fixed income had a lot of troubles after COVID, when inflation was high, fixed income asset values declined a lot, but their yields, their expected returns went up a lot.

58:17And so when we did financial planning projections with a lower fixed income asset values, financial plans looked much worse. When we accounted for the fact that the expected returns and fixed income had actually shot up a lot, financial plans actually looked better than they had previously, which was an unexpected result. So I think just on the technical side, We do it twice a year in normal times, and then we do try and account for extreme situations to make sure that the financial plans are as accurate as possible with the information that we have available to us. Ben, I think that's really unique in the industry in solving for a issue that you nailed.

58:50Things have already dropped, so expected yields are expected to rise. It gives the client a much more accurate picture of the future, so kudos to you. Well, it's important. It's the same with equities too. I use fixed income where I think there's much more predictive power in yields, but it's similar. We apply less predictive power to yields and equities, but we still apply some. If the market crashes and we don't account for the increase in expected returns, financial plans are going to look really bad. But when we do account for the increase in expected returns, they might look a little bit bad or a little bit worse, but not as bad as if we did not adjust for the change in expected returns.

59:25I don't think it matters when you're talking to clients about how much can you spend in the future. I think it's an important nuance. We only had to do, I believe, an ad hoc update like that. I think the only time in my 12 or so years here was around COVID. There may have been others, I don't know. And I know around like the 08 crisis situation, I was not here, but PWL was thinking about that as well. Two more questions here, one of them being the success question that listeners love to hear. And if you guys could give one tip related to assumptions and financial planning projections to financial planners and the general audience listening, what would it be?

1:00:01And again, Joe, we'll start with you. We all know that the software and the plan and the assumptions are all a bit of a mathematical game. We've had a good conversation about uncertainty and things like that. What I would say to you is that in my experience, financial planning often over concentrates on the math because that's how we're trained and it's comfortable, et cetera. And I'd say that financial planners, and Adam's alluded to this through the conversation, I think there's a lot more behavioral stuff that should be explored during the working years. How much are you saving, et cetera, but also preparing people for what that decumulation phase is as we talk about it.

1:00:44But what are you going to do when you're retired? And what are we saving for in the first place? What are our goals? And the best example I can give is you can talk to a lot of 40-year-olds, maybe men more than women that plan to golf every day when they're retired. They're clear, we're going to stop working. That means I can golf every day. And that's what I'm going to do. I'm going to have a place in Florida. I'm going to spend six months golfing there. And I'm going to golf, golf, golf. You talk to that same person when they're 60 and their body's aging a little bit. And they're like, maybe I'm going to golf two or three times a year.

1:01:15And suddenly, without any interest in fine dining when they're 30 or 40, and without any interest in global travel, suddenly these are much bigger priorities. To me, the big thing is these behavioral conversations around who are you? Who are you in the room? And what do you hope for? What do you think your future looks like? And let's just keep having that conversation and refining it so that the plan that we'll build, we'll build a plan and we'll put it together and we'll work together over the next 10, 20, 30 years. or if unfortunately you've come to me at 58 over the next two to five, let's make it a plan that's meaningful for the life you want to live.

1:01:56That's a great answer. Adam, definitely curious for your answer on this one. I think it's actually probably one of the toughest questions we've answered here. But at least for me, I love using the phrase, the art of financial planning, because I think it goes beyond the technical aspects. I think what everyone's going to realize really quick as we look at the conversation we've had today that if I could go back 20 years and go right back to when I first started, like the things I would have worked on sooner and tried to get better at, is yes, learning all the technical intricacies, the tax planning, you need to get that baseline information.

1:02:34But I think what turns a planner into someone who can really help a client walk that plan. Be there and support it as it changes all the necessary aspects that turn a technical plan into a human life is navigating that conversation that helps the plan fit the person, as opposed to trying to jam this human being into a technical piece of software. It needs to go the other way. That means learning to listen better, slowing things down, doing our best not to overwhelm with technical data. Like we need to know all that technical data. We need to know why everything works the way that it does. But most of it isn't always relevant when we're sitting in front of a client who's just trying to figure out if they can retire.

1:03:25I think that's part of the art of this industry is pulling in the behavioral stuff, pulling in the human side of it and realizing the math is there to support the work that we do. And I hope that over the coming years, as the industry continues to shift from, say, selling investments and insurance to really focusing on planning, that we get more and more leadership out of places like FP Canada, showing new planners, the ones that are really coming in going, okay, I actually want to learn how to be good at both the technical aspects and the bedside manner. Those two things have to work really well together.

1:04:04And I wish I had started sooner with the bedside manner part. How do you explain things simply? How do you have a conversation about something that's uncomfortable or that they're already feeling is off, but do it in an empathetic way so it doesn't feel like they're confused? I think that's a really, really difficult thing. And it's something I wish I had done sooner. It's a great tip. And I think someone left a comment on, I think one of the podcast episodes, I can't remember if it was out of my YouTube channel, but they left a question saying that they would love our thoughts on the role of financial planners as generative AI gets increasingly powerful and technically competent.

1:04:44I think it's an interesting question. And I think a big part of the answer is what you're talking about is that generative AI is not a human. And a huge part of what we do is being a human that has knowledge and expertise, but being able to relate that knowledge and expertise to other humans to help them make decisions that make sense for them as a human. Like you said, the technical competence underlies all of that. You need to have that as a baseline, but the actual role, like what do we spend most of our time doing with clients? That's what I mentioned earlier. We can supply people with base rates and trade-offs, but then they as a human, and we can guide them, have to make human decisions given that technical information.

1:05:22Brayden, what are your thoughts on this one? tips for financial planners? First, you need to understand the client's true goals. We know in the goals exercised from finding and funding a good life that that's a process in and of itself to actually unearth what those clients' real goals are. They might come to you initially with some sort of surface level goal or some generic statements about retiring at 65 and minimizing taxes. But I think it's important for the planner to question that, to try and unearth that a little bit. Is that actually what their motivation is? Or is their motivation more in line with maximizing their spending or taking trips or donating to charities or what have you?

1:06:04So I think that's step one. Step two is making sure that you're actually solving for those goals in the software. And I think this is a little bit more technical. We've been talking a lot about behavioral stuff and all that is super important, but you need to at least understand what the software is doing. It can be a bit of a black box. So you need to make sure that its outputs are actually consistent with what your client is hoping to get out of this relationship. Talking about the implementation gap that Aaron alluded to earlier, we need to, for starters, understand what the client's coming to us with, but then we also need to be able to solve for that.

1:06:36And then as a final step, we need to be able to implement. And I talked about understanding limitations of software before and then being able to take that solution the software gives you and make it something that the client can actually walk away with and implement. And I think that's super important. And then my last note is actually to the general audience here that's not a planner. I just want to point out that we've been talking a lot about limitations of the professional grade industry leading planning software in the country. If you're a DIY investor, actually for starters, kudos to you for even looking into a podcast like this or looking into financial planning tools that are freely available or a small monthly fee, but just recognize that those tools are going to be limited as well, if not probably more so than the industry leading professional planning software that all of the planners are using.

1:07:23That point is equally, if not more so relevant to the general audience as well. Probably by design in a lot of cases, because if you give a typical person who's a DIY investor, even if they're pretty engaged, if you give them conquest, they're going to be lost. It's a monster. And so a lot of those DIY oriented softwares are simple intentionally, but that also means that they're obviously limited in their own ways. And then there's some out there that are available that are accurate and they're super technical, but similar to my conquest comments, they're just really hard to use for anybody, let alone someone who doesn't think about it all the time.

1:08:01Aaron, what about you? What's your tip? to pull on that AI thread for a minute here. I think that's the critical question. And to the extent any planners or advisors are listening, the entire value prop is tied up and I pick the best investments. You might want to think about shifting that to the human side. Daniel Pink had a great quote. I think it was the World of Death podcast where he said, the future of financial advice is at the intersection of therapist, priest, and life coach. It's not to undervalue the technical aspects. They're critical and it's critical that we can validate, as you said, Braden, what's happening underneath the hood of that software.

1:08:33And conquest is incredible. And it is deceptively simple. There's a lot of complexity, as we all know, underlying that. And it's important to be able to understand it. For my tip, I was actually going to go a little bit of a different direction. I think the future belongs to the skilled generalist. We've got a hyper-specialized world. I think what the planner can bring to the table done well is that holistic understanding of the client and the big picture. And I think this just gets magnified with complexity. You think about a simple case where maybe you've got a couple of teachers, they're not getting divorced, everything's good.

1:09:04Their needs on the legal and accounting side are relatively straightforward. But then you've got a small business owner, an intergenerational family business, and complexity goes through the roof. And I've seen those cases where lawyers got a great plan, accountants got a great plan, they're not talking. And what the planner can bring there is really that holistic discovery and understanding and bringing everybody together. Great book to read. Wealth 3.0 makes this point. Wealth 2.0 was trusted advisor. We heard that for years. Wealth 3.0, trusted team. That's your internal team, but I would take a more expansive definition and that whole team around the client working together.

1:09:43That's really what I think the planner could bring to the table. That's a great answer to the question. We talked about Wealth 3.0 on this podcast a while ago. It's very good. Yeah, fantastic book. I really, really liked it. Okay, last question for you guys, and we'll go same order. How do you define success in your life, Joe? Start with you. I wake up every day, and whether it's work or play, I spend time with people I like doing things that I enjoy. And so that's my definition of success. And maybe it's confirmation bias, because that certainly wasn't the definition that I had when I started out in the late 80s.

1:10:20it was a much more money definition of success. What I will say though, is that if someone says that I'm lucky, I'll say that my life today is a culmination of 40 years of careful choices around education, employment, and in particular saving that's created the freedom that lets me live that definition. Great answer. Adam? You leave all the hardest questions to the end, don't you, Ben? my definition on this has definitely changed over the years all i can say is right now i think i'm at the stage of life we're just sharing what i've learned over the years with planners and retirees is what i'm trying to do between jumping into the chair of education for the financial planning association of canada like i want to provide some impact for planners but then my book that is still pending and still coming for retirees and spending money and that psychology part.

1:11:16I'm really at this stage where success is just about sharing right now. And I think one of the really cool things that I didn't ever really notice before, I've always tried to stay in the background. I like working with my retirees. I would rather sit and have a three-hour long conversation with a widow than put myself out there and even do stuff like this. but I don't think I ever realized how much you know about what you know until someone asks you to share it. And so success for me lately has been just doing my best to share as much as I can. So I really appreciate you having me come on here because it's been kind of fun to just do all the sharing.

1:11:57Actually, it started with FP Canada and the assumptions panel and led to this. It's so much more fun at this stage of my life to share. Awesome. Great answer. Brayden? And for me, success is all about making a positive impact in whatever I do. I remember when I talked to Cameron before I joined PWL and he asked me why you want to work at PWL and leave academia. I told him that it's because I want to make a positive impact on the financial well-being of Canadians. And I thought PWL is the perfect platform to do that. So I want to make a positive impact on Canadians, on my coworkers, on clients, and on the general population as well as my family.

1:12:36And I want to be a good husband and father and be a positive role model. And even in terms of this podcast today, if I can make a positive impact on one listener out there, then I think that'll be a success. Very nice. Great answer. Aaron, we'll finish off with you. impact is way up there for me as well. And I think for a long time in my life, success for me was just climbing that next peak. I'm a pretty driven guy. I used to joke, I train in powerlifting, but if you just weight two sides of a scale really heavy, then it's balanced. Then four years ago, my daughter was born and that really changed a lot.

1:13:13My little Luna Sophia, I think since that's been this journey towards trying to find a more balanced life. I still battle that inner hustle culture demon on a daily basis, but I think it really is around intentional family time and work. I wrote down in my notes, sharing, empowering others. I think it's a lot of what everybody said and the collective impact that we make really is key. Awesome. All right, guys, that concludes our discussion. I think there's a great conversation on assumptions and how assumptions can affect planning outcomes. And you guys all brought really unique perspectives. I think it was a great episode for listeners.

1:13:49Thanks for having us. Yeah. Thanks, Ben. This is great. Really appreciate you. Thanks, Ben. Awesome. Thanks, guys. And thanks, everyone, for listening.

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