Three Things the Wealth Management Industry Isn’t Telling You

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Illustration by Verónica Grech

What is the meaning of a financial life? While it may sound like a question for philosophers (or teenagers taking philosophy), it’s in fact foundational to an entire industry wanting to help you (and me) achieve financial success. I’m talking about the wealth management industry—that assortment of financial services that includes everything from tax accounting to life insurance to estate planning. Whether you realize it or not, when you enter into a relationship with a wealth management professional you enter into a tacit agreement about the meaning of your financial life. Here is that agreement in broad strokes:

• Your financial life is about money. Financial problems have financial solutions and there’s no problem more money can’t solve.

• Your financial life is about saving and investing. Protecting and growing your assets is the task at hand and if you do it well you’ll be O.K.

• Your financial life is about achieving financial independence. A future state in which economic anxiety will be alleviated because you’ve (finally) reached “your number.”

These are seductively straightforward and optimistic assumptions: Stay focused on saving and investing and eventually you’ll have the life that you want. (Picture the ad featuring the handsome couple, champagne flutes in hand, peering into the distance of from the bow of a perfectly white yacht and you get the idea.) But is this the story that will help us make better financial decisions and get us the life that we want?

A wealth management company recently asked me to conduct research about people’s financial lives; it believed the financial industry to be out of touch with people’s experiences and wanted objective research for deeper understanding of the discrepancy. While they set parameters around the kinds of people they wanted to study (wealthy individuals with a minimum of $500,000 in investable assets) they set no limits on methodology, which left me with the question of how to study the meaning of a financial life.

If you want to know what something means to a person (home, family, love, fatherhood), get them to tell you a story about it. Because I needed to understand the meaning of people’s financial lives, I needed to collect stories—a lot of them. And so for several months I led the wealthy through an exercise. I asked them to think of their financial life as a story, to break that story up into chapters and to give each chapter a high point, a low point and a turning point.

What I found proved surprising. The wealth management industry’s assumptions were woefully incomplete. What’s more, they were the stuff of classically bad financial decision-making. Here are three things you need to know that the wealth management industry isn’t telling you.

1) Your financial life is not about money. It’s about balancing the pursuit of money with other limited and competing resources. When I asked people to tell me the story of their financial life, 93 percent told me about their entire life. By often focusing exclusively on money, the wealth management industry addresses only a fraction of what our financial lives (and financial problems) are about. They fail to warn us about the consequences and trade-offs we will either knowingly or unknowingly make when we define our financial lives solely in terms of money. I interviewed too many people who were unaware of the trade-offs they were making until it was too late—marriages gone stale, children raised on credit cards, irreversible health conditions from stress, etc. What the desperate pursuit of money ignores is that more money can sometimes mean less life.

2) Your financial life is not about saving and investing. It’s about working and spending. In fact, the bulk of people’s financial lives (around 90 percent of the high points and low points) revolved around working and spending—promotions at work, family vacations, tyrannical bosses, etc. By focusing on saving and investing, the wealth management industry often encourages us to do better in the areas that matter least to how we will evaluate our lives. While saving and investing are important, when people didn’t pay attention to the choices they made in the areas of working and spending, they experienced the deepest regrets, such as working too much and not being around for their kids, or not being present in their marriage and blowing money to keep apace with the neighbors.

3) Financial independence will not ensure your happiness. Many of the people I interviewed did not feel good about their financial lives (regardless of the amount of money they had). Instead, the difference between those who achieved a sense of well-being and those who didn’t was a function of how well they handled the trade-offs in life. Indeed, 83 percent of the turning points collected involved a trade-off of some kind: Do I work longer hours for more money or spend that time with family? Should we buy a bigger home in the country or a cottage with a shorter commute? Do we pay for our child’s college or teach her a lesson about responsibility? The meaning of people’s financial lives was determined by the sum of these choices and whether they’d made decisions about them that reflected their values. While the wealth management industry offers us guidance on how to protect and grow our assets, it offers no guidance on how to make these most important of financial decisions.

Clearly, there is both opportunity and need for a new category of wealth management—one that helps people achieve more meaningful financial lives based on what’s actually meaningful to them. But it won’t be easy to market this set of financial life services because, as it turns out, what gives our financial lives meaning is a truth very few in the wealth management industry will feel comfortable telling us: you can’t have it all and it’s not really about the money.

Barnaby B. Riedel, Ph.D. is co-founder of Riedel Strategy in Newport Beach, Calif.