Julie [00:00:07]

Well, hello. Only one half of the J team of the Human Centric Investing podcast will be joining today, but I am delighted to have Barbara Kay as a return guest with us today on the Human Centric Investing podcast. She’ll be sharing guidance on how forecasting errors can wreck your clients retirement. It’s a really, really interesting topic and Barbara has done years of research and is excited to share her insights on the topic. For those of you that don’t recall, Barbara has been a business psychology coach since 1998. She works with professionals and financial services organizations nationwide, including Independence, RIA’s, and their wholesale partners. In addition to coaching, she speaks at conferences and provides custom skill building on coaching skills leadership, teams, communication brand and sales psychology, change, client relationships, women and behavioral finance. She writes a quarterly leadership column in the Journal of Financial Planning and is the author of two books, The Top Performers Guide to Change and the $14 Trillion Woman. Your Essential Guide to the Female Client. So excited to have you here. Barbara’s insights today.

John [00:01:19]

Hi, I’m John.

Julie [00:01:21]

And I’m Julie.

John [00:01:22]

We’re the hosts of the Hartford Funds Human Centric Investing Podcast.

Julie [00:01:27]

Every other week, we’re talking with inspiring thought leaders to hear their best ideas for how you can transform your relationships with your clients.

John [00:01:37]

Let’s go.

Julie [00:01:38]

Barbara, thank you so much for joining us today on the Human Centric Investing Podcast.

Barbara [00:01:43]

Thanks for having me. I always love coming on and talking with you. It’s wonderful.

Julie [00:01:48]

I agree wholeheartedly. I am very excited about today’s topic and I’m confident it will hit home with our financial professionals listening today. But thinking about clients actions today and how they potentially impact them many years into the future. And I’m confident that this is a conversation that is dedicated many, many, many hours between a client and a financial professional. In terms of if I spend money or if I don’t spend money today, what does that look like, ten or 20 or even 30 plus years out into my future. And you have a really interesting framework around this topic and theme. And I think what’s the interesting spin is that potentially the decisions that a client makes today could result in the client having blame or linking their own decisions to their financial professional. And I think that that’s a very unique lens to approach this topic. And I know that you created a white paper on Hartfordfunds.com called How Forecasting Errors Can Wreck Your Clients Retirement. And I would love to just dive right into that and hear from your perspective, Barbara, how you thought about this topic and what some of your key points are.

Barbara [00:03:11]

Well, thanks for having me. And this is really important. You know, my whole career in financial services has been bringing neuroscience, cognitive psychology, human bias, emotion and all of that into the financial professionals world in a way that is practical and actionable. I read all the really complex journal articles so financial professionals don’t have to. And human bias is really, really tough to work around because it’s deep seated and it’s in the emotional center of our brain. So that article was really about one particular human bias, which is what called forecasting error. And the reality is human beings are just horrible. I mean, horrible at predicting how they will feel in the future and deciding accurately decisions today that will set them up for a happy future where our brains are just not designed to be able to accurately see the future and then project, Oh, I’ll do this today and I know that will make me happy later. We’re just really bad at it. And so that was the focus of the article. What more can I tell you to direct? Because I could spend way too much time on this because there’s it goes really deep and really broad. So help me out there.

Julie [00:04:40]

Well, I love that you’re digging deep into those very complex technical articles so we don’t have to. But you mentioned something forecasting error, and it’s not a concept that I’m familiar with. It obviously haven’t done research like you have. Will you dig a little bit deeper into that just to share with our listeners what you mean by that and sort of frame that up for us?

Barbara [00:05:00]

Yes. So the real way to understand it is think of every year at holiday time. Whatever holiday you celebrate the many holidays in the December-January time period. And think about how hard it is for many of us and myself included, to manage our eating and our indulging so that come January 15th, we are not stepping on this scale saying, Oh my gosh, what did I do? And that’s a tiny little example of how bad we are at predicting how we will feel in the future when there is a buffet of delicacies in front of us. All we can see is really I’d like to have that right now and I’d like to keep having that and I’d like to have that all of December and into the new year. And I’m not really, you know, got the perspective of how dreadful I am going to feel when I step on that scale on January 15. That’s a tiny little example of how hard we have, hard of a time we have in projecting how we’re going to feel down the road and therefore modifying our behavior in the present in order to be happy down the road. So when it comes to money, what we do is we have all of these desires and goals, and most often people will default to serving their desires and goals right now, even if that significantly undermines their future happiness, because they can’t imagine what it’s going to be like when I get to retirement and I’ve spent so much money, I’m living a significantly reduced retirement. Forecasting error is the inability to project into the future. And imagine that retirement based on the actions that we’re not only doing today, but over the years, over the years, over the years. So if you think about how hard it is every holiday time, just extrapolate that over decades and you can see the discipline challenge that human beings have in being able to maintain the disciplines that allow them to have that future happiness. When that future happiness isn’t a month away, it’s decades away. So that’s a little snippet of what how forecasting error shows up in our life.

Julie [00:07:19]

That’s really interesting. Oh, it makes perfect sense. And it’s so interesting because obviously time just compounds the problem, right? I love your analogy of the holiday time, you know, and that’s just one very, very small example. How can this impact a client financial professional relationship? Do you have some examples of where this really comes into play and maybe how the conversation could or should unfold or some guidance for financial professionals to help maybe raise awareness to this issue? And again, I’m sure our listeners have a handful or hopefully just a handful, but maybe even more clients where they’re thinking, Oh, I know exactly who I need to really dig a little bit deeper on this topic on and what might they do to start bringing this topic to the forefront and really educating their clients first and foremost?

Barbara [00:08:13]

Yes, this all started because it was a white paper because I had a client with this experience in many cases, and we had to walk through that process. And in many cases, clients will overspend and in some cases they’ll do the opposite. They’ll be so fearful of their future, which looks too fuzzy to them right now that they’ll be extremely scrimping and unnecessarily so. So the one thing I can tell you is it’s in the emotional seat of the brain. So gentle reminders, rational explanations, charts and graphs hit the top of our brain, our irrational center. But this lives in the emotional center of the brain. So the financial professional needs to get at where the root causes and the root cause is in the emotional center of the brain. So the way you would do that is to walk them through the client, whether they’re overly scrimping and they can have more confidence and relax or they’re overly spending, we’d be to talk to the client and say, You’d really like to walk through an exercise to help them really envision their future. And the charts and graphs are great, but they don’t really do that. And so invite them to envision their future with them, with the financial professional, and take them on a visioning exercise. And I would be happy to explain that if we have enough time. Otherwise people can read the article. How much time do we have?

Julie [00:09:40]

I think we have time. Let’s dive into the visionary exercise. I think that that’s a really great tool to have in one’s toolkit.

Barbara [00:09:46]

Okay. So here’s the bottom line. And the emotional center of the brain quickly and often overrides our rational center of the brain, which is why if you’ve been working with your client as a financial professional and you’re doing lots of gentle reminders and you’re trying to tell them, look, you’re going to be okay in retirement, you don’t have to worry, or, Oh, we really need to control these spending. And they’re just not doing it. They’re just not doing it. They’re just not doing it. That is a clue that the rational center of the brain is not in charge. The emotional center of the brain is in charge. And so you need to get at the experience and the feelings, because what’s driving the client is that feeling and not their rational center of the brain. So what visioning exercise does is that allows them to take them, take their life, and they have a movie reel of there in their head of their life right now. They know what their life is like right now. They need to create a movie reel in their head of the future lives. So, for example, the clients that are overspending, they have no idea what it’s going to feel like in their retirement when the results of overspending for decades actually come to fruition. And so let’s use that as an example. The vision exercise would be to introduce it, to be diplomatic, to invite them to have this vision and exercise and then ask them pointed but diplomatic questions. I’m here to help you be happy in your retirement. That is part of my job. And therefore, let’s talk about what that retirement is actually going to look like and feel like. And for example, in this couple who’s overspending, imagine I’m going to use Mr. and Mrs. Smith. Imagine Mr. and Mrs. Smith, when you get to your retirement, if you continue this rate of spending, what is it going to be like when you want to move to a retirement home and you’re severely restricted? You can’t move into the home that you really would like because you don’t have enough money? Or can you imagine what it would be like when your friends call you up and say, let’s go to dinner? And you say, I’m sorry, I can’t go? Or when you look towards the last next six months or a year and you’re thinking, Oh, I really want to go on vacation, and then you look in your retirement account and you don’t have money to go on vacation, you know, and then you can say, I really want to think about what is that retirement life’s going to feel like on a day to day basis with this spending trajectory. And then people’s eyes wake up and they think, oh, my gosh, what is it going to be like when my day to day, when I finally have time to actually do things in my, you know, and enjoy life and I’ve so overspent while I was working that I don’t have money to enjoy it in the way I wanted to. So that helps people get the vision because all they can see is now and they can’t see later. So that helps them see the later and most importantly, feel the later when they feel that deprivation, then it wakes them up.

Julie [00:12:49]

I think that’s fascinating and it brings it it makes it so much more tangible. Barbara, as you know, we have a long, long standing partnership and relationship with the MIT Age lab. And what Dr. Joe Coughlin and his amazing team always say is, how will you spend your time in retirement? And so you have the funding piece and the financial piece, but then how will you spend your time? And obviously, those two have to come together. And I think what’s so interesting and I love what you just said, is those things that you might be spending your time on cost money. And so if you start to really even golf, for example, it’s just shocking to me how expensive golf is these days. And so that might seem like a great way to spend your time. You’re outside. Maybe spouses or partners are doing it together, so you’re bonding and you’re getting physical exercise. But the expense of it and if you just started to tally up, if you were playing, say, three rounds a week for the first three or four years of retirement, that becomes real money really quickly. And so I just think that that’s so interesting. The the really kind of taking it down to the day to day tangible level. How are you in the work that you do with your coaching clients? How have you armed them with questions to help clients really get extremely specific? Because again, I think sometimes, especially if we know as humans that we’re maybe not making all the right decisions, we maybe stay into kind of the vague territory because it’s just feels like a safer space. Are there tools or questions to really try to get down into that nitty gritty? We envision playing three rounds of golf per week. We envision, you know, buying a new car every other year or funding our grandkids private school tuition or, you know, really trying to make that as specific as possible just to reveal that disconnect.

Barbara [00:14:45]

Well, I want to share a technique that one of my financial professionals does that I think is brilliant. And I think she’d be happy for me to share it. She has her clients do a budget every single year because and this is over decades. That is a super practical way for clients to see how much am I spending? And it doesn’t have to be super granular, but it can be big picture. How much are you spending on housing? How much am I spending on travel, how much am I spending on entertainment? And it becomes very, very practical. And for the clients that are overspending, the budget is highly revealing that they’re overspending and the clients that are too fearful and just really scrimping unnecessarily, they can also see, wow, I’m I’m I’m well within my budget. And then they then she uses that budget to extrapolate, you know, what’s this going to what’s this spending rate going to mean for your retirement? How’s your budget now compared to what you can expect in retirement? It’s really practical. And and she has worked so long with her clients that they are now this is part of their routine. And I challenged her I said, wow, I have to tell you, I would not have fun doing the budget. Remember, you know, I’m I’m I’m the sociable person. I don’t want to do spreadsheets. So But she says, oh, no, I just make it as easy as possible. It’s just part of our routine and it gets them very much practically thinking about how their actions today are impacting their money now and in the long term. And then in terms of the visioning exercise, I think it’s great to just talk very openly about behavioral finance principles and how the experts know that human beings are just have a hard time with envisioning the impact of today’s behavior on tomorrow. I think the example of the struggle indulging and holidays, people really get that have to turn away the cookies. And if you just extrapolate that over decades, they say Oh yeah, I have. Oh, okay. And then if you introduce we’re going to do this exercise to help balance your vision and put on binoculars so that you’re seeing your future really, really clearly, then I think they’ll be willing to do it. And then you just ask them open ended questions and make them experiential and practical. If I were going to live a day in the life of your retirement and I was going to have a movie reel of a day or a week in the life of your retirement, tell me what you want that to look like. What does that movie look like? And that gets people really thinking about what is my day to day experience and what do I want to be doing in that day to day experience? The forecasting error makes our future just look really fuzzy. We just don’t have binoculars. We can’t see it clearly and then asking people their day in the life or week in the life forces them, in a nice way, to paint that picture. That’s what you want. You want them to paint a picture. Does that help?

Julie [00:17:58]

That helps so much. And I think, you know, it sounds to me like there’s also an accountability relationship that starts to happen between client and financial professional, especially if some behavioral adjustments need to happen, whether it’s on spending or other aspects of the financial situation. Is that the case, that it really becomes that relationship where the financial professional is holding the client accountable to those adjustments that they’re committing to make to their spending or other habits?

Barbara [00:18:30]

Absolutely. The situation that came up with my client, I had to ask him a challenge question in our conversation after learning about this and the gentle reminders and the education and this has been going on, the overspending going on for some time. I finally said to my client, I said, I think I have to ask you a challenge question. Are are you inadvertently enabling this behavior? Are you allowing this to continue because you just continue to educate, but nothing is actually happening and nothing is changing their behavior. And I’m concerned down the road when they come to retirement and they’ve outspent their money and they don’t have enough, who are they going to blame? They’re kind of probably turned to the financial professional, which I’m sorry to say is you, because you were responsible as a professional for helping them get there. And so if they’re really not getting that and the gentle reminders aren’t helping, I think their financial professional is at risk for being blamed. And then just from a professional ethics standpoint, I’m sure you want your client to turn around and change their behavior. So I’m not sure that answers your question, but you can tell me if I didn’t.

Julie [00:19:46]

It absolutely did. And I just think it’s fascinating and so important to remind financial professionals and all of ourselves, frankly, that, you know, that forecasting error and that visualization, it is such an important piece. And if we haven’t had those really open, honest conversations and helped clients get very granular, I think you’re absolutely right, Barbara, that it can result in that...Wait, I hired you 20 years ago to help me plan for retirement, and now you’re saying I don’t have enough money. What have you been doing? And so I think although they aren’t necessarily the most comfortable conversations, the work that you’re doing with your coaching clients and passing that knowledge along, I think we can’t start too early in those discussions, especially if we’re starting to see some of those signs unfold in our client financial professional relationship. So I think it’s just excellent guidance and such great tools in the toolkit.

Barbara [00:20:45]

Well, and the other thing, every financial professional has to decide what their line is and how much they would be wanting to work with someone. Many people might decide, Wow, I’ve done everything I can. And more than just gentle reminders, I’ve taken them through a visualization. Perhaps they’ve done a budget. We’ve done really experiential things. That’s the focus. The bottom line is they need to feel it and they need to understand the experience of what the future will look like. If you’ve walked them through that and they absolutely refuse to change their behavior and you’ve done everything that you can to put the binoculars on to the future and paint that vision of this is what your future is going to be like. And they refuse. Then it’s up to the financial professional to decide, Do you want to continue that relationship? Is that something that you feel ethically appropriate to continue with a client who just is walking down the road to impoverishment? Do you really want to have that client? And that’s not for us to decide. Every financial professional has to decide. But in my client’s case, it came up because he was so frustrated by this gentle reminders and education, and he was doing everything that financial professionals do, and it wasn’t working. So that’s where it’s like, okay, we need to shift this to an emotional experience, not a logical experience. They need the emotional experience. And oftentimes, if they have the emotional experience, it’ll really shift their perspective because they’ll see the pain that’s coming and they’ll want to avoid the pain that’s coming. Right? The rational centers of the brain aren’t focused on pain. So we need the client to see either the pain that’s coming from their bad habits or the pleasure that they can enjoy from good habits. So if they’re fearful and not confident, they can release that fear.

Julie [00:22:44]

I think that’s such an important reminder as we wrap up is separating the emotional from the logical. And obviously, there are two very different experiences. And I think that these guidances and ideas and conversation points are so helpful. And in our financial professionals that are listening today, thinking about, you know, for their own practice and team how forecasting errors can wreck their clients retirement and potentially the relationship in the long run. So we can’t thank you enough for joining us today on the Human Centric Investing podcast. And with that being said, because it is the Human Centric Investing Podcast, we would love to transition to the lightning round of questions and ask you a few questions about you. Barbara, The person, to get to know you a little bit better. And if you’re willing, we’ll just rattle through a few questions and you just answer on whatever is top of mind. So if you’re willing, let’s go.

Barbara [00:23:37]

All right. I’m an open book. Let’s do it. It’ll be fun.

Julie [00:23:40]

Are you a fan of a paper to do list or a digital one?

Barbara [00:23:44]

Oh. Hmm. I actually do both on occasion. But I don’t like hundred item to being more spontaneous style. If I have too many things, I get overwhelmed with the volume, so I have to whittle things down. And that’s just a confession about my style. I married a wonderful man, my college sweetheart, and he is absolutely analytical and harmonious, and I’m blessed because he loves spreadsheets and I am happy to let him deal with them.

Julie [00:24:21]

Oh, he and I would get along well. My life is in a spreadsheet and I love them. They bring me a lot of joy.

Barbara [00:24:28]

Spreadsheets, give me hives.

Julie [00:24:32]

Please just go clean and neat and tidy. But anyway, are you an introvert or an extrovert?

Barbara [00:24:40]

I’m absolutely an extrovert, but I find, like many halfway extroverts, if I spend a lot, a lot of time out with people, then I appreciate having some alone time to rejuvenate and to rest up because I spend a lot of energy when I’m with people. So I like to be able to rest up afterwards.

Julie [00:25:00]

I hear you have to recharge those batteries at some point. Do you prefer to shop online or go to the store?

Barbara [00:25:07]

Oh, wow. I do. Since COVID, I do a lot of online shopping, although it’s quite challenging to shop online for clothing. So because you can’t try it on. So if something needs to be tried on or needs to be touched, I like to see it. I would not shop for a car online. I would just price shop for the car online and then go do research.

Julie [00:25:33]

I love it.

Barbara [00:25:34]

Do my research...intense on the research. Then I’d go drive the car. Then I negotiate really hard. Watch out, car dealers. I am a fierce negotiator.

Julie [00:25:44]

I am too. You and I should go buy a car together some day. That would be amazing.

Barbara [00:25:49]

Not right now they’re very overpriced.

Julie [00:25:52]

I would wholeheartedly agree. Would you rather travel to the past or to the future?

Barbara [00:25:58]

Oh. Oh, that’s a hard one. Hmm. I think it’d be very interesting to travel back in time and be able to, you know, have for dinner or interview historical figures. I think that would be very interesting.

Julie [00:26:20]

I agree. And if you could travel the world for free, where would you go first?

Barbara [00:26:26]

Well, I’m doing that soon. I’m taking a long delayed because of COVID trip, and I’m going to Italy this September. So I would start in Italy and I would go all around the world starting there because I’m going there.

Julie [00:26:46]

That sounds perfect. And when you were a kid, what did you want to be when you grew up?

Barbara [00:26:50]

Oh, I wanted to be an actress. Wow. I was very much a showman and wanted to be an actress because my mother, who’s wonderful, would would say I could be quite dramatic.

Julie [00:27:10]

That is fabulous. Well, thank you, Barbara, again, for joining us today on the Human Centric Investing podcast. And we can’t wait to share all of your insights with our listeners here shortly.

Barbara [00:27:22]

Thank you so much. It’s always a pleasure. And I love bringing really complicated psychological principles into financial professionals lives in a practical and actionable way, and people can reach out to me. I’m happy to answer questions and thank you so much for having me. It’s always a joy.

Julie [00:27:41]

Thanks, Barbara. And if you’re interested in learning more about Barbara’s guidance and ideas, please visit Hertfordfunds.com/insights where her white papers and educational videos are located.

Julie [00:27:56]

Thanks for listening to the Hartford Funds Human Centric Investing Podcast. If you’d like to tune in for more episodes, don’t forget to subscribe wherever you get your podcasts and follow us on LinkedIn, Twitter, or YouTube.

John [00:28:11]

And if you’d like to be a guest and share your best ideas for transforming client relationships, email us. Guest Booking at HartfordFunds.com. We’d love to hear from you.

Julie [00:28:21]

Talk to you soon.

John [00:28:24]

The views and opinions expressed herein are those of the guest who is not affiliated with Hartford Funds.