The KISS Method Revisited

Keep It Simple Stupid (The KISS Method) is usually good advice.  However, some things are complicated to start with so the “keep it simple” option does not exist.

Then you need the MISS method.  Make it simple stupid.  There is a limit to this however.  Einstein is quoted as saying that you should make a thing as simple as possible, but not simpler.

Find and focus on the essentials.  For financial planning, things like debt management, savings of all kinds, insurance, wills, powers of attorney, a margin for error, and flexibility.

Financial planning is an area that possesses more than its fair share of complexity.  Much of it driven by the unknowable future but still a good portion driven by unknowing clients and their sometimes misdirected financial planners.  It is not as easy as you think.  Spend time promoting client literacy.  It pays.

If you, the client, are to be successful, you will need to know more than you do now and you will need to condition your expectations to the real world environment.  Earn 15% forever?  The fellow who can do that for you is down the hall – second door on the left, just past the flying pigs.

Planners.  Stow the arrogance.  Sure, it is fun to have 75 page financial plans.  Some of them are at least internally consistent, but no one pays attention.  You are preparing the plan to help the client not to impress another planner with its elegance.

Besides, in most cases, the assumptions matter more than the substance, but the client does not know that.  There is almost no chance that the client can make decisions based on what is there.  These plans exist only to condition clients to accept your recommendations.  In the long run, you will be blamed if it does not work out.  People do not accept responsibility well and certainly not when they did not understand the decision.  Ask any lawyer.

Some financial plans I see remind me of Finagles Fourth Law of Experiment:

“Build no mechanism simply if a way can be found to make it complex and wonderful”

Financial planning matters too much to go the complex route, especially in today’s unforgiving financial environment.  Let’s try to get people to focus on the fundamentals.

  • You cannot borrow your way out of debt.
  • You cannot spend more than you earn for very long.
  • You cannot invest what you have not yet saved.
  • You cannot avoid risk, but you can minimize it.
  • You cannot continue to overlook boring financial products that solve problems.  (RRSPs are not as much fun as movie limited partnership interests)
  • You cannot miss the fact that your children are a financial liability for a long time.  So is your eventual retirement.
  • Taxes matter.  Do you have a TFSA yet?

What would be wrong with going back to old ways?  Have a long term direction, an intermediate term plan and an annual budget.  Be frugal.  There will likely come a time when more sophisticated methods will apply, but not before the basics have been solved.

If you have a problem, find a process that solves it, implement it and carry on.

Better a set of simple and complete steps than a sophisticated structure that may not cover all the ground.   Certainly better if than if client cannot tell what to do when some underlying assumption changes.

If the client cannot tell what they should do this month and why, then they do not understand their plan.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.