Carl Richards

About Carl Richards

Carl Richards is a Certified Financial Planner and director of investor education for the BAM Alliance, a community of over 130 independent wealth management firms throughout the United States.

He is the creator of the weekly Sketch Guy column in the New York Times and a columnist for Morningstar Advisor. In addition, Carl has his own blog ( and has become a keynote speaker at financial planning conferences around the world.

His sketches also serve as the foundation for this first book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. He is set to launch his second book at the end of March 2015 entitled “The one-page Financial Plan” and sums it up as “Through 10 chapters, I address the most common areas of our financial lives. The end result is a fun, but not overwhelming, plan that cuts through the complexity. My personal favorite is Chapter 9. It walks people through the process for finding and hiring a real financial adviser.” has reviewed this book – click here to read the review – and interviewed him – click here to read the interview.

As an introduction we asked Carl some questions to understand what drives him and his passion for investor education. His answers make for some interesting reading. “Making a career in finance is very complex with different routes whether working for a bank, an investment manager, financial planner etc. Thinking back to your teenage years what did you want to do, how did you end up working in financial planning and eventually investor education?”

Carl: As a teenager, I wanted to be a helicopter pilot. Somebody talked me out of that, and in a very circuitous route, I applied for what I thought was a job as a security guard. It turned out to be a securities job and marked my triumphant entrance into the world of finance. “Focusing on investor education, why is this so important to you and if you could look back on your career in say twenty years’ time what would you like to have achieved?”

Carl: Investor education is so important because it makes a massive difference in people’s lives. Investor education helps people understand that the important decisions we’re making about money aren’t just about spreadsheets and calculators. They’re also about our goals and dreams and worries and values. Twenty years from now, I hope I’ve helped more people understand this connection between money and emotion.

UK vs US

Financial Education

Intro: In the UK there is little or no financial education in schools and colleges, this means that schools may produce academically brilliant students but often these students are financially illiterate. Changes are being made but these could take years to filter through. “Does the US have the same challenges, and if so is this being tackled and do you think the UK could learn from this? If the US does promote financial education in schools and colleges, what do you think the UK could learn from this?”

Carl: There are efforts being made everywhere, and I’m not sure the U.S. is any further ahead in this regard than other countries. But I’m excited to see that personal finance and investment courses are showing up in my local schools. I love hearing my kid’s share what they learned about budgeting at school that day. I graduated from university with a degree in finance without ever taking a personal finance course. It was all about corporate finance. I didn’t understand the difference until after I graduated, so I’m hopeful that primary and secondary schools will continue to help kids learn more about personal finance.

Financial Advice

Intro: In the past financial advice in the UK had a poor reputation, focusing more on products and the commission that someone could earn rather than long term financial planning, and whether a solution was right for that individual. This model is all but dead with a greater emphasis on planning and goals. “This ‘new’ model appears to be more akin to the US model. Would you agree with this and what do you believe the UK could learn from the US (and vice versa)?”

Carl: In terms of how financial advice is delivered, what I call the Secret Society of Real Financial Advisors is having this conversation. We’re focused on the same thing: helping clients get really clear about their goals and plans. Only then do we go looking for a product to populate that plan. While there may be better regulations in our two countries, I’m not sure who is ahead of the other. It’s really exciting to me to see everyone saying the same thing, “Wait, we need real financial advice that focuses on a clear financial diagnosis long before writing a prescription.” “You wrote “…if you’re paying for advice on how to time the market, I think your money could be better spent elsewhere. However, if you’re paying to put someone between you and stupid, I believe it’s worth every penny.” In the UK many financial planners do not control the investment strategy of their clients preferring to outsource it to a third party. Do you believe that an adviser should control the investment strategy as part of the whole package, and why?”

Carl: I think the financial advisor should be the doctor, not the pharmacist. In other words, the advisor should be driving how the money is invested. Its fine to work with an investment manager, too, but the allocation decisions, especially the big splits between stocks, bonds, and cash needs to be driven by the person who understands the plan. The advisor should be the one driving the macro level investment decisions. “In the US how does the direct market work alongside the advised market? Can the two work in harmony and how can financial planners respond to this?”

Carl: This is a fundamental misunderstanding of what it means to be a real financial planner. The primary job isn’t to design portfolios and implement investment plans. The real job is making the connection between what a client values and their goals, then taking that information and making a plan to help them get there by behaving for many years. A direct market service, like a robo advisor or an algorithm, isn’t going to help you do that. As long as empathy and trust play an important role in financial decisions, which I think will always be needed, real financial advisors have value. But we need to understand that’s our real value. The rest will be outsourced. If we understand that, we don’t have anything to fear from the direct market.

Financial Plans “If we ask a college or university leaver just entering employment about a financial plan we are more likely to be rebuffed with them being interested in the here and now rather than worrying about the future. And for those thinking of the future the first priority is maybe a car or a house and certainly not retirement. How can we educate younger people to think differently, or are they correct in the way they are thinking?”

Carl: Good financial planning is always going to be about tradeoffs. What good is planning for the future if you can’t enjoy today? But what good is living for today if you have no plan for the future? Balancing the two demands is an art, not a science. Advisors happen to be positioned to help people find that personal balance. People just leaving university will always have a difficult time imagining themselves 20 years from now, but that’s no reason to avoid considering the future, nor will it stop them from enjoying their lives today. “How would you explain the importance of a financial plan to a young person starting out, and how they can have different goals within one plan?”

Carl: The younger you get started, saving money particularly, the more options you’ll have later on. The real power comes once people understand compound interest. Delaying gratification a little bit today will have a massive impact on the future. If you can stay on the right side of compound interest instead of the debt side of compound interest, it will prove very valuable. And of course, financial plans can have multiple goals. There may even be multiple buckets of money. One bucket holds money for 20 years from now, another holds money for five years from now when it’s time to buy a home. Good financial plans can incorporate more than one goal easily.

Financial Advice vs No Advice

Intro: Considering the growth in direct propositions and what they offer. The ultimate aim of these propositions is to sell a product to the end user. Although they offer tools, they don’t (yet) offer any guidance on financial planning and goal setting – it just doesn’t sell! “The idea of drawing up plans and goals seems a fairly new concept in the UK and some might argue that it is just a gimmick devised by the financial planning community to justify the fees they charge. It is our belief that although the concept is fairly new in the UK the practice and discipline of financial planning is relevant whether someone uses a financial planner or goes direct. Do you believe this is the case and can you explain the reasons for your answer?”

Carl: Again, I think this is a fundamental misunderstanding. How can you pick investments if you don’t have a plan? It’s a little bit like arguing over whether to take a plane, a train or an automobile BEFORE you’ve decided where you want to go. The goal of a real financial planner is to help people decide where they want to go. There’s three really important things here:

  1. Financial planner’s help people get really clear about their goals. It’s not a gimmick. How can people make really important decisions if they don’t know where they want to go?
  2. They remind people of what they said their goals were when they get emotional.
  3. They stand between people and the Big Mistake (i.e., buying high, selling low), by helping them behave for years. “You wrote about investors being hijacked by stories of the latest cool tech IPO (we had a few in the UK in 2014) and the temptation to invest. Often the temptation is driven because of the potential gain (this could be the next ASOS, Apple, Google etc) without considering the potential loss. With or without plans how easy is it to be sucked in, and how can investors avoid being sucked in?”

Carl: My favorite tactic for helping people understand the decision they’ll make is what I call the Overconfidence Conversation. If someone is convinced to move their live savings into the latest tech IPO, for example, walk them through these three questions:

  • Question #1: How will your life change if you’re right? I generally get a response that it would change around the edges. Unless this is a truly lottery ticket decision, the change would be small.
  • Question #2: How would your life change if you’re wrong? Often the answer is more dramatic. “I’d have to delay retiring” or “I’d have to go back to work.”
  • Question #3: Have you ever been wrong before?

The point of these questions is to help people focus on not just the probability of a certain outcome, but also on the consequences of that outcome. “We are taught to believe that cash is the lowest risk and equities the highest. Would you consider human emotions to be as great a risk and why?”

Carl: Risk is an arbitrary concept until you experience it. We know that cash may have the lowest risk in terms of the amount it goes up and down. In the short term, it’s very safe. The dilemma with cash is that inflation is inevitable over long periods of time. So over the long term, cash becomes riskier because it loses purchasing power power. The opposite is true for stocks. Equities may seem too risky in the short term because they go up and down a lot, but a diversified portfolio is less risky when viewed over the long term. The best designed portfolio, no matter how risky it, is no good if you make one behavioral mistake, like selling at a market low. “You believe that one of the biggest challenges for advisers is helping clients to get clear about their current reality. One of the biggest challenges for clients is the perceived lack of control when they hand over their investments to an adviser. How do advisers overcome this challenge and lead clients into a financial planning world?”

Carl: I don’t think real financial planners take over for clients. They work as co-pilots with clients and help them make these decisions. It’s not a function of turning over control, but having someone there to help you make really good decisions, especially when you’re emotionally. And once we understand that money is emotionally, we realized the value of having an objective, non-emotional third party available to help us avoid some of the more common behavioral mistakes. “Do you believe with all the free information if we can teach people to plan, there is still a need for financial planners? What do you believe financial planners should do and offer?”

Carl: If it were true that information equaled wisdom, of course there’d be no need for financial planners. But that’s not the case. Go to the local bookstore and check out the number of books on personal finance. The number of books has exploded. Yet at the same time, people are more confused than ever. The real job of a financial planner is to navigate this complex landscape by helping people get really clear about why they’re doing these things. Then, they can help clients build a plan that matches their why (their goals and values) and find products to populate the plan. All of this is followed by helping clients behave for the next 30 years. This describes the simple (but not easy) job of a financial planner.

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