Design thinking for advisors

This article appears in the Fall 2020 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Julia Chung has taken to ordering a book in bulk and handing out copies to her clients, especially those approaching retirement.

“Read this,” the Vancouver-based financial planner tells them, “and we’ll talk.”

The book? Designing Your Life: How to Build a Well-Lived, Joyful Life by Silicon Valley veterans Bill Burnett and Dave Evans.

This manual for “design thinking” — which grew out of Burnett and Evans’ course at Stanford University — teaches regular folks how to take the mindsets and processes that designers use to create iPhones or Ferraris and apply them to the complex, open-ended problems of everyday life — including financial plans.

Chung is the CEO of Spring Planning, an advice-only firm that virtually serves clients across Canada. She and her colleagues have embraced design thinking, applying it to every aspect — cash flow, tax and investment strategies, retirement and estate planning — of their work with clients. Design thinking was the firm’s theme last year, with a monthly series of blog posts devoted to the framework.

It’s an approach that other advisors are considering. Too often, says Anna Foat, a director in Sun Life’s digital transformation office, planners and their clients treat financial planning as what Burnett and Evans might describe as an “engineering problem,” with a correct answer that can be arrived at through algorithms and mathematical formulas.

Financial planning, she points out, has relied for decades on a so-called “age and stage” approach: clients start careers and pay for their education in their 20s; they get married, have kids and buy a house in their 30s; and they build careers in their 40s. Traditional planning has prescribed how much clients should be saving, as well as the right products for each phase.

“Those very static demographic personas aren’t really true anymore,” says Foat, who teaches a continuing education course in design thinking at Western University in London, Ont.

“People within the same age group might have radically different life experiences. As an industry, we need to think about how to meet people where they are, give them the right advice [and] provide them with access to the right products.”

Design thinking, she says, helps advisors build holistic and creative solutions.

How to think like a designer

“We ask lots of open-ended questions,” says Anish Chopra, a partner and managing director at Portfolio Management Corporation in Toronto.

Too often, he says, planners get caught confirming beliefs rather than seeking out genuinely new, and possibly surprising, information. Being curious means moving beyond standard questions about goals and risk tolerance to the more personal motivations, fears, values and dreams behind them.

Chung agrees. “We’re always asking ‘Why?’ We have to be three-year-olds about everything,” she says. “‘You want to retire at age 65: Why then? What makes 65 the number? What will you do then? What does a typical day of retirement look like to you?’”

These personal questions fly in the face of financial planning as an engineering problem, and provide advisors with meaningful information, Chung says.

“That’s when the client says, ‘You know, I have a silly confession: I’ve always wanted to raise llamas in Peru.’ And we have to be genuinely curious about that and say, ‘OK, that sounds fun. How do we do that?’” she says. “Clients will use their financial plan if they can see themselves in it.”

Here’s how advisors can apply a design-thinking mindset to their clients’ problems.

The five steps of design thinking

Design thinking can be used to build the individual aspects of a financial and estate plan, and to bring the separate parts together into a whole. Chung breaks down the process into five phases:

Step 1: Empathize

Advisors who spend a lot of time asking questions of their clients are engaging in empathy. The client who repeatedly says she really loves GICs is telling you that she’s risk-averse. Why? What events have fuelled her focus on security? A financially bulletproof retirement plan, says Chung, “can sometimes fail not because the numbers are wrong but because the client is absolutely terrified about what comes next.” Empathizing allows advisors to create client-centric plans that address not only the numbers but the emotions behind them.

Burnett and Evans are big fans of “reframing dysfunctional beliefs.” “Risk is bad” can be reframed into a more functional mindset, like “Risk is a tool I can use to make a well-rounded retirement plan.” An advisor who understands the underlying beliefs and empathizes with the emotion can work with clients to reframe those beliefs.

Step 2: Define the problem

Advisors need data to assess a client’s goals. Do the numbers support the dreams? Is there a real risk that the client won’t be able to retire when they want to, or do they have gobs of money and need to be encouraged to spend more of it or face tax repercussions? Defining the problem of retirement income, for example, takes savings, pensions and cash flow into account while considering questions about lifestyle and legacy. With the risk-averse client above, one problem will be balancing that aversion with having enough money to retire.

Step 3: Brainstorm

Advisor and client come up with solutions from as many angles as possible, using a variety of techniques. Clients anxious about exactly how they’re going to spend their retirement can track their activities in a journal to get a sense of where their passions truly lie. Mind mapping uses free word association to get ideas flowing and brainstorm new solutions to the problems identified in Step 2.

For this step, Chopra says, advisors “can talk clients through what we’ve seen other clients go through in various situations, and what has or has not worked for them — and why.”

Step 4: Prototype

Narrow down the scenarios and come up with plans and models to support them. Maybe a client wants to spend part of the year somewhere warm, says Chopra. Where will they go? Will they continue to work? What are the tax implications? The insurance requirements? Maybe they want to devote themselves to a philanthropic cause. How much time and money can they afford to spend, now or in five years from now?

Step 5: Test

Put a plan into action to see how it works in real life. This is the time to try living on one salary for six months, cut back on work slowly, or join a committee at the organization you ultimately want to support full-time. Maybe the client discovers that they don’t really love travelling for six months of the year, or maybe an obstacle pops up at the underwriting process. All the data gathered during the testing phase can be used to refine the plan.

One of Chung’s clients, for example, is easing into retirement, cutting back his dental practice by a day every six months. “Every time he does, he goes back to his prototype and tests some of the ideas about how he might spend his time. He’s down to about two days a week right now, and is really starting to feel comfortable with the idea that he’s still a valuable person who is adding to his community and has worth even if he’s not Dr. So-and-So.”

A framework for change

Even the best-designed lives and financial plans aren’t immune to the forces of change. That’s why design thinking builds in that inevitability.

Thinking like a designer means approaching financial planning as a process. This leads to more flexible plans because life is always changing: a grandchild is born, a parent dies, there’s a worrying spot on a medical scan, housing costs rise, a novel virus appears. “How do you create doors that you can walk back through?” asks Foat.

Design thinking, Chung says, can’t solve ambiguity or provide certainty in an uncertain world. “But what clients are getting is control. They’re getting a framework to make decisions that feel good and make sense.”