As financial planning for clients grows more complex, it becomes increasingly difficult for planners to recognize every planning issue, opportunity, and concern from memory alone. As a result, there is an increasing risk that planners make a mistake—albeit by accident—in the struggle of trying to apply everything they have learned to an incredibly wide range of client situations.
So what’s the solution to address this challenge? As it turns out, there’s a remarkably simple one: checklists. While it may seem absurd that such a basic device could enhance client outcomes, it turns out that checklists may be an excellent means to deal with the simple fact that we are all fallible humans.
Ignorance Versus Ineptitude
It’s important to recognize that in many situations, professionals fail simply because the task at hand was beyond saving; we may have tremendous intelligence and technology available to us, but we are not omniscient or all-powerful, and some fallibility is inevitable. However, where success or failure is within our control, there are two primary drivers that lead to failure: ignorance and ineptitude.
Ignorance has been the driving force for failure for most of medical history. Up until just the past few decades, we simply didn’t know what the true causes were for many diseases and maladies, much less how to treat them or fix the underlying causes. For instance, as recently as the 1950s, we still had no idea what actually caused heart attacks or how to treat them. If someone had a heart attack and died at the time, it was our collective ignorance of the underlying problems that led to the “failure” to save the patient.
By contrast, in today’s environment, we have developed numerous drugs to treat high blood pressure, as well as heart attacks themselves. We “know” how to fix an astonishing range of maladies. If an ineffective (or even harmful) treatment is applied now, we don’t simply let the professional off the hook on the basis of “well, we didn’t really know what to do, anyway.” Our collective ignorance of how to treat a problem is no longer an acceptable answer; instead, a failure of the professional is an “error” and a sign of ineptitude.
Of course, the caveat is that many of the professional situations today are of a highly complex nature. While we might understand far more about the body and how to treat it than in the past, it is still remarkably complex, and many “failures” of a medical practitioner still walk a fine line between ignorance and ineptitude. Unfortunately, though, it’s not clear if more experience and training alone are necessarily sufficient to fix either; as our knowledge increases, so too does the complexity of applying it correctly, to the point where we may be reaching our human mental capacity. We are still only human ourselves, after all.
Managing Complexity With Checklists
So what’s the best way to wrap your arms around such incredible complexity? One study of 41,000 trauma patients in Pennsylvania found that doctors had to contend with 1,224 different injury-related diagnoses in 32,261 unique combinations. To say the least, the difficulty of providing that many different diagnoses in that many different situations is a challenge of enormous complexity for the human brain. So what’s the solution? Checklists, to at least ensure the big things don’t slip through the cracks.
It turns out that even relatively routine checklists can have a remarkably material effect, for the simple reason that as human beings, we don’t always remember to do every single step in a process the exact same way every time, especially when most of the time it doesn’t really matter. For instance, one early study applying a simple checklist to implant a central line (a catheter placed into a large vein to deliver important medication to patients): 1) wash hands; 2) clean patient’s skin; 3) put sterile drapes over patient; 4) wear mask, hat, gown, and gloves; and 5) put sterile dressing over insertion site after completion—was found to drop an 11% infection rate down to nearly 0%. It turned out, the doctors were mostly consistent in executing all of the steps, but they occasionally skipped a step for any number of accidental or well-intentioned reasons. Being accountable to a simple checklist eliminated virtually all the complications, for what was actually a very simple series of steps. Over a two year span, the initial study estimated that in one hospital alone, the checklist had prevented 43 infections, 8 deaths, and saved $2 million dollars!
The application of checklists is already widespread in other professional contexts. They are a staple of the airline industry, ensuring that even well-trained pilots never miss a single step in the proper execution of flying the plane; notably, such checklists include important guidance about how to quickly handle a wide range of emergency situations where, even if the pilots are trained, it may be difficult to recall the exact steps to execute in the heat of a high-stress moment.
The construction industry also relies heavily on checklists to ensure that buildings are built properly, and that crucial steps aren’t missed that could result in catastrophe. Checklists require duties of multiple individuals—and everyone is held accountable to ensure all steps of the checklist are completed—teams end up communicating better, which prevents even more unfavorable outcomes.
Creating Your Financial Planning Checklists
Granted, in the financial planning world, the client situations that present themselves are rarely related to imminent death. Nonetheless, the fundamental problem remains: Financial planning for individuals with a nearly infinite range of situations entails tremendous complexity. Could anyone really remember every possible question to ask or step to take? It’s unlikely, at least not without the assistance of a financial planning checklist.
Many technical areas in financial planning require not only specialized knowledge, but an awareness of rare-but-potential circumstances that may arise that provide for unique planning opportunities. For instance, with respect to Social Security alone, how often do you ask an unmarried client over the age of 62 if he/she had a former marriage that lasted at least 10 years or ask retirees over age 62 if they still have any children under the age of 18, or ask if the client had a prior (or current) job where he/she did not participate in the Social Security system? While none of these situations are necessarily common, they do occur from time to time—frequent enough to matter, but not frequent enough to necessarily remember to ask every time. The same is true in a wide range of other planning situations.
Having a financial planning checklist in each of the various areas of financial planning can serve as a type of “due diligence” process, to ensure that all the important planning issues and opportunities are covered. Arguably, at some point in the future, these might even be codified into a more extensive series of practice standards for financial planners—as in the case of doctors, this can ultimately help to distinguish between situations where an unfavorable outcome was due to an error or “ineptitude” mistake of the planner, or was simply a situation too complex to possibly be saved. In practice, effective due diligence checklists might also be integrated into a firm’s CRM software.
From a client-experience standpoint, codifying your planning process to the degree that you can create extensive and specific check lists should be a comfort, knowing that their planning activities have been mapped out, that you haven’t forgotten to cover any of the critical topics, that you have a way to check individual details on any given scenario, without having to ask questions repeatedly after the initial meeting. The list also acts as a guide to each meeting with a client, allowing for a logical progression as the relationship matures and the plan evolves, to help gauge whether the client is on track in their plan. As a client, this should be very reassuring, in that you can rest easy with the feeling that nothing critical is likely to be missed if your advisor uses checklists.
Unfortunately, though, the greatest challenge is simply that advisors need to build our financial planning checklists—a challenging and time-intensive process. Clients need to start asking about whether the firms they’re interviewing use check lists to help bolster memory and planning accuracy. Perhaps this is an opportunity for the financial planning community to band together and build something collectively that could become a practice standard. In the meantime, though, it would probably be a good idea to ask if your advisor uses checklists for the most common challenges that arise in your own financial plan!
Pinnacle’s Planning Process incorporates a variety of tools and checklists to help us keep clients on task and on track, and to be sure that even the smallest detail receives the attention it deserves, for the best possible chance for a positive outcome.
And if you’re still not convinced of the value of a financial planning checklist (or having a series of them!), I’d strongly encourage you to read Checklist Manifesto yourself; if you are convinced, you may also find the book provides helpful inspiration on the kinds of checklists that may be useful in your life.