Say This When Reviewing Financial Plans on Monte Carlo With Clients

For years, we purposely did not show our clients the Monte Carlo analysis that predicts the success or failure rate of their plan, mainly because it was hard for many people to fully understand what it actually meant for their financial life. One small tweak in how we communicate the Monte Carlo made the conversation so much better with our clients.

Previously, when we showed the Monte Carlo to clients, we’d have two different reactions.

One client would see 75 percent and they'd get very worried that they were going to run out of money or that things were not looking very good. That number kind of freaked out many people. Another client would see 75 percent and they think it was great; that those were really good odds.

Another thing we noticed when sharing the Monte Carlo, the plan review was more of an event than really what we wanted to promote: the importance of continual planning.

And that's why I really appreciated Michael Kitces’ view on explaining the Monte Carlo. What he basically said was that he doesn’t use the phrase probability of success in a meeting––for example, we're looking at 75 percent-chance probability of success––because it's hard to equate in the client's mind what that actually means. Instead, he says, this is the probability of a midcourse adjustment.

So, rather than saying, you've got a 75 percent chance of success, we tell clients, you have a 25 percent chance that you'll have to make an adjustment along the way. That sounds a lot less daunting because if you've got a 75 percent chance of success, that could sound, well, not that great. But, if you understand that there is a 25 percent chance of having to make an adjustment along the way, that mindset facilitates good, proactive financial decisions moving forward.

When we changed our phrasing, we would remind clients that a 25 percent chance of having to make an adjustment is normal. Then we would show some examples, such as, let's say you adjust your savings rate by this amount; here's the impact that has on your plan. Or, here's an example with your current house; if you were to downsize, what does that look like 10 years from now?

These small adjustment in the way we communicate the Monte-Carlo really helped facilitate good decisions from clients with less confusion, while also promoting the importance of ongoing planning.


First Meeting Framework. Shorter Meetings = More Clients

How To Create, Increase, and Communicate Your Value As A Financial ...

When To Charge For a Financial Plan and When Not To Charge

My Favorite Way to Get Client Referrals Using Gratitude