28th July, 2017

Blog, Hot Topics

Wants vs. Needs

Human psychology has always fascinated me. It’s one of the main reasons I find myself in a client-facing role. I really enjoy the variety of interaction with clients and colleagues. I consider it both an honour and a privilege to be partly responsible for one of the most intimate and personal areas of our clients’ lives; their finances. I thoroughly enjoy breaking down the often convoluted web of emotion, internal belief systems and external influences to find the root of it all, separating what clients want, from what they need

As a child, this is very much black and white; we need feeding but we want chocolate, we need to sleep but we want to stay awake. As time moves on, things start to get complicated. As the mind grows and develops, so too does the complexity of our thought processes and the irrationality of our behaviour. Environmental factors, such as the people we surround ourselves with, start to influence how we think, which in-turn affects how we behave and how we want to be perceived by others. It becomes easier to lose sight of what you need and be blinded by what you want.

This situation is all too common where people’s finances are concerned, with a hypothetical example listed below:

Georgia and Steve

Georgia and Steve had run a successful business together for many years. During this time, they worked hard to ensure they had strong investment portfolios to fall back on which could sustainably support their needs in retirement.

Steve spoke to his Financial Planner, who explained that all their hard work had finally paid off, and they should feel confident to retire whenever they were ready. After a long discussion with Georgia, the partners decided to call it a day and sell their company for £1M.

Now the trouble comes. 6 months passed, and their sale price of £1M was not met, but a very respectable offer of £950,000 was made. Georgia focused on the headline amount and wanted to accept the offer, but Steve was insulted and refused. His pride would be hurt too much accepting anything below £1M.

For the sake of £50,000, split between two (£25,000), less 10% Capital Gains Tax (£22,500), Steve jeopardised his friendship with Georgia, forked out thousands to settle the resulting legal dispute and tarnished the successful business he and Georgia had worked so hard to create. By focusing on a mere 2.25% of their original asking price, he had been blinded by the amount he wanted, and forgotten that he didn’t need any of the money to make his plan work.

Our Financial Planners spend a considerable amount of time in meetings trying to gain a clear understanding of client wants and needs, the drivers behind them (the why), and together with our Technical Solutions Team, they work to establish how clients’ goals can be achieved and what needs to be done to ensure their delivery. The disparity between wants and needs is always at the back of our minds, whether we’re looking at a business sale, analysing a pension transfer, structuring a director’s salary package, or developing a cautious investment mandate. We should always take a moment to think more deeply about what we really need  in life, to ensure we’re not trapped by unnecessary ‘wants’.