Why is financial planning like a good game of chess?

Are you a fan of chess? The game had eluded me for 40 years or so, until I started to watch the Netflix drama The Queen’s Gambit. 

The story is about an orphaned chess prodigy who becomes the world's greatest chess player, while also struggling with emotional and addiction problems. It’s a compelling drama and has won rave reviews, particularly among the chess community. It’s even sparked a resurgence of interest in the game – try buying a chess board now! 

I think part of the intrigue is that the drama has made chess very compelling – these days we’re used to chess being dominated by supercomputers who are hard to beat. Where’s the drama in that?! 

It all started in 1996 with the IBM computer Deep Blue, which was the first computer system to defeat a reigning world champion, beating Garry Kasparov – who later accused IBM of cheating!

This begs the question – is there anything that computers can’t do? Perhaps there is…

I remember reading an article about the story of frustrated chess player Bobby Fischer who was so fed up of the computer constantly beating him that he became hell-bent on developing a version of the game that a human had a fighting chance of winning.

And he succeeded designing Fischer Random Chess.

What he did was he randomised the position of the pieces before every game. That was one step too far for the machine – it could only work out the millions of different potential moves, if the starting point was always the same.

And this gives me hope. Because this randomised start to a chess game is beautifully reflective of real life. No starting point is the same, we’re all messy, unpredictable and complicated. We have all lived completely different lives that start, develop and end in different ways. And this is where computers are limited in scope, but where real life people can really help.

Why am I so concerned by this? 

Well every good financial adviser knows that each client is individual and unique, with a different situation, different circumstances, and different short term and long term hopes and desires. The job we do is to help people achieve those hopes and desires by creating a completely personal financial plan that will help them to the other side of the board in one piece.

But like chess, there are plenty of options out there now that promise to be able to replicate this advice and planning through digital alternatives. But my point is how can a computer win, when the real-life starting point is always completely randomised? 

No computer can understand each differing layout at the beginning of a game – or can deal with the huge diversity of differing arrangements of pieces that reflect each individual person’s opening gambit.

This is why the first step we always take is to assess each client’s personal situation at the start of their financial journey – not to only to find out where they are, but how they got there – before creating a plan that’s bespoke to them.

However, people’s needs change, and they have various stages in their financial life cycle. With that in mind, our initial assessment is followed up with regular contact so that we can react, change, and add to their advice, as we grow with them along that journey.

For example, a client in their 20s may well be interested in setting up a personal pension, but only as they move into their 30s and perhaps start a family and buy a first home do they see a need for life insurance and critical illness insurance, to protect their loved ones if they were struck by an unexpected setback. And this year, living through the pandemic, who has not thought about that at least once?

Then there’s a person’s ‘risk appetite’ to consider. Perhaps a younger person might be comfortable with some adventurous investments for their pension savings. However, in their 50s, with retirement on the horizon, they may wish to switch into much more conservative investments at the defensive end of the spectrum, to cut their risk level and safeguard their quality of life in retirement. 

This is why the human touch, the truly personalised and flexible nature of dealing with an adviser, is so valuable, and capable of dealing with the entire gamut of client situations.

That’s not to say that computers have no role in financial advice

They can be of great help to an adviser in portfolio design, for example. If you have 4,000 investment funds with 10 funds in each portfolio, a computer can sift through the options and assist with recommendations for that particular set of client needs. Doing so by hand would not be advisable!

What an adviser does is to take the best bits of digital and use them to their advantage, while freeing themselves up to help with the parts that a machine can never replicate.

As your needs evolve, I’m here listening, responding, reacting and adjusting things on your behalf, knowing the details of where you started from, where you’d like to be, and what needs to happen to win the overall game!

Quiz! We’re giving a prize to the first person who replies with exactly the number of possible combinations of 10 from 4,000 funds! Email me jon@smarterfinancialplanning.co.uk