I've been asked some puzzling questions during my career. Most of these fall into a category that I call "goal or financial decision."
Once, when I volunteered for a financial planning hotline, I was asked if it was better financially to buy a house or have a baby! I was flabbergasted. My inner voice wanted to answer, "If you're asking that question, you should never have kids." I opted for the professional response, saying "It all depends on your personal goals and priorities." I further emphasized that financial planning could help them determine what their cash flow could enable.
The honest financial answer would have been "neither." Babies cost money as do houses. To maximize net worth, it would be best to have no children and live in a shack. That way, all of their money would be working for them. However, many people want children and many also want to own a comfortable home. Those are goals.
The job of the financial advisor is to help clients achieve their goals by guiding them to make sound financial decisions. It is key to know the difference between a goal and a financial decision.
For example, clients often ask if they should pay off their mortgage. It is not too difficult to estimate the after-tax cost of a mortgage vs. the expected net return on investments. This is obviously the appropriate way to analyze such a question. But, is it always this obvious? No.
There are some clients that have a goal of owning their homes free and clear. If this is a goal, then it is our charge to help them reach that goal. It is not appropriate to talk them out of their goals just as it is not appropriate to tell them what we think their goals should be. Thus, when I am questioned about paying off a mortgage, I always ask if paying it off is a goal before embarking on an analysis.
There are many other examples of blurred lines between goals and financial decisions. I've been asked if it would be better tax-wise to buy a bigger home with a larger mortgage. To this question, I typically explain my "shack theory" and advise the client to live in what they consider to be a suitable home. They must decide what they want; only then can I help them determine if they can afford it.
I remember young mothers questioning whether or not it would be "worth it" to go back to work. It's true that I can calculate the after-tax cash flow from employment compared to the cost of child care. But I would not be doing my job if I just jumped into the numbers. Before doing so, it is imperative to know if the client wants to work or prefers to stay home. Then the question is "Can I afford to go to work (or stay home)?" The advisor's job then becomes determining if and how the client's goal can be achieved.
The bottom line is that, as an advisor, you must pay attention to what your clients want. If you focus solely on the financial analysis, your clients will not be getting the advice they want or need.