The purpose of a tool is to assist in the achievement of some goal. It is a tactical device. There may be special skills required to operate it effectively but not always. Unless you are a tool designer or maker, tools are for what they do; they do not exist for what they are.
Tools usually make the task at hand easier to do or even possible. The essence is what they achieve.
No one wants an electric drill. They want holes. The drill is how they get them. Financial tools are for doing things. No one wants to own life insurance or an RRSP or fire insurance. They want what they do. If people cannot see what the tool does, they may be reluctant to buy it and the overall plan will be less likely to work.
Other financial plans fail because the tools come to dominate. If you own any tool for what it is, rather than for what it does, you have made a mistake. If you do not understand why you own a particular tool, that too is a mistake.
Tax shelters, interests in movie limited partnerships, trusts, pension plans, corporate mutual funds, segregated funds, Alberta trusts, some kinds of life insurance, and hundreds more sometimes fall into one or the other of those categories. The look matters and is exciting in some way. You might be the only one who has one of these tools. Pretty cool.
It is not that these are bad tools. It is just that they don’t work the same way for everyone and some of them don’t work at all for you.
You can tell if you should have one. Focus entirely on what the tool does, not what the tool is. If you cannot see the “How I get whatever it is that I want” part, (like the drill gets holes) then probably the tool is not for you. Strategy first. Tactics next. And you prove your choice by using it.
If you are a financial adviser, you should not show a client any tactic or tool except in the context of solving a problem or exploiting an opportunity that the client knows about and values. Doing tactics/tools first means the tool has value without the context of its purpose. It is for what it is, not for what it does. That is like Armani selling designer quarter-inch drills for $800 each. They don’t, do they? You can never be sure any more. Which of the old guys ever expected to see a Cadillac pick-up?
Focus on purpose and the collection of useful tools available will become more clear. Since Home Depot does not stock financial tools, you will probably need to talk to an adviser who is familiar with what is available.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
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