Every financial or business decision brings some amount of inherent risk. However, the consequences of those decisions – positive or negative – don’t always align with the actual level of risk taken. As a result, when advisors are tasked with (re-)educating clients about the potential consequences of financial decisions, there may be a disconnect between potential risk and what a client actually experiences. So how can advisors help clients understand dangers they haven’t personally encountered?
In our 166th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can bridge the gap between planning and a client’s lived experience to guide better decision-making.
One helpful framework to contextualize financial decisions is the concept of ‘wicked’ versus ‘kind’ learning environments. Kind environments have clear rules, quick feedback, and consistent patterns, making them easier to navigate and learn from. Tax planning often fits the ‘kind environment’ model: The rules are relatively stable, outcomes repeat annually, and feedback is immediate (e.g., a tax bill or refund). By contrast, wicked environments feature ambiguous rules and delayed or misleading feedback, where individuals can ‘learn the wrong lesson’. Investment planning falls into this camp; a client who makes a risky bet and sees strong returns might conclude the strategy is sound, even if it was more luck than skill.
For planners, kind environments tend to allow for systematization and consistent advice delivery. Wicked environments, however, require more narrative focus and concrete examples. Advisors can use historical context and stress testing to show clients how a situation might play out differently under less favorable conditions. And when clients persist in making risky decisions, advisors can help by constructing guardrails, allowing for some flexibility while protecting against catastrophic loss.
The wicked/kind framework also appears in business leadership. Those who thrive in kind environments may excel at optimizing systems and scaling efficiently but might miss warning signs when conditions shift. Leaders in wicked environments may excel in handling ambiguity and disruption but may struggle to maintain stability in calmer business environments. Both leadership styles offer value, but they manage different types of risk and opportunity.
Ultimately, the key point is that the results of a decision don’t always reflect the risk involved. Advisors who recognize this disconnect – and who adjust their planning strategies to fit the terrain – can help clients and businesses remain resilient across a wide range of circumstances. That means knowing when to lean into systems and when to pause and reassess, when to simplify, and when to explore new possibilities. And by helping clients understand the type of environment they’re in – and shifting between ‘peacetime’ and ‘wartime’ toolkits as needed – advisors can offer more than just technical guidance. They become trusted navigators in a changing landscape, offering clarity, perspective, and a steadier path forward in an uncertain world!
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