Some Assembly Required

Some people love IKEA.

Sure, the lower price is nice. But that’s only part of their hook.

There’s something satisfying about building the furniture yourself. Psychologists even named a cognitive bias[i] after this: the IKEA Effect[ii]. We place a higher value on things we help create. A bookshelf you assembled feels more like your bookshelf.

That’s fine if you’re on board with the process, and everyone walks in knowing the deal. You aren’t expecting a finished dining room table. You’re leaving with a flat-packed box, an Allen wrench, and an afternoon project. 

Now imagine that wasn’t the deal.

You order what you think is a finished piece of furniture. A few weeks later, a truck pulls up and drops boards, screws, hinges, and unlabeled bags of hardware on your driveway.

Good luck.

That’s how advice around finances works for lots of people.

Having investment, tax, and legal professionals who don’t communicate with each other means each delivers their own box of parts.

The CPA[iii] handles the taxes. The attorney drafts the documents. The advisor manages the investments.

No one ever says, “By the way, assembly is on you.”

So, you become the one responsible for fitting it all together. If you’re handy and have the time, that’s completely acceptable if you understand the other tradeoffs. All cognitive biases come with downsides, and the Ikea effect is no different. 

We’re not great judges of the quality of our own work. Studies have shown “Participants saw their amateurish creations as similar in value to experts' creations, and expected others to share their opinions.”[iv] This can lead to overconfidence or blind spots when assessing what you’ve assembled. The thing about furniture is it’s tangible, you get feedback as you go and can test it out once built. You have step-by-step directions to follow and plenty of opportunities to decide you’re in over your head. Trying to cobble together a financial plan on your own is nowhere near as straightforward. It may not be as obvious when you’re in over your head, it may not occur to you to throw in the towel and call a professional. Let’s face it, you can’t tell if your financial plan will be able to support you by sitting on it.

The problem is each professional only sees the pieces they’re responsible for. Your CPA doesn’t know how your trust is written. Your attorney may never see your beneficiary designations. Your advisor may not know the tax strategy your CPA is considering.

No one is missing pieces because they’re bad at their job.

They’re missing pieces because they only stock one aisle of the warehouse.

That’s why coordination matters.

The goal isn’t to replace specialists. It’s to make sure someone is looking at the picture on the front of the box.

Because the most expensive mistakes in financial planning usually aren’t caused by bad advice.

They’re caused by good advice that never gets assembled into a plan.

Related Reading: Living off Your Nest Egg No Yoke