I recently wrote about some of the misconceptions surrounding financial planning. I discussed what financial planning is not. After clearing the air about financial planning misconceptions, let’s discuss what financial planning should be.
Here’s a list of ten things (in no order of importance) that are indicative to good financial planning:
1. Comprehensive/holistic : I often tell clients that financial planning is similar to Newton’s Third Law…every action has an equal and opposite reaction. Simply put, making a change (positively or negatively) in any area of your financial world will impact other areas. It’s imperative that all aspects of your financial plan work together hand and glove.
2. A process, not a one time event: It takes time to fully implement all the elements needed for a solid financial plan. This can only be achieved by moving the puzzle pieces one at a time. Think of it this way: How do you eat an elephant…..one bite at a time!
3. Tax Centric: Taxes are the hub of the wheel. A plan developed without strong consideration to the taxpayer’s taxable bottom line is almost criminal!
4. Cooperative: The process of financial planning should not be a one way street. While a recommendation or idea may be the right thought from a theoretical standpoint, it has to be the right recommendation for the client. My job is to help my clients sleep better at night, so, if my work is antithetical to that philosophy, I am not doing my job.
5. Balanced: Life comes at us from all different angles….sometimes good and sometimes ugly and scary. We have to balance our today and tomorrow. If we focus too much on today, tomorrow may suffer: if we focus too much on tomorrow, today may suffer. Check out Tony’s story written by a colleague of mine. This story beautifully illustrates the importance of balance.
6. Work: Even the best financial advisor can’t do it all for you. Some things have to come from the client. While it may not be strenuous or voluminous work, there should be effort involved. One of my favorite quotes is certainly applicable here, “ the road to failure is the one of least resistance!”
7. Big-picture in scope: Clients’ needs, wants, and desires must be viewed from a big-picture perspective. This really helps to align goals and values. Without a big-picture approach, financial planning can become misguided.
8. Fee-only/unbiased: Advisors who have a financial interest in the recommendations they make to their clients can be dangerous. It’s important to seek out an unbiased advisor who can deliver advice that is in the client’s best interest….not the advisor’s back pocket.
9. Flexible: As we move through the ebb and flow of life, we experience surprises that impact our financial world. It’s not a matter of if: it’s a matter of when. Get sick, lose a job, or economic downturns are few examples of detrimental financial blows. Positive events, such as the birth of a child, an inheritance, or a child receiving a full scholarship to college, can have an impact on our financial plans as well. A relationship with a financial advisor should be flexible to handle life’s curveballs.
10. Unique to each client: Financial plans carved from a cookie-cutter mold are too generic and not effective. We are all built beautifully unique, and we all have qualities and characteristics that require specific recommendations when it comes to financial planning. Understanding our strengths and weaknesses and developing plans built around our specifics are a big part of the success equation of a good advisor.
While the ten items listed above are not meant to be inclusive, I feel it’s certainly a good start. Do you have any items to add to the list? I’d love to hear from you.