Real Goals of Financial Planning
I was in the middle of one of many meetings this past week with a couple who was shopping for a new financial advisor when they stopped me practically mid-sentence to state that they were absolutely certain I was exactly what they were looking for.
What did I say? I said the same thing I say to everybody (clients, friends and family):
"I will never tell you what to do with your money ... but ...
I CAN give you the best tools to make the best decisions for yourself."
This is the main reason why I refer to myself as a Wealth Coach, not an advisor. You make dozens if not hundreds of financial choices each and every day. I can't (and won't) be there to make those decisions for you. That would be crazy. It wouldn't work. You'd make your own choices anyway ... plus ... you'd resent my efforts to exercise control over you.
Challenge the Status Quo
But there is another aspect of the traditional financial planning process where I really must question the "this-is-how-we've-always-done-it" approach.
A recent practice management article from the Financial Planning Association breaks down the average fees financial planners charge and how they are paid (usually through assets under management - a discussion for a different blog). The most interesting tidbit in the article was a breakdown of how many hours planners devote to the creation of a financial plan.
The bulk of financial planners today (almost 50%) spend more than 10 hours developing each plan for their clients and usually end up producing a document that is 40-60 pages long in the process.
What a Waste
Michael Kitces - one of the great young minds in the finacial planning profession - also picked up on this factoid and in his own blog pondered the implications of all this time and energy being put into plan creation. He asks the question, "Is Our Financial Planning Software Improving Our Productivity, Or Destroying It?"
While his article is full of insights and questions that have been going through my mind for years, my thoughts converged on one basic challenge that I have had with the financial planning methods used by most of my peers ever since I got in this business almost 10 years ago.
The traditional financial plan is loaded with graphs and projections and supposedly maps out everything that is going to happen for the next 30 years. The only problem is that NOBODY KNOWS what's going to happen next week much less 10, 20 or 30 years from now.
Most financial planning clients are spending thousands of dollars of good money to get a document that is so cumbersome and complicated that they have no choice but to ignore it. Their eyes glaze over and they seal up the offending document in a nice leather binder and hide it on a bookshelf somewhere. Anything is better than having to take action on it. My (admittedly unscientific) research on this issue suggests that only about 20% of financial plans are ever implemented past the easiest of suggested steps.
A Universal Truth
And here's the important point - something that applies to ANY plan you might have - not just personal financial plans, but strategies for sports games, trips, a business or any strategic effort you might want to make:
--- The main thrust of the plan SHOULD NOT BE to get you to your end goal. Much will change between now and then and any good plan will have to be adjusted along the way.
--- The REAL GOAL of any good plan should be to get you to consciously take the first step ... then the second ... and maybe even the third.
Change the Focus
That is why most plans fail. All the emphasis is put on arriving at the final destination rather than moving beyond the place where you are right now. The focus is on the wrong thing - the end result rather than the means to get there. Most plans also try to anticipate every possible threat and opportunity along the way - an impossible feat.
There will always be surprises over which you have no control. Get used to it.
It is much better to create a strategy that starts you in motion in the right direction but also comes equipped with it's own steering mechanism, so the route can be adjusted for a changing landscape and unforseable threats. That kind of plan doesn't take 15 hours of prep work and shouldn't read like (be as long and boring as) a telephone book.
John
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