When you think about the advice your financial advisor provides, is it really holistic financial planning or just investment management? important in So what is comprehensive financial planning?
Holistic financial planning revolves around an extensive conversation between you and your advisor focused on the life you want. Ideally, it also involves active coordination between your advisor and other financial professionals in your life, such as accountants, property planners, and insurance professionals.
Many investors have a good mix of factors when it comes to financial planning, but it tends to happen in silos. Different financial professionals are not talking to each other. It’s up to you to coordinate everything.
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When an expert advisor looks at everything to ensure you make the right adjustments, it not only optimizes your ability to live the life you want, but it builds your confidence in your plan. You are much less likely to panic or make unwise decisions when things fluctuate significantly.
Coordination among financial experts is key
Think of it like running luck 500 companies. The board of directors (in this case the client/family) creates a vision and presents it to the CEO (advisors). When Together we will execute that vision.
Big problems can arise when sales and distribution departments operate independently with little communication. The same is true if the investment strategy works independently of cash flow and expenses. If the advisor did not know that the client planned to receive a large distribution from the investment account, is it the client’s fault for not telling the advisor or the advisor for not asking?
An investment-only advisor does not act as a metaphorical CEO who ensures that everything is aligned and has the relevant expertise. Rather, in this scenario the client is the CEO and the advisor just runs the investment department. Silo coordination by the client is better than no coordination, but it doesn’t always prevent unwise decisions. Professional advisors can do this by leveraging their comprehensive knowledge and continually emphasizing each client’s overall financial plan.
The power of planning from a trusted financial planner
I believe that the financial services profession is generally very respectable and that most advisors are good people who have their clients’ best interests in mind. It has been built around product placement. If you look back 40 or 50 years, it was all about selling stocks to retail investors who had little access to relevant investment information themselves.
Over time, extensive information about investment options has become widely available to the general public. Still, I think the industry is still inclined to believe that value is based on reading the market tea leaves and making allocations that help drive returns. Our value is to help align our clients’ capital with their vision, values and concerns. You should underweight or overweight this just because the market has moved up or down, not reactionary.
Planning is powerful, so have a planner you trust. Goals are clearly articulated when advisory relationships are based on financial planning rather than investment management. The relevant cash flows, the time and cost to achieve them are planned and the allocation of capital is based on that roadmap.
If the market is down 20% and all you have to do is talk to your investment management advisor, how do you get to a place of emotional comfort without panicking and locking in losses? Above all, it is up to your advisor whether your relationship gives you confidence and comfort.
Investment mistakes are usually fear-based and caused by short-term thinking. Historically, markets have been volatile in the short term and no one can predict what will happen. Longer term, however, the data clearly show that the market will rise.
Cookie cutter surveys are problematic
Too often in the industry, a client’s high-level asset allocation is determined by generic questionnaires intended to measure risk tolerance and time horizon. In addition to being not well customized, the inherent drawback of this approach is that the same person may have different answers to these questions from week to week, depending on what is going on in their life. is.
How do they feel about their jobs? What did they see on the news the night before? Has their neighbor had an accident recently? These and many other factors can easily influence responses and such questionnaires help clients feel really connected and confident. is unlikely to determine global allocations that can be made.
Asset allocation should not be based on emotion. My company focuses on doing the math first. This includes financial planning exercises to determine cash flow requirements for the rest of your life while avoiding a range of earnings risks. Because, as all our clients want, if you live a long, happy and healthy life, chances are you will spend at least 30 years in retirement. During that time, we have seen market downturns and volatility, but it is important not to overreact to them.
I always ask my clients to keep me updated on how they want to live and what they want to do. People tend to be very happy with that approach because the plan is implemented first and they understand it. Investment recommendations are always tied to the overall plan. So when a client asks about the reason for a particular investment or allocation, I can answer: they. “
find the right fit
Decades ago, when retail investors didn’t have access to so much critical information, it made sense for the financial industry to offer investment management as a stand-alone product. As times change, holistic financial planning clearly offers a greater value proposition.
However, many investors are not familiar enough with the concepts to know the difference between a true financial plan and a mere investment strategy. If you’re not sure, it’s a good idea to think about when your advisor last reviewed your tax returns, estate planning documents, and insurance policy. It’s just an investment management relationship and needs a better approach.
This article was written by and represents the views of a contributing advisor, not Kiplinger’s editorial staff.Advisor records can be viewed with the SEC (opens in new tab) or at FINRA (opens in new tab).