I recently read an article in which a financial advisor boasted that he was able to "gather more assets under management" if he did a financial plan.
For those of us who practice financial life planning, the essence of what we do is the ongoing planning, while managing clients' portfolios is just one part of that process. As a matter of fact, we have no problem doing planning for clients regardless of whether we get their assets.
While investments are certainly a vital part of anyone's financial planning, there is much more to planning than managing assets. Several years ago, I wrote an article titled "The Value of Advice," in which I discussed the fact that many advisors get paid for managing assets and may do planning for "free." I argued at the time that, if financial planning is our core competency and service, how could we not charge for it?
While most planners in our firm are somewhat involved in the investment process (selecting portfolios, communicating with clients, etc.), we have only one person, our director of investments, dedicated to implementing each client's investment policy. By contrast, 12 of our associates are involved in the financial planning process on a full-time basis. This is labor-intensive, but it is who we are. We do not promote ourselves as an investment management firm. And we frankly don't understand those advisors who are primarily investment managers but promote themselves as financial planners.
My good friend and colleague Deena Katz recently wrote, "It's time we acknowledge the vast difference between financial planning and investment advisory, investment management and investment advice." While portfolio management is certainly a worthwhile profession, it is not financial planning and should not be promoted as such.
In this column I have from time to time discussed various parts of the financial life planning process. However, I have never disclosed the entire process as practiced by our firm. As you will see, it involves many meetings before recommendations are proposed and implemented.
In addition, our review process stresses planning issues and not necessarily investment performance. I am certainly not proposing that everyone who does financial planning adopt this process. I am suggesting, however, that if you hold yourself out as a financial planner you need a procedure that discovers your clients' money history, attitudes, values, priorities and goals. It needs to include all aspects of their financial lives, including estate planning, tax planning, education funding, cash flow, risk management, retirement planning, etc. And it needs to be periodically reviewed and updated.
The following is the financial life planning process followed by RTD:
The Initial Interview
This is the "get acquainted" or prospect meeting. Before the meeting, we will send each person, or each spouse if it's a couple, a short questionnaire to complete. None of the information we ask for is quantitative in nature. We want to know why they called, how they feel about their current financial situation and what is important to them in developing a financial plan.
At the meeting, we discuss their answers to our questionnaire and our planning process with them. We stress the fact that planning is more about their lives than it is about their money. Money, we remind them, makes a wonderful servant but a poor master. If they agree to become clients, each is given a short questionnaire in which we ask about his or her values and anticipated transitions. We are not ready to collect quantitative data at this point.
Discovery Meeting Number One
At this meeting, our goal is to discover the prospective clients' history and attitudes about money. We also ask them to tell us their preliminary and general goals. We ask questions about their backgrounds and how they believe their history is affecting the financial decisions they are making today. We also want to know what is important about money to them. After interviewing them, we ask each person to write answers to three questions developed by George Kinder: "If you had all the money you needed, how would you live your life?" "What if your doctor told you that you had five to seven years to live? How would you live those years?" "What if you knew you had only 24 hours to live? What are your regrets and what is left undone?"
After these questions are answered, each person is asked to list his or her goals. While there are general classifications here (such as goals for family, work, retirement, personal growth, protection against risks, etc.), these questions are open-ended and there is no checklist. This meeting usually lasts about two hours and we usually can get to the preliminary goals before we adjourn.
At the end of this meeting, we provide the prospects with our quantitative questionnaire and ask them to begin gathering documents. We tell them that while we will not be discussing this information at our next meeting, we will need it for subsequent meetings. In our next meeting we will begin to finalize, prioritize, measure and establish timelines for each of their goals.
Discovery Meeting Number Two
The purpose of this meeting, mentioned before, is to clarify our prospects' goals and assure them that we are capturing everything important to them. Besides prioritizing and putting an estimated cost to each of their goals, we establish dates to complete them. Of course, this information is extremely important for our preliminary projections and will be the major agenda item for another meeting. At the conclusion of this meeting, we ask each person to complete our investment questionnaire and mail or fax it to our office in preparation for the following meeting.
Investment Education Meeting
This meeting is to review our clients' tolerance for market fluctuation and to give them information about investing in general and, more specifically, how RTD selects and manages portfolios. A preliminary investment allocation is selected, but we inform them that the final portfolio will be based not only on their tolerance for market volatility but on what they need to accomplish their goals. We use a very comprehensive PowerPoint presentation to educate our clients on our philosophy and process.