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.