Financial plans and their implementation follow a multi-part path.
- Collect data. All of the little pieces like income, take home pay, savings, investments, debt, existing plans and product (like group insurance, pension plan, or educational savings plans,) cost of living. Assess lifestyle and family histories.
- Collect Information. Gather the purposes and limits for the financial plan. Goals for life, for children’s lives, for charity, for timing. Assess knowledge regarding economics, finance, financial planning, financial products and financial helpers. Determine risk tolerance, risk exposure, and risk capacity.
By this point you should know the client fairly well and you should have an awareness of where their knowledge holes lie. Have they considered a reasonable goal set? Do they understand implicit obligations. Do they understand the process of moving money through time? Do they understand risk, ambiguity and variability?
Filling in missing pieces is fairly easy once you know what the missing pieces are and why they have been missing up to now. Most of them will be technique and seldom strategic things like, “Gee, who knew I needed to save for retirement?”
Ask yourself two questions.
- Can the client see the problems and opportunities?
- Are you sure you can see them?
This part is analysis.
What follows is synthesis or putting it together. You need the analysis part before the synthesis part. How hard would it be to build a house with a third of the material missing?
Synthesis is your professional activity. How to address time and timing? How to assess priorities? How to compromise on goals or timing. How to achieve the goals with the lowest cost. How to balance the chosen lifestyle over long times. How to assess needs that have not yet become obvious. How to address risks like premature death, disability, market fluctuations, government action like taxes, or job loss.
After the plan is organized there are two further requirement.
- How to communicate it so that it is easily understood and clearly attached to the goals?
- How will it be maintained as future resources, circumstances and goals change?
John A. Morrison was a 19th century physician and American congressman. He seems to have already said all this and has provided the reason it works.
“Knowledge comes by taking things apart: analysis.
But wisdom comes by putting things together”
Revisit elegant financial plans from yesterday. Be wise.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org