Preparing A Financial Plan

Financial planner is misdefined.  Most people think of that career as one where the practitioner has vast knowledge and experience dealing with people, financial products, taxation, law, estates, debt and investments.  There are people like that, but they are not financial planners.  They are helpers.  Assistant planners.  Guides.

The client is the planner.  Only they make decisions that matter.  The assistants help them choose useful techniques or tools to implement what they have decided.  The assistant cannot devise the plan, but it is permitted to help the client be complete and to avoid contradictions.

Suppose I want a new house and go to a building contractor and this conversation follows:

Me:  “Hi, I want a new house and you come highly recommended.”

Contractor:  “That is good to hear, what do you have in mind?”

Me:  ” A house; something that I will like.”

Contractor: “That is bit general.  How big should it be?  How much do you want to spend?”

Me:  “I don’t know how big.  Big enough.  I would like it as inexpensive as possible but I don’t want to give up the things I want.”

Contractor:  “I suppose you have had an architect draw up plans or at least provide a concept”

Me:  “No, I thought you could just start and let me know when it is done.”

Contractor:  “I think you must do some preliminary thinking before we have anything to talk about.”

The financial planning client is the planner.  The advisor is the contractor.  The guide, the finder of materials, the one who executes the decisions.  Like a building contractor.

The client/planner must provide answers to the “W” questions.  In the beginning they can be a little vague so long as they do not contain conflicts.

  1. What do I want to achieve?  There could be several of these.
  2. When do I require that it be available?
  3. What do I have to get it with?  This could be current assets, future income, inheritances and the like.
  4. Where will it happen?
  5. Who will participate?
  6. Why these choices as opposed to others I could select?

Answers to these do not come easily.  There will be conflicts.  Particularly in the why section. The advisor can often suggest options not visible to the client.

There will be compromises because the resources to do everything may not be available in the beginning.  Advisors can add temporizing ideas.  We could start with this and expect to move on to the ideal solution later, but for this other problem we must begin with something more solid.  Good disability coverage and cheaper life insurance that is with a strong company and convertible is a better choice than to go moderate for both.

Skilled advisors add other value. Circumstances change.  Select advisors who are also good at the three R’s.  Record, review, revise. 

Clients must understand and approve the revisions, but left to their own devices they do not record well and they often do not understand what the review means.  They do nothing when they should do something. Using their own limited experience during complex and changing times is risky.

Like contractors, advisors know of and use better tools than the client can find.  Like contractors, they see conflicts more readily, they organize the time line better and they know the importance of details during implementation.

If a client approaches an advisor as a contractor who is to assist in finding better ways to achieve the known goals of the client, both will do better. 

Advisors should not work with clients who have no clear strategic plan.  Clients should not work with advisors who define the strategic level of the plan.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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