What is a financial plan?
A life insurance policy is not a financial plan and neither is a tax-deferred retirement account. A will is not an estate plan.
A financial plan is a little like building an office building. You can’t just start raising walls. The plan has parts and order.
So it is with financial plans.
Step 1 Who are you and what are your values?
Pre-strategy includes who you are, who you want to be, your personal standards and values, your limitations – like risk tolerance, your skills and experience, your time competence, and a similar list for the people in your family.
Step 2 Strategic purpose.
The answers to as many “W” questions as you can think of.
The first group deals with targets
- What do we want?
- When do we want it?
- What do we have to get it with?
- Who will be involved then?
- Where will we live?
- What will do if things change?
The second groups deals with motivation and refinement
- Why do I want these particular things? Relates to what you found in the pre-strategy step and helps establish priorities.
- Why have I chosen these instead of some of the other things I could have?
- What other options are still under consideration?
The first group is a list of intentions to be met over a long time. The second group keeps you focused on achieving the first group. As a bonus, the second group’s why not question gives you the ability to dismiss all sorts of tactical stuff that comes you way.
Clarity of purpose helps discipline and discipline matters most.
A Hall of Fame hockey player once told his business manager to give him enough money from his first contract to buy a used Chevy and $1,500 a month to live on. Why not spend more? “Because this might be my only contract and I want to save most of the money.” The Porsche came along with the third contract.
Step 3 Refinement
Advisors appear here and are at their most useful when the early material is nearly fully developed. It is possible they acted as a facilitator in developing the strategy and some of these are already resolved.
The advisor’s role, if this is their first look, involves two preliminary steps.
- Are there conflicts?
- Are there voids? Things completely left out.
- Are there timing errors?
- Assess and agree upon investment income expectations. At least decide on a spread relative to inflation.
- Assess tax position and opportunities
- Analyze if resources committed are enough to achieve the goals in the time allowed.
- Assess tools available to deal with the goals and with risks in the interim.
- Agree on a process to implement the 3R program. Record, review, and revise.
Step 3 Tactics
Advisors are tacticians. Their role is to address only questions that begin with “How.” Once they have a firm strategic vision, their job is to find appropriate tools and techniques to efficiently achieve the strategic goals.
Every recommended tool presents in the form, “Given your purpose, priorities and resources, Either of plan A or Plan B could meet your needs. Which do you think would be easier for you to follow through on for a long time?”
The summary of the process so far.
Strategy is about effectiveness. Doing the right things. Tactics are about efficiency. Doing things right. Never let an efficiency define strategy. Advisors should not make strategic decisions, they should only point out shortfalls in the client’s visions.
Clients, by themselves, cannot stay up to date with tactics. Tactics are complicated and change regularly. They are influenced by many things like law, the economy, the actions of large providers and the clients ability to provide resources.
Advisors recommend; clients decide.
Step 4 Logistics
Logistics is the doing of the tactics determined earlier. Sometimes people forget how important this step is. Tax lawyer, Peter Reilly has made a good point. “Execution is not the only thing, but it is a thing.” Many a good plan has failed for want of a good agreement or a properly executed tool.
Step 5 The 3Rs
People are natural problem solvers and they need feedback to improve. Noticing the 3Rs is recognition that all good plans are evolutionary. Good, top down, done once, done forever, financial plans do not exist. The world changes too fast and new tools come available as old ones become obsolete.
- R1 – Record the outcomes
- R2 – Review them in comparison to expectations and decide on whether or not you should continue on the same track. It is like a budget review. How big is the variance? Why did it happen? Was the expectation wrong or did something unforeseeable happen? Will it continue?
- R3 – Revise. Based on the review process, what alternatives should be considered. Loop back to strategy review. Maybe you can’t get there from here. Then reassess the tools.
Clients keep advisors informed and advisors keep clients aware of change in the landscape. Advisors also help clients remain emotionally stable and involved. A symbiotic and mutually beneficial relationship.
Once you see the meaning, you can make it work.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772