Yesterday we outlined the duties of individuals in their approach to financial planning. They own the strategic part. The question is should they own or merely control tactics and implementation.
Strategy is about the “W” questions. Tactics is about the “How” questions.
Strategy is exclusively your domain. Like the house. Your dream house is your dream. But having a clear vision of it says nothing about building it.
Tactics are methods. Often tools. Tactics are about applying the available means to execute the strategy.
Do-it-yourself is a possibility but it may not be the easiest, fastest, or least costly way to achieve the goal. Many people make the mistake of believing because they paid nothing for the task, that the outcome had no cost.
Those people don’t understand the idea of opportunity cost. Should an orthopedic surgeon book Friday morning off so he can mow his lawn, or should he do the surgeries and pay someone else to mow the lawn.
The opportunity cost in financial planning is not limited to the not so visible loss of other revenue and the clear cost to pay someone else. It also includes the fact that everyone has limited ability in some areas. The person I hire might be better at mowing the lawn. They might see problems developing long before I would. The likely have better equipment.
Dealing with professionals is usually a way to get some predictability despite their price. Think fit to the task, think durability, think opportunity cost.
Once the professional has understood the task and found tools that can apply to you, they will recommend solutions in context For example, “This way fits your needs now, and this one fits now and later but is more expensive today. The cost to do nothing is potentially this.”
Advisors are tactical people. You are the planner, they are the helper. Having a sound vision and strategy, you will be able to make the choice on the basis of your priorities, financial limits, and the ability to adjust one part for another.
With no clear strategic idea, that will be difficult.
For example: If at 55 you decide to buy a condo in Naples, Florida, and you know buying it will force a delay in your preferred retirement date by 18 months, you can make a sound decision. An impulse purchase might have a negative long term effect. Vision changes over time and how the tools fit then could be limited. You need to know how things fit and you must do your part ot make it happen. No planner can make an inadequately defined plan work, or last, or be adjustable.
Many plans are carefully designed, complete and yet never implemented. Why? Becasue the client did not do the vision, and strategic part. They can’t understand complicated steps that are dropped on them. I suspect if I did a survey today and asked 50 people at random, probably none could explain why an estate freeze was in their best interest. Not many know that estate costs are just a symptom and finding the least costly way to deal with them can have significant beneficial effects on how big the estate ends up and/or how easy it is to administer.
If you have not done it before, implementing is mind numbing. What kind of life insurance and for what price. Portfolio design. Business shareholder agreements are non-trivial. Family trusts are commonly at least 50 pages long. Most people don’t really know if their will works.
Hire people who know how to help you implement.
No plan is ever finished. Think followup.
Every plan should be recorded in some detail. The results should be clearly available and reviewed regularly. As outcomes don’t match the targets, (on either side), you will want to assess why and then decide to ride it out or revise the tactics. You could do that yourself but a professional advisor can bring insights you may not be able to access. New product or new tax law for instance.
Advisors help you with controlling your emotions and with motivation. Remember the why you are doing it part. Why is the motivating part and unless people pay attention to it they can get off their path.
It is easier to let the people do these steps for you, always with the decision in your control. Henry Ford offered a thought, “Choosing who should fly the plane is easy. Someone who knows how.” While that is reasonable enough, I doubt Henry ever let the pilot decide the destination.
I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.
Please be in touch if I can help you. firstname.lastname@example.org 705-927-4770