What Financial Planning Should Look Like
What are these individuals doing with their clients?
On several occasions we have had a “financial planner” approach us and ask if we could do some financial planning work with their clients. This is a confusing request. The request was not made because there was too much work to do and additional financial planning help was needed. The question was asked because these “financial planners” were not doing (or capable of doing) financial planning. What are these individuals doing with their clients? They are doing meaningful and helpful work, but it is typically isolated to advice focused on a specific product, either investment services or life insurance. They are not equipped (either educationally or structurally within their business) to do comprehensive financial planning, and that has created a gap between the services they are providing and the full financial planning needs of clients. It also begs the question of what clients expect when they hire a “financial planner.” Do they know? Do they know what they don’t know? Do they assume that all financial planners and advisors offer the same range of services?
Imagine going to the doctor
We would postulate that clients outsource the financial planning process as much as they do the financial planning outcomes. More clearly, they trust the expert to guide them through the process and illuminate financial topics that they should be considering as much as making specific recommendations within areas that have already been identified by the client. It is quite similar to what a patient expects of a doctor. The patients brings in a set of identified ailments or existing conditions and expects the doctor to treat these. However, the patient also expects that the doctor will use their expertise to guide them through a more comprehensive physical evaluation that will identify things that are not yet known to the patient. Whether it is in areas of health, legal or business consulting, architecture, etc., we expect the experts to not only address the identified concern but to navigate us through a perplexing and complex topical maze that many of us know very little about. The truly desired outcome normally circles around something like, “help me know what I should know.” There is a lot of trust and vulnerability in that request, and it can get worse as there are many financial incentives that are not in the client’s best interest that have kept the financial planning industry siloed around investment services (stay tuned for much more on that in a later post). Let’s go back to the medical analogy. A patient would never want to go to a doctor who has a drug or pill already identified and is evaluating the condition of the patient by searching for ways to use that drug or pill to treat the patient. Instead, a patient would want a doctor who evaluates the medical situation with an unbiased lens and only uses a drug or pill if it is the most effective way to treat the identified condition.
Truly comprehensive financial planning
Below is a picture that depicts what most financial planning firms look like (the pieces on the right – “Product-focused financial planning”). These firms primarily start with a product and identify ways that their product can help clients reach their financial goals. Their version of financial planning focuses almost exclusively on how investments or life insurance can be used to fund a client’s retirement. They determine retirement funding needs, manage client investments/insurance, and establish and manage tax-advantaged plans (IRAs, Roth IRAs, 529 Plans, etc.). The additional financial planning topics are often neglected or marginally addressed because they are ancillary to the investments and life insurance products (see bottom right of graphic). Many might use the terms “wealth advisors” or “wealth management.”
The picture on the left (“Truly comprehensive financial planning”) is what we propose financial planning should look like. This firm assesses a client’s financial needs from a comprehensive financial planning perspective and realizes that “investment planning” is only one part of financial planning. All of the other aspects are critical in and of themselves, but they also have an impact on the investment strategy and plan. This difference in structure is not a minor variation in mindset or perspective. It is a completely different paradigm that allows for the purest, most comprehensive, and optimal human-centered financial planning. Truly comprehensive financial planners consider all of the client’s financial goals and helps them see the interconnectedness of the various parts as well as the unique behavioral elements that will interact with the plan.
Our standard
We are an ensemble practice that desires to model the purest and most human-centric version of comprehensive financial planning (picture on the left) so that we can faithfully serve the financial pursuits of all people. One way that we address the limitations cited above is to place an importance on hiring CFP® credentialed advisors to work among our other world-class humans. As a first step to CFP® certification, individuals must complete CFP Board education requirements in the major personal financial planning areas, including:
Professional Conduct and Regulation
General Principles of Financial Planning
Education Planning
Risk Management and Insurance Planning
Investment Planning
Tax Planning
Retirement Savings and Income Planning
Estate Planning
Financial Plan Development (Capstone)
After fulfilling the education requirement, candidates must take and pass a rigorous application-based exam that covers the above-listed topics. After passing the exam, candidates must obtain at least 4,000 hours of financial planning work experience and additionally adhere to the CFP Board’s Code of Ethics and Standards of Conduct (including continuing education hours in ethics and content areas required every two years). While other financial services credentials and licenses provide training and permit certain financial product sales, the CFP® certification is recognized as the highest standard in personal financial planning. It provides the education and training necessary to offer comprehensive financial planning services. The CFP® certification is an important foundation, but it is only the first step towards delivering truly comprehensive financial planning.
We will more fully address many other topics mentioned in this post in future pieces as many of the systematic factors identified in the last article touch and extend from what has been explored above. We believe that the ‘human’ part of Human Investing involves both hiring and investing in exceptional humans and offering investment services within the context of the most comprehensive and purest form of human-centered financial planning.
Ryan Halley, Ph.D., CFP® is Director of Planning Practices and Research at Human Investing. He holds a doctorate in Personal Financial Planning from Texas Tech University and an MBA with a concentration in Finance from The Ohio State University. Ryan has his CERTIFIED FINANCIAL PLANNER™ certification. Dr. Halley is also a Professor of Finance and Financial Planning at George Fox University, where he directs a CFP® Registered Program located near Portland, Oregon. He has co-authored a book and has numerous peer-reviewed journal articles. Additionally, he has been an invited professor and lecturer at various universities in the United States, Canada and China.