This is the second of three posts about financial life planning. The last post introduced the underlying values of the process. It explored asking meaningful questions that leads to an integrated and humanistic approach to planning. It drilled down to explore belief and what drives us to making personal decisions. The impact of the current financial crisis and taking stock of the pandemic implications to one’s personal financial situation was also discussed and how this led to a lot of emotional balance, conflict, and uncertainty. The importance of valued relationships was reviewed as a way of inspiring confidence. It is in this guise that we continue our financial life planning journey.
Before we dive in, let’s review what financial life planning is. Financial life planning is a process conducted to help financial planning clients focus on the true values and motivations in their lives, determine the goals and objectives they have as they see their lives develop and use these values, motivations, goals, and objectives to guide the planning process and provide a framework for making choices and decisions in life that have financial and non-financial implications or consequence. A collaborative, client-centered approach to communication that integrates a client’s values-based life goals with their financial goals.
Imagine a jigsaw puzzle
Imagine a jigsaw puzzle. Once you have dumped the pieces onto the table, what do you do next? Most folks would place the edge pieces or sort the pieces by colour. For our clients, the pieces are the stuff of plans: income, debt, taxes, savings, investments, etc. The picture on the box is the life they want to create. Their life today and their life tomorrow. Every time we meet for the renewal meetings, we must update the picture on the box top as surely as we update our records and understanding of the pieces. Think of your own life and how quickly things change. Your dreams, your family issues, your job, your fears and what overwhelms you, your behavior. We are unique in our profession in that we have the capacity to impact our clients’ ability to thrive both today in the here and now, and far into the future.
Not everything that counts can be counted
“Not everything that counts can be counted, and not everything that can be counted, counts.” Albert Einstein
Albert Einstein didn’t know that he was offering the essence of financial life planning when he spoke those words. Financial life planning is focused on what can be counted in our clients’ lives. Their money and finances as well as those things we cannot count – their aspirations, fears, health, concerns, challenges, will, resilience, coping skills. Planning is in the space between the subsets. What we are getting at in these statements is that the outcome of planning goes beyond exterior recommendations. There is an interior aspect that contributes to the experience of thriving and to the success of the plan. In this challenging time, we are seeing the consequences of an overemphasis on investment returns.
Most of our clients and have grown up in a world of surging economic growth reflected in the stock market, with the occasional bubble burst or short-lived downturn or recession. Suddenly the truth of uncertainty has struck. Quite simply every individual is struggling with a fundamental tension: the tension that exists between what I need and want today versus what I will need and want in the future. Traditional financial planning has placed most of its focus on the future, but the future is created through every decision made today. The ability to guide individuals’ financial decisions now, is key to success and to sustainability. We know that knowing what to do is not enough. We must meet our client where he or she is, to find a way to inspire to action, to engage in a rich dialogue that leads to a partnership of trust as the basis for successful decision-making.
Holistic planning model
It helps to be reminded that in the holistic planning model, planners help people control the things they can control so that the things they can’t control do less harm to their financial well-being and the achievement of their aspirations. None of us has the ability to predict the market or time the market. We cannot control the tax code or the future value of our homes or the cost of health care. We can control how much we save, how much we spend, how clear we are on what matters to us, our priorities. Also, we can control our work to a degree, our values and how we live them. We can take measures to protect our health and our family. We can build our knowledge, our relationships, and our resiliency. We can devise a plan and implement it so that we have done what we can to minimize the consequences of negative surprises. We can build reserves that allow us to take advantage of opportunities. We can communicate with our spouse so that we are in alignment. When all is said and done, planners have a responsibility to take this broader definition of our role very seriously.
Process of financial life planning
At the core of financial life planning is the emphasis on asking meaningful questions. Great questions help us paint that picture on the puzzle box top. A thoughtful open question may generate deeper thinking on the part of the client, unleash new insight or inspire clarity and direction. Good questions lead to critical learning on the part of the advisor and the client. We call this process discovery. The ability to ask truly opening questions is difficult because it is so easy to embed our own assumptions and beliefs into our questions.
Good questions lead to critical thinking, and critical thinking leads to better, more thoughtful decisions. Consider how advisors often approach the conversation about the need for life insurance. It is often approached through a capital needs analysis and a discussion which leaves the client cold and often suspicious. Through the deeper discovery process, a client will often express that nothing would cause regret more than leaving his family without financial security should the unthinkable happen. Connecting the client’s values and personal priorities with the conversation about income replacement in the event of unexpected death strikes a personal chord that inspires action rather than resistance.
It is tempting for advisors to focus questions on the financial products they might recommend to solve a particular financial planning issue, such as life insurance to address income replacement in the event of death or an annuity to provide a guaranteed income regardless of the length of one’s life. Old habits die hard, but questions that are designed to get the client to consider a financial product are usually not successful and are potentially manipulative. If financial planning is to be recognized as a professional activity, the focus must be on the client’s interests. Implementation comes later. An open inquiry into what is most important to a client in retirement will almost certainly lead the client to express concerns about maintaining lifestyle and income, regardless of lifespan and health issues. Listening is not a hurry up so I can close process. It is an expression of care, attention, genuine curiosity, and alignment that requires a slower place and a willingness to let go of dominating the conversation, leading to a particular outcome, and rushing to solutions. The process of financial life planning applies traditional financial analysis within a framework of the individual’s life and total resources. The most skilled practitioners of financial life planning have developed their technical skills, communication skills and presentation skills to create a seamless experience for the client. Every meeting weaves the art and science of planning, tending both the picture on the box and the pieces to help construct that picture in reality.
The bottomline
Let’s take a hypothetical example of an annual review meeting with clients, Dan and Carol in their mid 40’s, included an estate planning conversation. Approaching this conversation from the financial life planning model, we begin with discovery. Let’s assume, Dan is no longer with us. We asked Carol what is coming up for her. An open question like this may stir both quantitative issues and qualitative issues, which it did in this case. Carol wondered if Dan had enough life insurance. She wondered what his wishes were about his burial and his service. She wishes he had written something for their two daughters. While Carol has a handle on their finances, she still wondered if she would have to go back to work or sell the house. And the questions go on.
While this may seem like a morbid example it is at the core of what we deal with and offer to our clients. We are advocates for their futures. In this hypothetical example, the skilled planner helps the client uncover what matters and gives time for the client to raise questions, concerns, and feelings without the need to rush and solve the more technical issues. Embedded in the emotions and much of the qualitative responses are the solutions to the technical issues or the keys to unlock resistance or procrastination. Having the keys is crucial to Keeping Life Current.
