Some recent conversations with clients and prospective clients have led me to want to write a series of articles on post pandemic financial life planning. There are some important deviations between financial life planning and financial planning most people are familiar with. A lot of these have come to light for many people as a result of our covid experiences. Let’s start by digging into the concept of financial life planning.
Financial life planning is one of the labels used to describe a more integrated and humanistic approach that has emerged over the past decade to address personal financial issues. It has been enhanced by our reality over the last two years. It signals an evolution of planners from product vendors to trusted advisors who recognize that individuals do not behave rationally regarding decisions involving money, but are instead emotional, conflicted, and inconsistent. In addition, they have unique dreams, beliefs, values, and challenges. Financial life planners help individuals focus on their values and motivations, determine the goals and objectives they have, and then use these values, motivations, goals, and objectives to guide the planning process and provide a framework for making decisions that have financial and non-financial implications. Financial life planning is a holistic process that applies traditional financial analysis within a framework of the individual’s life and total resources.
Asking meaningful questions
At the core of financial life planning is an emphasis on asking meaningful questions. A thoughtful open question will likely generate deeper thinking on the part of the client, unleash new insight or inspire clarity and direction. This is the process of discovery. It is tempting for advisors to focus questions on the financial products they might recommend solving a particular financial planning issue, but questions designed to get the client to consider a financial product are typically unsuccessful and potentially manipulative.
The focus must be on the client’s interests; implementation comes later. To be truly client centred is to view the individual in terms of all of his or her resources. This involves consideration of the geo-financial, bio-medical, and psycho-social components of life. Like financial assets (geo-financial), other aspects have a direct relevance in financial life planning once considered. Expanding questions about retirement preparation to include the individual’s environment highlights planning possibilities and possible additional constraints. Bio-medical is the label for all issues related to an individual’s physical well being: family history, personal history, health promoting or health-inhibiting behaviours, insurance, access to care, cost of care, self-care and so on. An ability to engage in honest discussion addressing these areas is fundamental to successful planning. Perhaps the area that financial planners are most reluctant to explore Over the last ten years a shift has been occurring that has become more significant in light of the current environment.
An integrated and humanistic approach
Financial life planning is one of the labels used to describe a more integrated and humanistic approach to addressing personal financial issues, in contrast to a more product-driven, transaction based, and numbers-driven system of client care. It has evolved as the world of personal finance has increased in complexity. Planning professionals in search of sustainable results have learned from their clients and from behavioural research in fields ranging from economics and finance to the social sciences and the arts. It represents the integration of the art, heart, and science of financial planning. By any name it is impacting the practice of planning and the client experience and results.
Over the years the financial planner has evolved from product vendor to trusted advisor. The progression from product centred to advice-driven is grounded in the genuine sense of responsibility to the client. It continues to evolve. The breadth and depth of financial planning is expanding and, in the process, a new model is emerging that may define financial planning going forward. At the core is the recognition that the client is not the money; it is, rather, the person. Until recently economics has sought to portray behaviour around money as rational. But who else is better positioned to help the client consider the relationship of his or her emotional, psychological, and social well-being in relation to financial well-being? Often it is an issue arising from one of these factors that encourages someone to retire too soon or to avoid it unnecessarily.
Exploring beliefs and driving decisions
Financial life planning is not concerned with exploring mental or emotional dysfunction, but it is concerned with exploring beliefs that may unconsciously drive decisions. In the wake of the economic meltdown, we are seeing people employ all of their resources in order to manage. They are drawing on their creativity and their community connections. They are becoming more conscious of spending habits. They are seeking more guidance and support. They are questioning what it means to plan for the future in such uncertain times. In the process, individuals are discovering that they are more resilient and resourceful than they realized and that the ability to be resilient and flexible is critical to thriving and realizing a life plan. Nurturing and tracking such qualities are within the financial life planner’s realm of focus. Helping clients find ways to move forward, to plan, to make decisions and to make choices that support their ability to maintain a quality of life at every stage of life is the goal.
Taking stock of our financial crisis
There is nothing like a global financial crisis to force one to take stock. Most of it has evolved from our current world dilemma much of it caused by our return to a sense of normal and balance post pandemic. Workers, retirees and retiree-want-to-be’s are questioning their decisions, their future and how to thrive or get by right now. The recession has also led to a state of concern among financial advisors. The financial planning profession was just emerging as the 1973 recession was winding down. Advisors and clients have overall enjoyed growth of asset values and abundance ever since with only the occasional downturn. Our age of innocence is ending. We are, alas, growing up. Growing up requires some letting go, some pain and some hard-won wisdom. The good news is that financial planners have always been an innovative bunch, learning from mistakes, listening to clients, and wondering about what the future holds. We have as a community of professionals, never been satisfied. The desire to make a meaningful difference in our clients’ lives is genuine. The search for the right approach, best processes, most prudent and effective investment philosophy, and most sophisticated analytical tools is never ending. The soul searching has reached critical proportions today in the face of economic uncertainty.
Emotional balance, conflict, and uncertainty
The financial planner in practice quickly realizes that individuals do not in fact behave rationally around questions and decisions involving money, but are instead, emotional, conflicted, and inconsistent. As a result, humans may act in ways that are against their best interest. Humans are not only emotional; they have unique dreams, beliefs, values, and challenges. Each individual defines prosperity for himself, consciously or more often, unconsciously. That is the domain of the financial life planner. The work of helping individuals to thrive where money and life intersect.
Money is the most powerful secular force on the planet and that the financial life planner’s role is to help individuals cope with money in the midst of uncertainty. In that case we can only assume that financial planning must concern itself with all aspects of an individual’s life:
• Family and relationships
• Values
• Notions of personal fulfillment
• History, beliefs, and attitudes
• Emotional well-being
• Work/life satisfaction
• Purpose and meaning
• Health and physical well-being
• Environment
• Cultural and community life
• Legacy and stewardship intent
• Definition of freedom
• Risk definition and tolerance
The list is surely not exhaustive but one can see that a thriving life has to do with more than money and that money is often a connector between the self and fulfillment in these areas. What we understand from over 30 years in practice is that helping people cope with uncertainty, make good financial decisions, and live a thriving life requires both broad technical knowledge and deep communication skills. Both are necessary in order to tend both the interior and exterior aspects of an individual’s financial life. The forward-thinking, client centred financial planner who wishes to embrace the full range of what planning has to offer, will focus on being a bridge between the client’s life and their financial resources, applying the technical tools, processes, and knowledge in the context of the more qualitative, human-connection skills. Those who practice comprehensive financial planning are less likely to lose clients and more likely to add new clients during times of crisis. The reason is simple: the financial planner is bringing greater value and offering a broader array of service and advice, a currency that holds its value in good and bad markets. The financial planner has an edge by occupying a unique place in the client’s mind, that of trusted advisor as well as investment manager.
Valued relationships and inspiring confidence
Clients value the relationship with the advisor in addition to competence. They want an advisor who inspires confidence. They want to be viewed as more than the sum of their investment assets. They need help with complex issues, not all of which can be solved with a financial product. The advisor may focus on what the clients needs, but the clients are focused on what they want! A successful engagement bridges the two. From the perspective of advisors, what clients need is to heed their sound advice, invest a certain way or purchase a certain product that solves a concern the client may not even have expressed. At its core financial planning is about helping clients make smart decisions and to cope and thrive in a world of uncertainty. Individuals need confidence to make decisions and to understand the consequences of their decisions. They seek a guide to help them address all of the life-impacting financial decisions they will make. Clients want a trusted advisor. Trust develops over time through competency and authentic communication. Trust inspires action. As a result, in the financial life planning engagement, the ability to know the client more deeply is key to success. This is often challenging to planners who may tend to separate their technical knowledge from building a connection with the client. Clients are not served when advisors spew out their technical knowledge.
The bottomline
Successful financial life planning is a collaborative process. There is no short cut to building a relationship or trust. It requires an investment of time. Clients must see a trend of alignment between what we say we will deliver and what we actually provide. That is why we talk about financial planning as a process and not a transaction or event. The results are literally compounded and embedded in the relationship itself.
Northern River Financial has a process in place for delivering advice and ongoing care have clients who feel well-tended and loyal in this time of crisis. There is a foundation of trust and of being valuable and even vital to the well-being and sense of clarity and freedom for the client. That is the basis for Keeping Life Current.
