When prospects and even some clients think about financial planning, they mostly focus on investing or investments. But investing is not financial planning because most investors lose after reacting too quickly to market fluctuation.
Fee-only financial planning is goal-oriented and highly customized, and forces clients to focus on the why of their financial plan. Every part of a client's plan is related and interconnected in some way.
CONNECTING THE DOTS
Should a client sell a low-basis investment and incur significant capital gains in order to reallocate their portfolio? Well, it depends. If a planner is only focused on investing, he will overlook the potential tax impact, especially if he is a commission-based broker. As clients begin to understand how comprehensive planning really is, they see that planning is not investing.
While financial planning is not about who earns the highest investment return, that's typically all clients tend to focus on at the beginning of a partnership. If a client's goal is to have $1million in 10 years, what's more important at the end of the 10-year period? Is it the portfolio return over that period or the fact that the client reached their $1 million goal?
Financial planning is not about who pays the least in income taxes. For example, if a client earned $1 million a month and paid $500,000 in taxes, could she live on the other $500,000? Of course.
HOW MUCH IS ENOUGH?
Planners often say we would make a lot more money if we just charged clients half of what we save them each year. In its simplest form, financial planning is really about determining what is enough.
At my firm, we do not believe that an advisor who offers "retirement, property and casualty insurance, life insurance and estate planning" can really do it all and serve a client's best interests. It is very rewarding to receive feedback from a client's CPA, detailing how much they enjoy working with a fee-only planner.
Clients want an advisor who acts in their best interests at all times. The key distinction we must emphasize with prospects and clients is that they should not be misled by someone claiming to be a financial planner when, in reality, what they really do is sell products.
Tyler V. Cook, CFP, joined the Sestina Network of fee-only planners in 2006. He's based in Columbus, Ohio.
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