When I first start talking to a new client, I often discover that they have a financial plan. At some point in the past, they worked with a financial planner who helped them build a plan that was probably a good one for their needs at that time. But then… The plan sat on the shelf. The details of the plan were not fully executed. More importantly, priorities changed. But the plan did not keep up.
This is why I say – you don’t need a financial plan, you need financial planning. If you are to achieve your wealth creation goals to support your lifestyle, loved-ones and retirement, financial planning cannot be a one-time event.
A football analogy
What would you think of a football team who gathered all of the best players, made a game-plan and then on game-day said to their quarterback – “we’re going to have you sit this one out today?” What do you think the chances are that such a team would win?
This is exactly like a financial plan versus financial planning. For families to achieve their wealth goals, a plan is the right starting point. But the problem is that most plans don’t get fully executed because there is no quarterback actually managing the game toward a successful outcome.
Does this sound like your family? Do you have a financial plan that has not been updated in several years? Do you know where you are in the plan versus your goals? Do you have someone reviewing the progress you’ve made against your plan?
A financial plan is the blueprint or the foundation of the financial planning process. Think about the last 24 months of your life. How many things have changed in those 24 months?
What has happened to your investments? Have they grown? Have they diminished? Usually this is what people think about when they consider their financial plan. If you work with multiple investment managers, who is coordinating the overall asset allocation strategy? Is the combined asset allocation aligned to achieve your financial goals?
People often think of the performance of their investments as the critical indicator of their wealth. But this is a woefully inadequate picture of financial planning.
Think about your loved ones. How has their situation changed in the last 24 months? What has happened with children and grand-children? Have there been births, deaths, divorces, marriages, adoptions, graduations? Have your estate documents been updated to reflect these changes?
Think about your tax burden. Has it changed either because of new or updated tax laws or because of changes in your financial situation? Have you taken advantage of all of the opportunities available to you to mitigate taxes?
Think about your assets such as real-estate, automobiles, collectibles or other valuable items. When did you last review insurance policies to ensure these are all fully protected? Are you paying too much for insurance or are your assets under-insured?
Think about retirement. How confident are you that the plan you have in place today – the plan you are actually living everyday, not the one sitting on the shelf – will actually help you achieve your goals?
Why do I ask?
The reason I ask is because I work with a select group of clients every day who definitely know the answers to these questions. But often times, their friends or other loved-ones do not know the answers. Yet these same people are confident that they’ll reach their goals. They happily point to the financial plan they built a few years back.
I do not share their confidence. I believe they are like the football franchise that built a game-plan but then took out the quarterback on game day.
So here is the big question. Who is actually managing your financial plan for you?
I’ve noticed a trend among affluent families who do not have a financial quarterback in the game for them. These people often earn a high income. Sometimes they are business owners or executives. They own lovely homes and drive nice cars. They have large investment portfolios. They carry life and property and casualty insurance. They have retirement and college plans. They might have a basic will. They feel like all is good… Until I start asking them questions.
As soon as we start digging into the finer points, I usually discover numerous critical details that are missing from their plan. Usually this happens because there is not a financial quarterback who is coordinating the overarching plan.
Investment management versus financial planning
A common misconception for those without a financial quarterback is that their portfolio performance is the key to their financial future. I have heard many people say over the years – “hey we’re doing fine because our portfolio is way up.”
Investment management is a critical component of wealth building. But if you are only working with a financial advisor, not a financial quarterback, you are missing a key piece of the puzzle. Most investment managers build an asset allocation strategy based on your stated goals. That is important and it’s a good starting point.
But what is more important is that your investment plan is designed based on your time horizon, risk-tolerance, cash-flow needs, desired life-style, calculated business risks, family situation and a myriad of other concerns. To build a plan that takes all of these factors into account, you need far more than an investment manager. You need a wealth manager.
I recognize that what I am suggesting is not an easy thing to do. Keeping everything up to date and monitoring progress against goals, well that takes a lot of expertise and time and a coordinated team. But it’s worth it.
Those who have a financial quarterback playing the game with them every day are much more likely to win than those who ask their financial quarterback to show up every few years. If you or someone you care about could benefit from a thorough analysis of their financial situation, I’d appreciate the opportunity to have a conversation with them.
The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.