Millions of clients have received some form of financial planning from their advisers. The type of plan and its effectiveness will vary across both clients and their advisers. Do you know whether your financial plan is helping you with your investment, retirement and other goals? Here are some items to consider when you think about that financial plan.
First, let’s look at you, the client, and the plan.
Did you participate in the planning process by way of a questionnaire, a meeting, online data entry or a combination?
If not, then how would any adviser have a clue as to what you need or might want in a financial plan? If you did, then did the process go to any depth on what your situation was and is, what you want your money to do for you, and what worries you about finances? Without pursuing this type of knowledge, an adviser cannot be expected to propose a meaningful plan.
Did you share all your relevant information – that is to say financial, emotional, health-related, family and more – with the adviser as a part of the process?
Without complete information, any plan is apt to overlook opportunities and options that may benefit you and will not address potential issues involving omitted information. In this connection, conjecture and overstating expectations will also make it difficult to plan appropriately and provide you with real confidence in the results.
Did you read over the plan by yourself or together with your spouse or partner? And did you then go back to the adviser with any questions, comments or suggestions?
The first rule for most things is that if you do not understand it, you should not buy it. This goes for financial plans just as much as it applies to investments, relationships and many other aspects of our lives. It is important to review any plan – away from distractions, including the adviser – and try to understand every item in it. Where you are not certain, then it is necessary to follow up with the adviser and get answers to your questions. At the initial presentation, folks rarely are able to fully absorb all the information which is being presented by the adviser in a way that works for the adviser but not necessarily for you. Be sure that the adviser actually answers your question – understands it and responds to it – instead of going off on a tangent.
Did you approve of the plan and/or authorize the adviser to make any transactions in your accounts?
Once the adviser has created a plan for you, based on information you have provided and some knowledge of you and your situation, you will need to review the plan and follow up with questions you may have. Then and only then is it time to approve the plan. If any steps are missed, you should not be ready to accept the plan and the adviser certainly should not simply go ahead once the plan is presented. Remember, it is your life and your money and the adviser is providing a service to YOU. It is not the adviser’s decision.
Now, let’s look at the adviser and your plan.
Is the plan tailored to each specific client or does the adviser give every client pretty much the same type of plan with the same or substantially similar investment recommendations?
Your plan should make clear that it covers what YOU wanted. It should reflect the specific goals and needs you discussed with the adviser and not some general idea about overall spending or generic names for plan goals. You should ask the adviser if the adviser recommends one of a small group of standard portfolio allocations for all of the clients and how your portfolio might vary, if at all, from that recommended for other clients. You will want to know, with a new adviser, if they intend to sell out of your existing investments and buy different securities they recommend. What you are looking for is whether you are being treated as an individual with his or her own particular circumstances and receiving a plan that addresses those or if everyone gets the same advice, regardless.
Does the plan take into consideration what you, the client, wants and needs to do with your money or does it simply focus on managing the money, whether for growth, income, or asset preservation?
Your plan should work towards helping you reach your specific goals and meeting your financial needs. A plan that relies on “making you a lot of money”, “beating the market”, or “protecting you from the upcoming market crash” or other similar statements is not a plan focused on you. You will want the plan to show you how it will help you reach your goals and how you are not going to be taking any unnecessary risk.
Does the plan consider what might happen to derail your goals such as early death, disability, job loss, divorce or other life changing events?
Only a foolish person would assume that a plan (or their life) will proceed right down the straight and narrow expected path laid out in the planning process. The likelihood that some event will occur to significantly affect the plan is actually fairly high and you likely know other persons who have encountered changes and issues they did not expect in their financial lives. These changes range through all the common events mentioned above and might include less common events such as long term care, civil suits, bankruptcy, natural disaster, criminal activity and more. Having considered possible events permits you and your adviser to plan for how they would be handled, providing you with more confidence in the plan itself.
Is the plan monitored on an ongoing basis and is it updated when changes occur in your situation?
The only way a financial plan can be effective is when it is regularly reviewed and updated as time passes and things change. Even if none of the major events we feared might happen actually occur during our lives, other things do change. How our accounts perform in the markets, how much we save or spend, what goals go away or are added or modified, all must be considered to keep that plan current. If the adviser does not make clear that this monitoring is a part of the process to be used, that plan is out of date the moment it is done. Much of the value of that plan is lost if it is not regularly revisited and kept current.