FINANCE COMMUNITY EXPERT: Claritas Wealth

Financial planning – a journey not a destination

by Tim Walsham, Claritas Wealth

I realise that’s all a bit ‘X Factor’. Everyone is on a journey these days!

In the case of financial planning though it really is a journey.

The idea that we’ll reach a stage of our lives when everything is all sorted is pretty fanciful. There’s a great book by Oliver Burkeman called ‘Meditations for Mortals’ where he quotes a popular American social commentator/philosopher, Sam Harris.

Harris said that he finally realised in his 40s that he had been waiting for and expecting a stage in his life when he’d figured everything out and all of the issues and problems in his life fell away because he’d worked through them all. It was freeing when he realised that every stage of life has it’s own challenges to be dealt with and that will never change.

As an example, we may think that we’ll stop worrying about our children when they grow up but that’s not the case. We just have different worries as we never stop being a parent.

So if we create a financial plan now where we work out what’s important to you and try and plan for it, the one thing we know is that the plan will be wrong. That’s not to say it’s a worthless exercise; we’re just having the best stab at it now as we can.

The next time we revisit the plan we’ll have another best effort and ‘course correct’ as required. Sometimes these will be minor adjustments and sometimes life throws a complete curve-ball and major revisions are required. That’s life.

All I’d say is that in the long run this approach to financial planning really works. I’ve been creating financial plans for my clients for over two decades and the regular ‘course correcting’ keeps us on the right path, even if there is no final destination!

FINANCE COMMUNITY EXPERT: Claritas Wealth

The difference between financial planning and traditional financial advice

by Tim Walsham, Claritas Wealth

The ‘old school’, traditional method of providing financial advice went something like this.

An initial meeting to conduct a ‘factfind’ and work out what financial products you already have. There would be a relatively superficial discussion around what you wanted to achieve financially in order to establish goals and objectives.

The adviser then goes away and researches those existing products for suitability and prepares some recommendations. 

The second meeting would be a presentation meeting where the adviser would go through a report and try to persuade the client to ‘sign up’ to the recommendations and take out various products and maybe switch some existing investments and pensions to be looked after by the adviser.

On an annual basis there would be a review meeting where the adviser would run through the performance of the investments and chat through any changes in your circumstances. There would be some discussion around whether you were on track to achieve your goals but it was all a bit woolly.

All in all, pretty uninspiring.

This is still going on in some quarters of the financial advice profession but there is a better way.

Modern financial planning advice looks a bit more like this –

• A first meeting (Discovery) that is much more about you than your money. The adviser will want to know everything about you; how you got to where you are today and where you want to be in the future. What are your hopes, dreams, aspirations and fears? What does a good life look like for you? This initial discussion is a world apart from the old school ‘factfinding’ meeting. It’s all about your life, not your money.

• The next step (that is missing from the traditional model) is to construct a financial plan before making any product recommendations. You’ll go through a process where the adviser will look to work out the cost of your desired lifestyle and calculate whether you’re currently on track. If not, what needs to happen to get you on track? 

• There might be a second meeting to gather some of the hard facts and discuss what scenarios will be created in the financial plan (e.g. different retirement dates or spending levels etc).

• The third meeting is where the financial plan is discussed in an interactive way using powerful financial planning software (that understands tax and pensions etc) and can be amended live in the meeting. It’s not a presentation and it has nothing to do with selling financial products.

• The financial plan is all about balancing what you spend now versus what you spend later and avoiding regrets.

• Advice will be given across all areas of your financial planning, not just investments, e.g. estate planning or position on death or incapacity etc.

• Then and only then will financial product recommendations be made. Because the time has been spent to get to know you and understand what’s important to you, we know how much money you need and when you will need it. The recommendations therefore flow out of the financial plan; it’s simply a case of matching the money to when you need it and making sure that the right amount is available at the right time.

• On an ongoing basis, the discussions about your life and changes in the wider world will continue. We know that things will change. It’s inevitable but the financial plan can be amended easily to reflect these changes.

The end goal is that you reach a ripe old age, look back and feel like you’ve given life a really good go. The old school traditional financial advice model is really unlikely to do that.