Just What the Heck is Financial Planning Anyway?

August 1st, 2019 by Jim Allen

Pretty much anywhere you go for information on finances these days, TV, radio, the internet, social media, newspapers, or books you hear about “financial planning.” It is fast becoming a familiar term, but do you really know what financial planning is? We see that the term is frequently misused or is thrown about by financial sales people as a gimmick for selling their particular financial products. Unfortunately anybody can call themselves a financial planner, financial advisor or wealth manager even if they aren’t really trained or competent to do so. This article is intended to help clarify what financial planning is and how services are normally provided.

The concept of financial planning originated in the early 1970’s and led to the creation of the Certified Financial Planner (CFP®) designation. It is technically a process that is applied to a person’s entire financial situation and is meant to cover all aspects of their financial life. This typically means that a financial plan is going to cover a person’s: budgeting & cash flow, investments, taxes, insurance, retirement and education planning, and estate disposition. It is generally meant to be comprehensive in nature and should follow a formal process of:

1. Agreeing on how the financial planner and client will work together.
2. Gathering all the pertinent information and setting client goals.
3. Reviewing and analyzing the current situation.
4. Developing recommendations to help meet goals.
5. Implementing the recommendations.
6. Monitoring the plan and staying on track.

Not every person needs a comprehensive financial plan, so services can be offered in other ways. Financial planning services usually fall into one of the following categories:

Consulting: This would typically be a meeting or series of meetings regarding one particular issue. Examples might be making employee benefit elections, financing college education or refinancing a mortgage. Generally, consulting services will be billed on an hourly or quoted flat fee basis and the engagement is limited.

Coaching: Financial coaching usually involves a series of meetings designed to help clients modify behavior or achieve a particular goal. Most commonly coaching revolves around budgeting / cash flow issues, saving towards a particular goal like buying a home, or working on a plan to reduce or eliminate debt (student loan or personal). Coaching services are usually billed on a monthly or quarterly subscription basis and may last a year or more.

Financial Planning: This is the typical comprehensive service that uses the formal multi-step process outlined above. In a financial planning engagement, all aspects of your financial life are going to be examined in a holistic manner. Tax returns, insurance policies and investment portfolios are reviewed, estate documents examined, goals are determined and advice is given regarding achieving those goals. This is normally a multi-meeting process with the planning done over several months or more than a year. The financial plan may or may not include ongoing investment management services. Financial planning services can be billed on a flat fee or subscription basis, or if the plan includes investment management services, on an assets under management percentage fee.

Wealth Management: This is the most comprehensive service where everything is bundled into an ongoing asset management fee. This generally would include consulting, coaching, financial planning, investment management and possibly tax preparation for an ongoing asset management fee.

The first step for a person needing financial planning advice is to determine what level of advice they need. Do you just need advice on a particular matter?, do you need ongoing coaching to get on the right path?, is a full financial plan appropriate?, or do you prefer to have an ongoing very comprehensive advice relationship using wealth management services? There are several options for receiving the advice you need and you should pick the appropriate firm and financial planner that best meets your situation.

Some tips for picking the right firm would include: making sure the firm always acts as a fiduciary, that the advisor is a Certified Financial Planner (CFP®), that the planning is customized for your situation and not some cookie cutter model, and that the services and fee structure offered fit your planning needs. Anchor Bay Capital’s financial planning philosophy is to make sure our clients receive the advice they need in the manner they desire. We provide a broad range of service models from consulting or coaching to financial planning and wealth management. We can provide these services on an hourly, monthly or quarterly subscription basis, for a flat financial planning fee, or for bundled services using an assets under management approach. We always act as a fiduciary and our planning is done by a highly experienced CFP®. Our motto is “What is in your best interest is our only interest.”

If you would like a complementary discovery consultation, please contact us.