Why Financial Planning is a Verb, Not a Noun

This article is first in a series in celebration of National Financial Planning month during October. Look for weekly posts that explore financial planning during the key stages of each person’s adult life.

Financial Planning is defined by the Certified Financial Planner Board of Standards as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.” This definition of financial planning represents a paradigm shift, with the term now representing a verb rather than a noun. Additionally, while financial planning looks toward the future, it also functions in the present and dynamically adjusts to an individual’s ever-changing life.

Charts, projections, scenario forecasts and probability analysis – traditional tools of the financial planning trade – are guides at best. Like sailing by the stars under cloudy skies, constant adjustment to the navigation is necessary.

Numbers Don’t Lie, They’re Just Usually Wrong

When the financial planning profession was still in its infancy, the October 1984 cover of Forbes magazine featured a chimpanzee in a 3-piece suit next to a chalkboard scribbled with an assortment of financial planning jargon with the caption, “These days, everyone’s a financial planner.”

This jab can partially be attributed to the advent of the personal computer and sophisticated financial planning applications that allowed the financial planner to enter assumptions about a client’s assets, savings rates, inflation, retirement date and investment earnings. The software then allowed financial planners to produce volumes of reports that were delivered to clients in leather-bound binders with the label “Financial Plan.” Most of the time, these mislabeled books went home with the client – only to gather dust and soon became obsolete due to changes not contemplated in the original planning. For all their wizardry, not a single one of those “plans” accurately predicted where those clients would be in 20 years.

The problem was not with the formulas embedded in the software programs, but with the complexity of the data inputs – with the “inputs” representing the course of an individual’s or family’s life over many years. Not surprising, the “plans” ultimately became useless because not even the best algorithms can accurately predict where anyone is likely to be financially over a time period of more than three-to-five years. Financial planners who rely on precise analytical planning that seems so capable of predicting the future often fail to adjust when life events change the assumptions on which the plan was based. Financial planning has less to do with the concrete input used by financial planning technology and more to do with intuitive “best-guess” decisions on how to respond to a person’s ever-changing life.

Who Needs What Kind of Planning When?

Because no two clients are alike, financial planning is an extremely personal process. However, there are several financial planning themes that accompany the major stages of life – young adulthood, middle adulthood and senior adulthood. These themes can be illustrated by the Financial Planning Table of Thematic Events to the right. Addressing each of these themes involves establishing adjustable goals and devising coordinated action plans around each goal while not derailing progress towards other concurrent goals. The level of advisor time, number of collaborators and the complexity of the solutions vary greatly across the socio-economic spectrum. Some of these themes will be chosen to illustrate how Argent’s financial planning process seeks to address them in subsequent articles in this series.

Whose Interest? The Fiduciary Standard

To truly follow the definition of financial planning, an advisor must avoid serving his or her own interests. Anyone providing financial advice to a client falls under a fiduciary standard. The word fiduciary comes from the Latin word fiduciaries, the root of which we get a word like fidelity. In modern use, it implies a position of trust and conveys both obligations and liability for one’s actions. When collaborating with a client to help them reach life goals, there can be no question as to whose interests are being represented by the financial planning team. Argent’s financial planning services embrace the fiduciary standard. Though we may assist clients with implementing various financial strategies that might utilize financial products and services, we always act in the best interests of our clients, avoid conflicts of interest and clearly disclose any conflicts that may arise.

Our Financial Planning Mission and Guiding Principles
Remaining true to the Certified Financial Planner Board of Standards definition, financial planning as practiced by Heritage is a dynamic process of walking with our clients through their financial transitions such that their quality of life is constantly supported by their available resources. In practice, this means implementing strategies that protect and grow their wealth during their lifetime and that preserve it for future generations. We are guided by an adherence to the fiduciary standard, as well as to our core value of humble confidence, confident in the value and expertise we bring to the table, but humble enough to know we must always be learning and reaching to do better.

If you are in a phase during your life where you could benefit from financial planning or need advice on related wealth management strategies, please contact me or any one of our professionals at 405-848-8899. We are ready to help.