Not Your Parents’ Financial Planning

I’m going to make a bold assertion: Financial planning is the thing that happened before any of the world’s oldest or second-oldest professions. How do I know this? Well, I don’t factually … but anecdotally, if you consider that someone’s motivation for earning a financial resource is what he or she will actually do with that financial resource, you can’t help but come to the conclusion that the first payment made from one to another involved the forethought of financial planning. 

From there, advisors of all backgrounds have been around us for centuries. They’ve taken financial planning from an internalized practice to something that one does for another. It was only after the passage of the Investment Advisers Act of 1940 that the modern U.S. financial advisor and, later, the first cousin once removed — the financial planner — became an actual title.

When I entered the field at the beginning of the 21st century, financial planning was still a very different thing than it is today. In the last 15 to 20 years, financial planning has emerged as something more than nearly a cliche. It has become something that is sought out, rather than hoped for as a part of a relationship with another financial services provider like an insurance agent or investment broker. These changes have led to an improvement in the actual deliverable in the financial planning process: the financial plan. 

Accessibility

The first thing that sticks out to me in the evolution of financial planning is the accessibility of it — both from the professional and client side of the process. When I entered the field in 2004 as a dually-registered advisor/broker, I thought I was signing up to do honest-to-goodness actual fee-only fiduciary financial planning from day one. And while I was close, the reality was that I was given the task of finding clients to contract for “financial plans.” These turned out to provide the analysis and recommendation set the client needed … but eventually led to the positioning of a product. Also offered through me, that product was the solution to whatever problem(s) the plan identified. I was able to switch hats and go from advisor to broker, and the plan itself offered that opportunity.

This plan to sell a product model still exists today. But now, it’s not simply because the professional has a massive barrier to entry into the practice of fee-only fiduciary financial planning. Organizations like The National Association of Personal Financial Advisors (NAPFA), XY Planning Network, Simply Paraplanner, and more have broken down these barriers. They’ve made it easier than ever to guide an aspiring financial planner to a place where he or she can practice as a fee-only fiduciary.

From the client’s perspective, finding a fee-only fiduciary financial planner is easier because of this trend. When more professionals can find their way to practicing the way they want to, it creates a bigger pool of potential candidates for clients to hire from. And as competition often does, it makes the cost of finding and hiring the right professional that much more reasonable. In short — finding and hiring a fee-only fiduciary financial planner is far easier and more accessible now than at any point in the past.

Technology

Speaking of the past, what hasn’t technology changed in the last 20 years? I remember the first financial plan I ever created — and this was in 2004 — was a two-inch-thick, blue, three-ring binder with at least 100 pages of text, charts, and graphs. Recent business major, finance concentration me thought it was the coolest thing ever — a super detailed road map of the client’s financial life, with all sorts of supporting stuff to reference when needed.  Long-time practicing financial planner me is mortified at the thought of slapping down such a monstrosity with a thud, flipping through a couple of graphs, and wishing the client all the best in implementation. I mean, what if we needed to change a single variable by as little as 2%? Warm up the printer!

Technology has introduced the ability for our financial plans to nearly live and breathe. Planners and clients nowadays can collaborate over the client’s financial plan like it’s a grocery list. Quickly gaining insight into the impact of major decisions today — without having to recreate 100 pages of text, charts, and graphs — makes the pace of analysis and, more important, implementation much quicker and the overall process much smoother. Other innovations like web-meeting platforms that work on any device or the ability to chat with your financial planner by just visiting their website, allow technology to foster improvements in the accessibility of financial planning as well.

It’s Not All About Retirement and Dying

This is also anecdotal but, in my experience, many people believe financial plans exist to prepare for two life-events: retirement and death. Seemingly two very difficult interconnections of life and finance, retirement and death — preparing to make your money last after you stop working or make it do what it needs to do after you stop living — are no longer the headlines of a modern financial plan.

Today, I find a lot of great energy spent developing financial plans that focus on aiding a client in a complete journey. From the basics of cash flow management and employee benefits elections to more complicating factors like stock compensation or real estate ownership, the considerations for developing a more complete and comprehensive financial plan are numerous and sometimes very deep.

Focusing on experiences and goals both near and afar within a lifetime lead to the need for a financial plan that is responsive, easier to reconstruct and stress test, as well one that is collaborative between client and planner. Of course, developments in the accessibility of financial planning and the related technology have made this a reality for the modern financial plan and the financial-planner-and-client relationship.

Where does financial planning go from here? As always, time will tell. What’s important is to stay focused on making your financial plan do the things you need it to do for you — not the latest trend, pitch, or product.