Wednesday, December 5, 2007

What does a Financial Planner do?

“How do you catch a cloud and pin it down?”
- Rogers and Hammerstein (“Maria” from “The Sound of Music”)

Like the nuns singing ”Maria” in group therapy mode attempting to “solve a problem”, the public struggles to pin down the financial planning profession. Are we sales people hawking the latest hammer for all the nails we find? Investment managers with our pie charts and x-y graphs? Lifestyle gurus spouting new age “Be One With Your Retirement” mantras? For edification, we provide the following framework.

A financial planner performs the duties of a/an: counselor, stockbroker, confidant, insurance broker, investment manager, investment consultant, divorce counselor, consultant, communicator, fiduciary, 2nd opinion provider, scout, therapist, budget analyst, quarterback, credit counselor, alchemist, cryptographer, fireman, grief counselor, ship's captain, cartographer, intermediary, psychologist, sooth-sayer, trail boss, guidance counselor, bad-news deliverer, good-news deliverer and many others. Each role has its place in the planner-client relationship and comes with its own emotional costs and rewards. Good planners will naturally assume the role that is required of them when it is needed (subject to legal restrictions regarding certain unauthorized practices).


Maybe a better answer to the question is "It depends on what needs doing" - and until we open up the jigsaw puzzle box that is most people's financial lives, we don't know exactly what that will be. Most jigsaw puzzles come in a box with a picture of the completed puzzle on the box top. If the picture is missing, the job of completing the puzzle is a lot harder – which is the situation many prospective financial planning clients find themselves in. They have a box of puzzle pieces but the picture – or a large part of it - is missing. Good planners will guide clients in creating a picture for their puzzle box.

Financial planning deals with six general areas: 1) cash flow and budget management, 2) risk management, 3) investments, 4) income taxes, 5) retirement planning and employee benefits, and 6) estate planning. While some of the areas overlap, not every client needs help initially in all six areas. Good planners will thoroughly review all the areas and work with the client to determine those areas requiring attention.

Feedback to and from the client is essential to the process. We can’t just take all the data, feed it into our “black box” and then dump a report on the desk. We have found that a “preliminary findings” report - or two - helps tremendously. Through client feedback, the preliminary reports are hammered into the finished plan that most closely adheres to the client’s vision. Good planners provide findings and solicit client feedback during the planning process.

Once the financial plan is completed, the plan must be put into action. The best financial plans are constructed in such a way that the client can put the plan into action without engaging the planner who helped create it. Good planners deliver a comprehensive plan document that thoroughly reviews all areas of the client’s financial life, provides understandable analysis and includes clear recommendations.

Since we have prefaced “planner” with “good”, we should provide contextual definition: a “good” planner is that person or firm that stands ready to provide clients with a standard of care that rises to the definition of fiduciary.

Like the nuns in “The Sound of Music”, financial planners can’t answer the existential questions, but they - the “good” ones anyway – do help clients determine what the questions are and stand ready to help build the framework within which answers can be sought.

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