The question of what constitutes a quality financial plan is always a controversial topic in my industry. I thought I would pull out my soapbox and share some quick personal opinions on financial plans. Before I jump in, let me be clear – When it comes to the creation of quality and USEFUL financial plans I believe my industry has once again failed. I have heard too many people frustrated with plans they have had created for themselves in the past. It’s my goal to help fix these problems. Alright, let’s jump into it.
- Too many financial plans are more complex than they need to be. You should not need a PhD in personal finance to understand one.
- Plans do not need to be 100+ pages in length, and this doesn’t even include the legal disclaimer language. Quantity does not equal quality.
- A plan should never be a product sales pitch in disguise where the advisor’s goal is to get you to sell everything you currently own and buy all new stuff, which often has commissions connected to it. Most plans I run show a few weaknesses that need to be corrected, not everything.
- A good plan should be able to summarize in one page your goals and whether you will hit them.
- Good plans should test and show whether your current strategy will be successful.
- When creating a plan it makes the most sense to test different strategies to see what improves the odds of reaching your goals. Think of it like a vision test where the doctor keeps flipping lenses in whatever-the-heck machine it is they make you look through and ask, “Better at 1 or 2? 3 or 4?”
- You should be able to combine parts of different plans you like to create the final plan you are most comfortable with, not the version the advisor is pushing the hardest.
- This is heresy to most advisors, however, EVERY financial plan should be structured so anyone can go out and replicate the investment strategy on their own. This means no exotic products. Instead, the focus should be on low-cost, tax-efficient holdings like Vanguard and iShares funds.
- A part of the financial plan process should be a detailed analysis of your current portfolio. The advisor should explain to you what you own, how it works, and answer your questions ranging from your asset allocation to correlation to expenses.
- I am not a fan of charging a separate fee for financial plan generation if you are already paying your advisor a fee based on them managing your assets. Technology has come too far to charge extra. What used to take days to create because you were literally creating financial plans by hand is now done in a few hours via software.
- A plan that costs $10,000 seems insane to me. With the technological improvements a quality plan should be a fraction of the cost.
Again, these are just my thoughts on how to make the entire financial planning process better. Too often the financial industry forgets its focus needs to be on putting the client first. This is just another case where it feels like the industry is broken and it isn’t fair to you as clients. My advice if you are shopping for the creation of a financial plan is to ask questions ahead of time. They should include asking what will the financial plan look like, how many pages will it be, will you get specific and actionable recommendations you can implement on your own, how many drafts can be created, and the cost. But, what do I know? I’m just here trying to make the financial planning experience better for you the client.