Holistic Financial Planning and Advice

Written by Maksim. Posted in Financial Planning, Industry

Ever since day one, when I started my financial services career at Ameriprise Financial, American Express Financial Advisors as it was known at the time, we were taught planning first.  What does that mean?

Some time ago, a number of consultants in the financial services industry did a study and found practicing holistic financial planning, will do a better job  for the clients, and in turn generate more fees for the companies.  By offering the total package, investments, insurance, banking services and others, the sales people would by compensated on all of the products instead of just their own specialty.  In turn, the clients were to benefit because products would not be overlooked.  In turn, more and more companies started positioning themselves as financial advisors/consultants.  It was to be a win win situation for everyone.

The problem is, not everyone, not by a long shot, who calls themselves a financial advisor actually practices holistic planning and financial management.  So you have Brokers, Accountants, Insurance sales people, and even real estate agents battling it out for the title of Financial Advisor.   The people who get “screwed” for the lack of a better word are the clients out there, who have different expectations of what one financial professional is actually supposed to provide for them.

When I was recruited to UBS back in 2007,  I worked in two offices.  There were around 100 financial professionals that I worked with between the two,  and everyone was called a Financial Advisor, unless you got the fancy “Vice President of Investments” title, however the practices of each of these professionals was as diverse as the variety of apples in any grocery store on any given day.  One financial advisor only dealt with selling short term cash management options to business owners, others would still be selling individual stocks to 70 year old grandmothers, the vast majority were investment managers selling mutual fund solutions, few actually looked at insurance and I can count on one hand the number of people who even knew where to locate the financial planning software.  At the end of the day, even though clients would expect holistic advice, the vast majority of the advice was based around selling investments.

In the insurance world, the picture is the opposite.  There, the insurance agents know quite a bit about insurance, however will offer a few mutual funds and call themselves advisors.  Bank Brokers, same picture.

This is not to say that one is bad or another good.  It simply means that unless people ask questions, there is much room for misunderstanding.  Never mind the fact that most insurance agents and stock brokers have absolutely no fiduciary responsible to do right by you, as long as they can answer a few “suitability” questions and state that they sent you the disclosure document.

The biggest issue is that clients believe they are receiving holistic advice, meanwhile their broker is still only focusing on investments.  This creates a problem of everyone looking at the picture on a piecemeal basis.  The broker only cares about investment selection and performance and will not bother asking the question if the client should be invested in the first place.  Does the client have enough money in a cash reserve?  What happens if the client can no longer work?  Where is the risk management strategy?

In the insurance world, one big problem is that the typical insurance agent is trained that an insert (Variable Annuity/Whole Life/Variable Life Insurance) is the solution for all of your problems.  Jut buy the policy, even though there may be better investment options for you.

Everyone is so focused on watching pennies that they miss the dollar bills flying out of their wallet.  As long as everyone is focused on their own individual piece of the pie, no one can really offer holistic solutions.

One example of this is a friend of ours, lets call him Robert.  He is a small business owner that came into some money, and being a good BNI group member, he gave the investment consultant in the group a good amount of money to manage.  Robert also needed health insurance to cover his family and one employee.  As he knew we did group benefits as part of our holistic planning process, we were able to get him setup with a good policy for his needs.  We looked over his investments and while not something we would recommend, they were not terrible.  There was no plan in place for them, but Robert was adamant about being a loyal BNI member and keeping the investment business with the broker.

Fast forward to a few months later.  I have not seen Robert’s health insurance being paid.  Gave him a call and turns out his business was slowing, and what seems to me, his bookeeper was doing a bad job and let the policy lapse.

Had Robert been working with a competent financial planner, the first thing that would happen was a recommendation for a cash reserve of 6 to 12 months, which is meant for events like this.  As necessary, he would go into the investments and just keep pulling money out.   Now… his policy has lapsed, and he will have to apply again for a new policy, with far higher rates, or lower benefits.

An easy solutions, designed specifically for events like this is a Securities Backed Line of Credit, or SBLOC for short, where Robert would be able to borrow money from a line of credit, secured by his investments, at a low rate of about 3%.  That would also be tax deductible.  He would then pay it off when his business recovers, or worst case, sell off some of his investments to cover the loan.  Best of all, he would have options.

By not having anyone actually helping Robert take care of his Personal and Business planning, Robert is left reacting to events that happen to him, even though working with any competent financial planner would prevent many of these issues.  His Broker only cares about investments and merely is an order taker to keep selling stuff, and thus creating taxable events.  His bookeeper only looks at her small piece of the pie, the accountant merely prepares Robert’s  income taxes,  and each of those professionals is watching their own tree burn down, and no one is the wiser, all while Robert is the only seeing seeing the entire forest go up in flames all because he does not have anyone have a holistic view of his financial situation to let him help himself.

While each of those individual professionals may not be doing a bad job, they are not doing the best job because they are focused only on their area of expertise.  The client is ultimately responsible.

An easy way to understand this would be thinking of health insurance, if you have a  plan that allows you to go directly to a specialist without a referral.  You start feeling ill and you think it is an infection, you go to your Ear Nose Throat.  Nope.  All looks fine.  You go to another specialist.  Nope, nothing wrong.  Meanwhile, if you went to your primary care physician, the doctor whose job it is to see the big picture and solve most problems, would be able to tell you what it is, and best way to cure it.  They would further save you the time and money you wasted driving from one doctor to another.

This is not to say that there is no value to working with specialist,  quite the opposite.  What it says is that by not working with someone who is trained to look at the big picture, you take on that role yourself.

What we do as financial planners, is holistic financial planning.  We do have our specialties, however we first and foremost, look at the big picture to figure out how everything works together.  We look at how your investments impact your tax planning and preparation, we look at how your insurance planning has an impact on your estate planning.  We then work with you and any of your existing relationships to implement YOUR plan, not the investment or insurance policy of the day.

As financial planners, we will typically implement your financial planning as it is related to investments and insurance.  We will further work with either your attorney and accountants with implementation of your estate planning and annual tax preparation. If you do not currently have relationships with those professionals, we can typically make a recommendation.

The question is, do you trust yourself to be your own Chief Financial Officer and make all of the financial decisions?  Or do you want some help?



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