Last week’s column began the series answering the question of what a financial planner does and how it is different to one-off financial advice that typically ends with the client signing up for a financial product.
Financial planning puts the client’s goals, needs and objectives at its core, but for many it’s hard to know what their financial goals should be. Some may be overly ambitious with fantasies of retiring early despite limited assets, whilst others may have accumulated a lot but are worried that if they stop working their savings will not last in retirement.
A financial planner helps clients to understand what really matters to them. What plans do they have for their family life? Any specific career ambitions? Hobbies and interests? What achievements and contributions are being pursued? What is on their bucket list, why, how much will it cost and when would they like to do it? And ultimately what legacy do they want to leave behind? This deep level of questioning and dreaming may seem an alien concept, but for most people where else do they have an opportunity to dream out loud? But this is the magic of financial planning. It may sound quite intimidating, sharing dreams that may have never been communicated to someone else before, but once clients allow themselves to see the possibilities that could be made possible through the financial planning process, the dreams have a chance to become closer to reality. After all, is this not why we all work, so as to earn an income to provide us with the lifestyle that we want to lead. However for many, they forget to live this lifestyle, as they are unsure if they “have enough money” or ask the question “what do we need to do, to allow us to live this lifestyle?” I’ve had clients see their savings grow faster than they ever could have expected through gradual monthly contributions and investments that fit their risk profile and goal, and it can be life-changing to show someone they are able to retire and not ever run out of money based on agreed assumptions.
Regardless of the situation, the important foundation of a financial plan is an audit of all the existing financial products, assets, and liabilities. This is important because future stages of the financial planning process rely on knowing where everything is to be able to identify any potential problems such as capital gain tax and potential inheritance tax liability on the estate.
Once the information has been gathered, analysed and both the client and the adviser is clear on the financial goals, the real financial planning can begin. The goals don’t always have to be ‘sensible’, like saving for retirement or funding a Junior ISA for a child’s future. A financial plan can incorporate more exciting adventures like trekking to Nepal or white water rafting on the Colorado River! With financial planning dreams don’t have to remain only dreams.
A financial plan is always a work in progress, and is adjusted over time to meet the changing goals of a client. It can sometimes serve as a reality check, uncovering the need for a higher savings rate or a later retirement date than originally planned. But it can also provide a deep level of reassurance and comfort to know that assuming the strategies in the plan are implemented, the client’s finances are optimised for both the present market and legislative conditions, and are based on intelligently derived assumptions.
Next week I will explain some of the things that happen “behind the scenes” to ensure a financial plan is and remains fit for purpose.