By Allyn Hughes, CFP®, ChFC®, CLU®, CAP®
Working with an advisor to create a financial plan requires commitment and trust from the advisor and the client. To effectively work with an advisor, there are six key hurdles that many clients may face before and after the plan is developed. Ideally, the advisor needs to work through the planning process, analysis and recommendations with the client’s perspective in mind, as well as their own. This helps factor in the client’s viewpoint as well as the advisor’s, based on internal knowledge and experience building financial plans.
Hurdle #1: Willingness to overcome the unknown.
Most people have no idea how much money they need to have or save to achieve their definition of financial security (aka a successful retirement). They do what they can and trust (or pray) that it will all work out. These folks have to overcome their focus on “living in the moment” to be comfortable asking someone to help them understand the range of variables that impact their financial future and what they can do proactively to put their money to work for them. This is difficult to do.
Hurdle #2: Finding a financial advisor that they trust.
Once people figure out that they want more information about their financial situation, they have to find a financial advisor whom they trust to help develop their plan. This often means reaching out to others or using the internet to identify advisors to interview. It also means setting up meetings with prospective advisors to understand their background, fees and what will be included in the financial plan.
Hurdle #3: The cost of the plan.
Financial plans require an investment in time and money. For the financial advisor, it takes time and effort to: a) create a relationship with the new client b) establish trust in the planning process c) work to understand the current client’s financial situation and goals d) analyze the client’s situation and determine recommendations e) write the financial plan f) deliver the plan and recommendations and f) get client feedback and revise investment or planning scenarios as required. Given the cost in time and money, the client must believe that the financial benefit and/or peace of mind will outweigh the current costs.
Hurdle #4: The willingness to allow someone an inside view of your finances, decision making and personal goals.
As a result of the planning process, a financial advisor will probably know more about the client’s financial situation than most, including their accountant. The advisor will understand their risk tolerance, past successes and failures, biases and preferences for how to use their money. The advisor will also know what financial steps the client has taken in the past and will try to assess the extent to which he/she will be able to change in personal financial habits to be more successful in the future. The client would have to trust that the advisor will maintain confidences and use this information to help him/her as much as possible through this process.
Hurdle #5: The willingness to create shared goals.
Many couples don’t talk about their finances often. Most personal financial conversations are short-term in nature. What bill to pay or what financial decision has to be made next? Most couples don’t talk about their long-term financial goals, such as their preferred lifestyle before and after retirement. If they do have thoughts about their future financial lives, these goals are often different. One of the most important steps in creating a financial plan is for spouses to agree on shared goals.
Hurdle #6: The willingness to follow the advice in the financial plan.
When a financial plan is delivered, the client must be comfortable with the underlying rationale for recommendations and how they are implemented. However, it is common for life to get in the way. People get busy and forget to make the changes proposed in the plan (for instance, completing a will). They put these off and sometimes miss opportunities or waste the effort put into getting the plan in the first place.
For those able to overcome these six hurdles, however, a financial plan can serve as an invaluable roadmap and provide the necessary tools to help achieve financial freedom. And, that is priceless.
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