There's Financial Planning and Then There's REAL Financial Planning

When it comes to managing your finances and planning for your future, seeking the right advice is crucial. Many individuals turn to financial planners provided by broker-dealers or insurance companies, assuming they will receive comprehensive guidance. However, it's essential to understand the limitations of such services and explore an alternative option: real financial planning. Real financial planning offers a holistic, comprehensive, and unbiased approach, tailored to your unique needs and long-term financial goals.

What is Real Financial Planning?

Real financial planning refers to the process of creating a comprehensive and strategic approach to managing someone's finances to achieve specific financial goals and objectives. It involves assessing an individual's current financial situation, identifying their future goals, and developing a personalized plan to help them attain those goals.

Real financial planning is more than simply providing investment advice to place someone's investment portfolio in a specific set of investments. Real financial planning also goes beyond mere budgeting or basic money management.

Here are the key components of real financial planning:

Goal Setting – The first step is to establish clear and measurable financial goals. These goals can include saving for retirement, buying a house, paying off debt, funding education, starting a business, or any other specific financial objective.
Financial Assessment – A thorough evaluation of your current financial situation is conducted. This includes analyzing income, expenses, assets, liabilities, investments, insurance coverage, and any other relevant personal and financial information.
Risk Analysis – An assessment of potential risks and uncertainties that may affect your financial well-being, such as health emergencies, disability, job loss, or market fluctuations, is performed. This helps determine the need for insurance or contingency plans.
Investment Planning – Based on your goals, risk tolerance, and time horizon, an investment strategy is developed to help grow your wealth. This includes asset allocation, diversification, and selecting suitable investment vehicles like stocks, bonds, mutual funds, or real estate.
Retirement Planning – If retirement is a goal, a plan is created to determine how much you need to save, what investment vehicles to use, and how to optimize tax advantages (i.e. retirement accounts such as 401(k), IRA, and even HSA).
Tax Planning – Strategies are implemented to minimize tax liabilities and optimize your overall tax position in the short-term as well as over the long-term. This may involve taking advantage of deductions, tax credits, tax-efficient investments, and strategic timing of income and expenses.
Estate Planning – If applicable, arrangements are made to manage the transfer of assets and wealth to future generations or beneficiaries in a tax-efficient manner. This includes drafting wills and/or establishing trusts with the help of an estate attorney or estate planning service, as well as naming beneficiaries for insurance policies, retirement accounts, investment accounts, and even cash accounts.
Insurance Planning and Risk Management – Evaluating and managing various types of risk, such as insurance coverage for life, health, disability, or property, is essential to protect against unforeseen events that may negatively impact your finances.
Regular Monitoring and Adjustments – Financial plans should be reviewed periodically to track progress, adapt to changing circumstances, and make necessary adjustments to keep the plan aligned with your goals.

Real financial planning takes a holistic approach, considering your entire financial picture and aims to provide a roadmap for achieving your financial aspirations while minimizing unnecessary risks and maximizing opportunities.

Real Financial Planning Compared to Insurance Companies and Broker-Dealers

Is your current financial advisor, or a financial advisor you're considering hiring, with an insurance company or broker-dealer? They may provide you with what they call financial planning, but is it real financial planning? Real financial planning and financial planning provided by insurance companies and broker-dealers can differ in several ways. Here are some points of comparison:

Scope of Services

Real financial planning typically offers a comprehensive range of services that address various aspects of personal finance, such as investment planning, retirement planning, tax planning, estate planning, and risk management. It takes a holistic approach to consider all relevant factors in creating a personalized financial plan.

In contrast, financial planning provided by insurance companies often focuses primarily on insurance products. Their planning services may revolve around selling insurance policies, with an emphasis on products like life insurance, health insurance, annuities, or other insurance-based investment vehicles. While insurance is an important component of financial planning, it is not the sole focus of a comprehensive plan.

Likewise, financial planning provided by broker-dealers often focuses on investments. They typically offer guidance on asset allocation, investment selection, and portfolio management. While they may touch on other financial planning aspects, their expertise may be more concentrated on investment-related matters.

Independence and Objectivity

Real financial planners are typically independent professionals who offer unbiased advice. They are not tied to specific products or companies, allowing them to evaluate various financial products and providers objectively. Their recommendations are based on a client's unique needs and goals.

On the other hand, financial planning services offered by insurance companies may have a vested interest in promoting their own insurance products. While they may provide valuable insights, their recommendations might be influenced by the goal of selling their company's insurance offerings, which they will surely be paid higher for selling versus other options.

Broker-dealers often have proprietary products or preferred product partners. They may have incentives to promote or sell specific investment products or services affiliated with their firm. While they may provide valuable advice, their recommendations might be influenced by their affiliations or potential financial incentives tied to product sales. Their planning services may revolve around selling specific investment products that, although they may have lower performance and higher fees than comparable investment products, they will still have you invest in because they are paid higher commissions to sell those specific products. Those investments may be suitable for you, but they may not be the best investments for you.

Specialized Expertise

Real financial planners often possess expertise in multiple areas of finance, such as investments, taxes, estate planning, and more. They may hold certifications like Certified Financial Planner (CFP), and may specialize in one or more areas or niches of particular types of clients. The broad knowledge of a financial planner providing real financial planning enables them to provide comprehensive advice across various aspects of personal finance.

In comparison, financial planning services provided by insurance companies and broker-dealers tend to focus primarily on insurance-related matters or investments. Their expertise may be more limited to their insurance products and the associated benefits they offer, or on specific investment products. While they may have knowledge in certain insurance-related or investment-related areas, they may not provide as comprehensive guidance on other financial aspects.

Fee Structure

Real financial planners typically charge a fee for their services, which can be based on an hourly rate, a percentage of assets under management, or a flat fee. This fee structure, known as fee-only, provides transparency and ensures that the planner's compensation is not solely dependent on product sales. For more about fee-only financial planning, read the Strateon Intelligent Wealth Insights article Why Choo se a Fee-Only Financial Planner or Advisor?

Insurance companies and broker-dealers commonly earn revenue through a combination of fees and commissions. They may charge a percentage-based fee for managing investments or provide commission-based services where they earn a commission on the sale of insurance or investment products. This mixed fee and commission structure can create potential conflicts of interest, as their compensation is influenced by and tied to the sale of specific products.

While financial planning provided by insurance companies and broker dealers can offer valuable insights into insurance-related or investment-related matters, it may have limitations in addressing the full spectrum of financial planning needs. Real financial planning, on the other hand, takes a more holistic and comprehensive approach, considering all the various aspects of personal finance and providing objective advice tailored to individual circumstances. Working with an independent financial planner can offer a more comprehensive and unbiased approach to developing a personalized financial plan.

Why You Should Choose Real Financial Planning

Choosing real financial planning over other options can offer several advantages. Here are some reasons why someone might opt for real financial planning:

Comprehensive Approach

Real financial planning takes a broader perspective, encompassing crucial aspects like investment planning, retirement planning, tax planning, estate planning, risk management, and more. By opting for real financial planning, you'll benefit from a comprehensive roadmap that addresses all areas of your financial life, ensuring no stone is left unturned, and tailored to your specific goals and circumstances.

Unbiased Advice

Real financial planners operate independently, free from ties to specific financial products or institutions. They have the flexibility to evaluate a wide range of financial products and providers objectively. Their advice is unbiased and focused solely on your best interests, as they are not driven by sales targets, commissions, or hidden agendas.

Personalized Solutions

Every individual's financial situation is unique, and cookie-cutter solutions may not address your specific needs. Real financial planning emphasizes personalized solutions. With a real financial planner, you'll experience a collaborative process where your financial planner takes the time to understand your unique financial situation, goals, risk tolerance, and time horizon. This allows them to develop a customized plan the aligns with your specific needs, helping you make informed decisions and providing you with a roadmap that is aligned with your aspirations and supports your long-term success.

Fiduciary Duty

Real financial planners often operate under a fiduciary duty, which means they are legally obligated to act in your best interests. This duty ensures that your financial planner's guidance is trustworthy, ethical, and solely aimed at your financial well-being, where they prioritize your needs above their own, providing trustworthy and ethical guidance. Choosing a real financial planner who upholds a fiduciary standard gives you peace of mind, knowing that their recommendations are driven by what's best for you, rather than external influences. For more about fiduciary financial advice, read the previous Strateon Intelligent Wealth Insights article What is Fiduciary Investment Advice and Why Does It Matter (Now More Than Ever)?

Continual Monitoring and Guidance

Real financial planning is an ongoing process that requires regular monitoring and adjustments. Real financial planners regularly review and monitor your financial plan, making necessary adjustments to keep it aligned with your changing circumstances, goals, and market conditions. Their ongoing guidance and support helps you stay on track and navigate any financial challenges that may arise to overcome financial challenges and stay focused on achieving your objectives.

Education and Empowerment

Real financial planners aim to educate and empower you to make informed financial decisions. They explain complex financial concepts, help you understand your options, and provide clarity on the implications of different choices. This knowledge empowers you to take an active role in managing your finances and work towards your goals with confidence.

Long-Term Relationship

Real financial planning often involves building a long-term relationship with your financial planner. They get to know you and your financial situation intimately over time, which allows for better understanding, trust, and collaboration. This long-term relationship can provide stability and continuity in managing your financial affairs.

While other options such as financial planning provided by insurance companies or broker-dealers may offer valuable insights in specific areas, real financial planning provides a more comprehensive and personalized approach, independent advice, and a fiduciary duty. These factors contribute to a client-centric experience that is focused on your best interests and long-term financial success.

Choosing a Real Financial Planner

Choosing a financial planner is a significant decision that can have a lasting impact on your financial future. While financial planners at broker-dealers or insurance companies have their merits, they often come with limitations such as a narrow focus, conflicts of interest, and potential biases. By embracing real financial planning, you open the door to comprehensive, unbiased, and personalized guidance that aligns with your specific needs and aspirations. Take control of your financial future and consider working with a real financial planner who operates independently, upholds fiduciary standards, and offers a holistic approach to help you achieve your long-term financial goals.

If you're looking for real financial planning, you've come to the right place, as that's exactly what Strateon Intelligent Wealth provides. To find out more, feel free to...

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