Historically, getting paid for financial planning – not just to implement the recommendations, but for “The Plan” itself – meant producing a voluminous physical financial plan for which the advisor would be paid. The Plan was the tangible, physical deliverable, full of in-depth analyses and culminating in the advisor’s recommendations, that substantiates the financial planning fee. The one major caveat: few clients ever actually open The Plan again after it is first presented, focusing only on the subsequent recommendations and action items… and raising the question of whether financial planning might be done far more efficiently by eschewing The Plan and just delivering a One Page Financial Plan (of core recommendations and action items) instead.
Yet the reality is that even if The Plan is never revisited by the client after the day it’s presented, that doesn’t mean it was useless to have created it in the first place. Because from the client’s perspective, The Plan is what helps to validate that the subsequent recommendations are right and to be trusted in the first place; in other words, the client may in the end focus on just the recommendations and not The Plan, but that doesn’t mean they would have trusted and acted on those recommendations in the absence of the supporting comprehensive financial plan analyses and output.
Similarly, the real challenge for many clients is not figuring out the appropriate recommendations for them to achieve the goals in their financial plan, but to identify what their goals should be – or can be, or are even possible – in the first place. Which means producing The Plan, and subsequent What-If scenarios for the plan, are an essential element of the planning process in the first place. And again something that cannot be eschewed by just focusing on the One Page Financial Plan of recommendations at the end.
Notably, this doesn’t necessarily mean that financial advisors should or need to continue producing comprehensive financial plans exactly as they have in the past. The more the advisor can establish their trust and credibility – whether through showing empathy to create rapport with the client, demonstrating good communication skills, or simply their years of experience – the less the client may rely on the advisor’s analytical plan output. And to the extent planning software can be used more interactively and collaboratively with the client, the less it’s necessary to print out the voluminous plan in the first place.
Nonetheless, the challenge remains that even if the goal of the financial advisor is not just to get paid for The Plan, but for the advisor’s own financial planning knowledge and wisdom… it’s still necessary to go through the financial planning process in crafting recommendations for clients, if only because that’s what it takes for the client to have the buy-in and trust necessary to actually follow through and implement them!