Over the last 5-7 years the financial services industry has become famous for offering 'the plan' or other such strategies meant to create a brand around financial planning. Several Investment Advisors have taken the approach that a financial plan is just another product to be sold to their clients, no different than a life insurance policy or a mutual fund.
The idea that financial plans are products simply to be sold seems completely backwards to me yet in my experience in working with new clients that have come on board with my group, if planning is offered at all this is the predominant way is being brought forward. So why is that the case?
In my opinion the main reason why financial plans are being 'sold' in this manner is due to the background and training available for advisors in the financial services industry in Canada. Many of these investment advisors began their careers as life insurance sales people. Later, these sales people became investment advisors as the mutual fund business gained popularity. Insurance sales people saw mutual funds as another product which could be offered to their clients. Later, these advisors offered financial plans as the public began to demand them.
As these 'planners' were brought up as sales people they were trained to sell products and financial plans became another arrow in their quiver to be offered to clients. So, does this present a problem? As long as people are having financial plans put together for them does it matter in what manner it is brought to their attention? Perhaps not, but my concern is how plans are being used.
Are the Clients Goals Being Fulfilled
One of the main concerns I have around financial plans being delivered as a product is that they are not being used in an effective manner to actually help fulfill a client's goals. Plans are also being offered to lure clients in, but once the clients investments are transferred over, no planning work seems to be done by these CFPs. They focus almost entirely on Investments.
In my mind it makes no logical sense to offer investment or insurance advice in the absence of a financial plan. Yet so many new people I meet with have been investing for years or have been paying insurance premiums and they either do not have a plan or if they do have a plan it has only been offered to them recently.
Most advisors have the idea that a financial plan is simply a projection of your investments going forward, which although is valuable it is only one piece in the overall puzzle. A proper plan will take into consideration all aspects of your financial needs including banking and lending, taxation, estate planning, income planning for the future, philanthropic giving and yes investing. A financial projection of you investments only considers one aspect of planning and therefore is incomplete.
My question to the individuals who I meet is how can they feel confident that the advice which has been offered to them is in their best interest in accomplishing their goals if there was no plan drawn up prior to the recommendations being made and no consideration has been given to alternative options and the consequences of one decision over the other.
Making Recommendations on How to Accomplish Financial Goals
You see, a financial plan is not a product to be sold but rather it is the only way to ensure that you are making educated decisions around accomplishing your goals. A good financial plan will evaluate all of your financial goals and make recommendations around how to accomplish them based on a projection forward and scenario analysis. Without this type of analysis there is no way to recommend an investment which will fit your unique needs and there is also no way of knowing how much insurance protection you will need along with the appropriate type of insurance.
Any recommendations made without a plan would simply be a guess with nothing to substantiate it. Financial plans also need to be flexible, just like your life is. A plan cannot be set in stone because as your life changes so will your financial goals. Your plan must be adaptable to meet your changing needs and should be reviewed regularly, at least once a year. As your plan changes so should the recommendations which are being made to accomplish your goals.
As a good friend of mine once told me, financial planning is not a one time event but rather an ongoing and regular process. Without one you are simply flying blind and hoping it works out in the end. I have found that there are too many 'plans being offered' for the sake of saying that it has been offered. It is important to recognize that having a real plan in place is critical to ensuring that you are successful in achieving your goals in an efficient manner. As the saying goes, "don't be fooled by imposters."
-Grant White, CIM, CFP
Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.
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