What Is Financial Planning?

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The CFP Board’s Code of Ethics and Standards of Conduct set to take effect on October 1, 2019 contains a new definition of Financial Planning:

Financial planning is a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.

This 30 word definition is a small but important component in a 17 page document complied by a 14-person commission. That commission was established back in December of 2015. They have been working on this for two years. It is a good definition that is worth unpacking.

Financial planning is….

a Collaborative Process

Personal financial planning works with you not just for you. A good advisor comes alongside and partners with you. Your involvement throughout the process is necessary to make it customized.

Although many of us feel typical, normal, or average, we are all nevertheless very distinctive. Even for the most average individuals, cookie-cutter plans are likely going to fail to meet their life goals.

A real personalized financial plan results from the collaboration of an advising team that is working closely with the client and a specialist team that are experts in comprehensive financial planning.

that Helps

The best financial advisors help you focus on what can be controlled rather than fret about the uncontrollable. Their advise is actionable and analytical. It makes sense.

You should avoid any advisor whose plans seem too good to be true or who sugarcoats reality.

Maximize a Client’s Potential

Maximizing our potential is, perhaps, a goal of all of our lives. It is a life-long endeavor. A comprehensive financial planner helps a client strive to achieve his or her potential in several important ways.

Desires without a plan will rarely be realized. And without a plan it is natural to stray from the course simply because you don’t have a course.

An advisor can help remind you of the big picture, fixing your gaze on your future fulfillment over your fleeting desires. They can challenge you to continue to grow and change. They can help you create a plan of how to move from where you are to where you want to be.

An advisor can make your life simpler by doing the research, presenting clear choices, and then implementing your selection. They can explain the process one step at a time. They can prompt you and help you take action in a timely manner. They can share perspectives learned from working with dozens of other clients. They can provide a positive perspective in the midst of a world that can be filled with conflict, confusion, and chaos. And they can help alleviate some of the burden. They can provide a team that works with you so that you can relax and avoid needlessly expending your energy.

for Meeting Life Goals

Many people assume that financial planning primarily deals with cold hard cash. Financial planners would disagree. Financial planning begins by asking, “What is the money for?

Although financial planning can help you plan how to accomplish your goals, it cannot tell you what your goals should be. Only after you know your life goals can you seek to align your financial choices with your life passions. Values transcend the cash. Helping a client maximize their potential cannot be done simply by maximizing their money.

through Financial Advice

Financial planning as a profession is dependent upon financial planners upholding the ethical and legal obligation to act as a fiduciary in the client’s best interests. Only in the context of a relationship of trust and confidence can a client trust the financial advice given. While nearly every consumer wants this type of advisor, it is sadly a rarity among those calling themselves a financial advisor.

Many so-called financial advisors market themselves as providing “personal, high quality advice” and then argue in court that they should be exempt from a fiduciary standard because they are mostly or only selling investment products. But all CFP® professionals who provide financial planning services are held to the duty of care of a fiduciary. NAPFA-Registered Advisors are held both to a fiduciary standard of care and also refuse to accept any commissions . You deserve a fiduciary standard of care and should settle for nothing less.

that Integrates

Financial planning is the process of determining what financial steps will best take you from your current situation to fulfilling your life goals. While each component of financial planning is personal to your unique situation, each component part is also integrated with other components to create a dynamic and interconnected system. Integrated financial planning takes a holistic approach. Each component is set into the context of your situation and affects other areas of your finances.

You may have one person who prepares your taxes, another who manages investments, a third who sells life insurance, and a fourth who drafts estate planning documents. These services and products are often done in isolation from one another and even in isolation from your personal situation. Personal financial planning and integrated financial planning are inseparable as changes in one part of your finances have a ripple effect to other parts of your finances.

Relevant Elements

A good advisor has to know their client’s financial situation and goals as well as possible in order to succeed as a financial planner. They need to be proactive in gathering information and equally as proactive in suggesting which services to provide. In this way, the more clients share their lives, circumstances, and dream with us, the better we can help them achieve their goals.

of the client’s Personal and Financial Circumstances.

A good advisor understands your goals, situations, and values. Every financial decision and investment should be made within the bigger context of your life goals. Many people don’t know what personal advice a comprehensive financial planner can offer them. As a consequence, they settle for impersonal investment management by itself.

Given how few financial advisors have been through the education, certification, and experience require to obtain the CFP® mark, it is no wonder that so few so-called financial planners are actually providing comprehensive financial planning advice.

Give us a call to get started with your financial planning today!

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Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.

Follow Megan Russell:

Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.