What Constitutes the Art of Practicing Financial Planning?

The below chapter is from “The Art of Practicing and the Art of Communication in Financial Planning” (Click here to purchase the book.)

Why would one use the word “art” when describing the practice of financial planning? The most highly qualified planners have gone through rigorous education and testing in order to acquire licenses and certifications. They use a methodical process to establish the client-planner relationship. This process includes gathering data, analyzing and evaluating the client’s status, developing and presenting recommendations; as well as implementing and monitoring those recommendations. They use sophisticated software to run complicated analyses and they stay abreast of laws and regulations affecting a wide array of financial issues. Where is the art?

The art of practicing financial planning can be found when professionals deploy a fundamentally sound process while injecting experience and judgment to develop advice in the best interest of the client. Financial planning involves altering human behavior which presents unique challenges each and every single time. It includes navigating an ever-changing body of knowledge and applying it to individual circumstances in order to arrive at a recommendation appropriate at that point in time.

Let’s start with the people. At its core, financial planning is a “people” business. Clients are looking to planners to guide them on some of the most important decisions of their lives. Establishing trust and maintaining effective communication are crucial to the successful execution of the financial planning process. Being technically proficient (i.e. “book smart”) does not necessarily translate to successful advice. The ability to communicate the relevant details to clients in a way they understand and embrace is the key to effective planning. Successful financial planners channel their inner teacher to convey facts, figures and details in a way that is easy to comprehend. Many clients are intimidated by financial matters, and it takes skill to break through those emotional barriers and establish a level of comfort.

Of course, before attempting to communicate any advice, a good planner needs to start by listening to their client. Understanding what is truly important to a client is crucial to establishing trust and rapport. The last thing a client wants to hear is generic advice regurgitated from a book; they can find the information in countless places using any internet connected device. What they want is someone who understands their personal concerns and goals and develops recommendations specific to them. If a planner is doing all the talking in client meetings, then I would argue that they are not engaging in true financial planning. Listening must always come first. Meetings should involve meaningful two-way conversations, not a one-way presentation.

Keep in mind, when working with people, every situation is unique and emotions play a big part in the process. People do not always behave in a rational manner. It is not unusual for a client to come to tears during a meeting. Money, finances and the future can be very emotional topics. Therefore, the right advice on an issue may not necessarily be the one with the maximum financial outcome. Client biases, fears and preconceptions can all have an influence on the ultimate advice. A good planner will try to guide the client to a rational decision, but also has to acknowledge that a client needs to be able to live with the outcome. Empathy is critical, as is the ability to interpret and understand the motivations of each client in order to develop advice appropriate for them. The “people” side of financial planning can be very complicated and the ability to interact with others is a necessary ingredient in the art of practicing financial planning.

It is also essential to understand that financial planning is a journey, not a destination. Changes occur every day. Planners deal with a wide array of issues such as marriage, divorce, recessions, market crashes, retirement and, sadly, death. Successful planning keeps up with these changes by adapting to the new circumstances in a way that keeps the client on the path to accomplish their goals. Success is not measured by dollars or annual rates of return; nor is it defined by the creation of a beautiful comprehensive financial plan that goes in a drawer never to be seen again. Rather, it is defined by the ongoing achievement of goals throughout one’s life. It is an organic process that, for each client, takes on a life of its own.

The planning process often involves evaluating questions that have more than one potential answer. Part of the art of financial planning involves evaluating those answers and helping someone choose the best one for their personal situation. At the end of the day, the planner’s objective is to enable clients to make informed decisions. I once had a client ask me if he should take his kids out of private school and I told him that’s not my call. I can walk through his financial plan with him and help him understand the consequences of different decisions. But in the end, the clients need to take ownership of their decisions and their lives. Planners who cross this line are doing a disservice to their clients and robbing them of their true financial freedom. A planner’s role is not to tell someone what they should do; it is to empower them to make appropriate decisions within the context of their unique lives.

The art of practicing financial planning exists in the less tangible aspects of the process. This involves listening, assessing, analyzing, communicating and ultimately recommending a course of action. Experience, judgment, trust and communication are crucial to the successful implementation of a financial plan. Information is everywhere, but knowing what to do with it to help an individual achieve their specific goals is absolutely a form of art. Like other forms of art, it is predicated on an underlying body of knowledge that must be successfully interpreted and executed under specific circumstances. And like good artists, good planners will be greatly appreciated by their clients.

Feel free to contact Matt McGrath with any questions by phone 305.448.8882 ext. 206 or email: [email protected].