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Financial Planning Should Reflect Clients’ Values, Goals

Oct. 17, 2014
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By Brian McCann

Learn more about Brian on NerdWallet’s Ask an Advisor

Our daughters Quinn and Rowan are in many ways polar opposites. Quinn frequently takes 30 minutes or more to wake up in the morning, and all she wants to do is snuggle. Rowan just as frequently wakes up smiling and laughing. Rowan has light-colored and textured hair. Quinn was born with a full head of dark hair. The list of differences goes on. The fact that my daughters are so different frequently fills me with wonder and amazement. And I can’t wait to see what unfolds for them in the future.

This relates to financial planning as well. I’ve seen many boilerplate plans from prospective clients created by large financial institutions. Often, it is apparent that clients have never really looked at their documents.

While attending a professional conference, I was having lunch with several other advisors. I relayed that when I developed financial plans, I initially did an exercise with clients to help them write down their personal and family values. For me, this is a great way to get to know clients. Because financial plans frequently involve tradeoffs, knowing clients’ values helps me determine what types of compromises my clients might or might not be willing to make.

One advisor at our table boasted something to the effect of, “I don’t need to know a client’s values or their goals. I’ve been doing this for a long time, and all of my clients are looking for three basic things.” He held up his fingers to count as he talked: “One, to retire with the same standard of living that they currently enjoy; two, to send their kids to college; and three, to protect their family and themselves in the event something unexpected happens to them.” I still almost fall off my chair when I think about his statement. Undoubtedly, his was an extreme view. But to some advisors, the financial plan can certainly be boilerplate.

The Boat Goal

It has been shown that human DNA is 99.9% similar. When I look around, I think the 0.1% has a lot of meaning for humanity. I think financial plans are similar. As an example, I had a couple with children as clients. Let’s call them Ed and Dora. They certainly had a desire to accomplish all of their big goals: children’s education, healthy retirement and security. But they also had their “boat goal,” as they came to call it. Ed and Dora wanted to buy a boat. Their aspirational goal was to live for months at a time abroad on their boat while exploring the world. Ed and Dora were good parents and realistic planners. Their boat goal was a priority for them, but it ranked far below their children’s education and a secure retirement. Nonetheless every time we met, they were really interested in the progress toward their boat goal.

And here’s the thing: This was incredibly inspiring for them. They knew they would never sacrifice their children’s education or their retirement for a boat. So they were very motivated to hit the saving and investing goals associated with their priorities because they knew that was the only way they’d get to their boat goal. Their boat goal was probably less than 0.1% of the total spending in their plan. Some might argue that it didn’t even need to be in there. Mathematically it didn’t have any major effect on the plan. It certainly had an effect on Ed and Dora’s experience of financial planning.

I think we should take Ed and Dora’s lesson to heart. The more our financial plans reflect who we truly are and what we value, the more we will be motivated to push to reach them. Sometimes it is the 0.1% that makes all the difference.