The term 'financial planning' is used widely enough these days but the actual spectrum of available advice a client can receive is as wide as the universe. As an analogy, to say that ALL financial planning is the same is like saying that all mechanics are the same. However, even the most optimistic interpreter of the term 'mechanic' can see that the skill levels of a car mechanic under the arches at Waterloo Station differ wildly to those of a F1 car mechanic.
Analogous with financial planning, the 'Waterloo Station' adviser simply applies a plaster to the real issue and sends you on your way (with an uncomfortably high bill), whereas the 'F1' adviser provides holistic planning for all your finances within the broader context of your life – making your whole financial world hum like a well-oiled machine.
When an F1 engine purrs you know it is just right: good financial planning is the same. It is all about listening to the client to understand what is important, what their passions are and what they want to do with their lives.
In my youth, I climbed some seriously high mountains around the world. In some respects, I see financial planning is a bit like climbing a mountain. If you imagine the summit is your ideal life and you are at the base or even some way away from the mountain, you can see the summit but you can't easily see the route to get there. You need to go on an expedition.
As with all expeditions, there is always an ideal outcome: putting your flag on the summit, achieving your life's goals, viewing the world from a place of achievement and calmness…or even shouting out 'I made it!'
Most expeditions will have a guide, someone who knows the do's and don'ts and the best route to take. Now replace the mountain guide with a financial guide and you'll have a better understanding of the role of a financial planner.
To get to your summit or ideal life there are some logical steps to follow:
Step 1 – The quest for the summit starts with a vision
I think it's safe to say, we all have a picture of the future in our heads. A picture of how we'd like life to be, how it looks, how it sounds and feels to be there. It is this picture we need to know to be effective financial planners for you, so we're all clear what the goal is.
The vision of your future is your "WHY". I am sure many of you will have heard the expression 'Start with the end in mind and work backwards'. Everybody's "Why" is different, because we are all beautifully different. The power that underlies our personal "Why" is the essence of what drives each of us forward.
The stronger your "Why" and the better this is understood, by you and your adviser, the greater chance it will be achieved.
Back to mountains: Can you imagine Edmond Hilary saying to Sherpa Tenzing, "I think we should climb a Himalaya". Tenzing replies: "Which one?" Hilary ponders and replies: "Don't mind really, I'm sure the view is great from any of them".
With such a vague articulation of Hilary's "Why", Mount Everest would have been climbed 3 years later by the Swiss team, Ernst Reiss and Fritz Luchsinger, not Hilary and Tenzing, and no one would be able to pronounce their names.
Without a strong sense of purpose there is nothing to aim for and therefore the route to get to the summit can be too vague, hit and miss. And of course, the summit itself may be a moveable feast influenced by external forces.
Your life lived is our lives fulfilled.
As Lucius Seneca says: "To the person who does not know where he wants to go, there is no favourable wind."
Sadly, many people are still subjected to a form of financial planning that is not aligned with their needs. Many are tantalised by investment advice that is dressed up as 'financial planning' where the single-minded pursuit of taking your money for investment outweighs the need to understand the end goal. Who's to say that your mountain top may actually be the pleasant foothills - but the portfolio manager has an 8,000m peak in mind - with all the risks that go hand in hand with such a route. Beware the scenario when the mountain summit is theirs and not yours.
View financial planning as your financial mountain guide.
Step 2: Finding your "Why"
To understand what a person's "Why" is, takes time. It requires a genuine interest in people and a sense of care to get to the core of someone's true life's purpose. This isn't achieved by collecting hard facts, showing performance tables, using spreadsheets and calculators. This is achieved when the advisor puts their client's life way ahead of their money.
Now there is no getting around the fact that money is important. Not in an "I looove money" sort of way, but as an important enabler for us to lead the lives we truly desire. Money is the thread that exists through all our lives, though this doesn't mean it should dominate our thoughts or dictate the way we live our lives. Or come to think of it, even control our emotions which, sadly, it does for so many of us.
To discover your "Why" we need to have an open and enjoyable Discovery meeting with you. This meeting provides a feeling of safety, mental space and time while we explore your ideal life. This means the adviser speaks very little but listens a lot: to use his ears and mouth in the proportion they were created.
Listening intently is a skill that few advisors have. The financial services industry has traditionally been all about them, rather than you. Their emphasis is to demonstrate how good they are, why you should use them and the meeting becomes a "tell and sell" or "spray and pray" session rather than a cathartic invigorating experience for you, the client. Most advisers forget who is the most important person in the room (and it's not them).
If done correctly, clients in the Discovery meeting create their own vision of their future, often so bright it shines like a torch. This is the torch that they and the adviser need to have as their collective goal, their collective 'mountain summit'. I have had meetings with clients where they paint the most wonderful pictures of their future. Emotions can run high in such meetings because the passion genie is let out of the jar and sometimes there are even tears. Tears not of sadness but tears of release; the realisation that what they hold most dear could actually become a reality.
How wonderful could that be?
Step 3: The "What" that supports the "Why"
Once the torch has been lit and there is fire in the belly to take action, the process moves to the "What" that supports the "Why". A client's "What" is their plan: After all, without a plan the torch will surely fade as time passes and life goes back to the way it was: life lacking purpose and/or direction.
For most clients, by the time they realise they need some guidance in their financial world it is highly likely they will have amassed a plethora of financial bits and bobs. What usually happens is these are haphazardly accumulated over their working life and at some point there is that sinking feeling or a nagging doubt that these financial bits and bobs might not get them to where they want to get to.
This is where the "What" part of the process begins.
To make sense of everything you have, we build your own truly bespoke financial forecast. It really is bespoke because it we use your numbers, your goals and all these are unique to you. The overarching aim of the forecast, without ever wanting to sound flippant, is for our clients to run out of life before they run out of money - having lived their lives to the full along the way.
The building of your financial forecast is a collaborative process where we collectively 'cost up' your ideal life and agree the assumptions to be used: valuation of assets, growth rates, different scenarios that may happen at different points in time etc. The more input the client has, the greater the ownership of the information and the greater the belief in the model and the visual output.
Your plan won't be a list of investments. Instead, our software creates a pictorial representation of your life in financial terms, presented back you in one screen shot. You'll literally see when your life is 'in the black' (well, actually we use blue) – and if there are any points where any 'red' may need to be dealt with.
This one picture is worth ten thousand words and the impact is illuminating.
Clients come to us with many different scenarios: they may be close to retirement and need clarification on how they are to create an income from their investments and pensions. They may wish to plan the sale of their business and need help in understanding what price will support their ideal life. They may be already in retirement but need peace of mind that they are not going to run out of money when they need it the most. They may have an inheritance and want to know how best to use it to better their lives and those of their children. They may have money from a business sale. They may be at an earlier stage in their lives & careers and want to plan early so they 'get it right'. The list goes on of different scenarios that present themselves.
All these scenarios come with many questions and all can be answered using a combination of financial forecasting, an in-depth understanding of what our clients truly want, coupled with expert financial planning knowledge.
The process isn't complete until our clients can see that the future is full of possibilities and there is a plan. Often there will be financial decisions that need to be made to make the plan happen, and we work with you and help you to make the right decisions - for you - that get you closer to your dream.
For us this takes as long as it takes; you can't rush a masterpiece. Or climb a mountain in your lunch break.
Step 4 – Making it happen
Having an agreed plan is one thing: making it happen and come to fruition is another. Successful financial planning is not a one-off event but a long-term process that, in reality, never stops evolving. A financial plan left on a shelf, never reviewed, nor put into action is just a waste of a document, gathering dust.
Making the plan happen needs discipline, like a diet or a fitness training programme. Any instant fix is not a financial plan, it's a Lottery ticket - with a very slim 45 million to 1 chance of winning.
This is financial planning, the Magus way.
There are many trials and tribulations to be encountered on the way to a client's ideal life. I call these meteorites and they come in all shapes and sizes. Some we can control but most are completely out of our hands. Meteorites we can't control include stock markets, the tax environment and Government decision-making, so we need to have a coping mechanism that enables us to ride the lows and highs of irritations beyond our control. The things we can control we need to grasp with both hands and use to our advantage - and this is the plan. It may need tweaks around the edges, but if it is sufficiently robust these changes will not be devastating.
We all need help to achieve our goals: life and financial goals are no different. Our help for clients comes in many shapes - as a coach, a confidante, a sounding board, a calm voice, a private space to explore your options etc. You need someone next to you who truly understands you and where you are headed; to keep you disciplined and keep you on target in times when the rest of the world seems to have gone mad. Just to be there.
As part of your plan, regular updates are needed. To check progress. To ensure you're on track. To reassure and revise if necessary. A good coach never abandons you in your pursuit for that ideal life. We don't either.