By R. J. Kelly
Comprehensive financial planning involves working with, and potentially overhauling, every aspect of a client’s financial life. I have found that breaking this process up into what we call the “4+1” model makes this process easier on clients (and myself!).
I covered three parts of that model (estate planning, investments and insurance) in Part 1 of this two-part article series.
In Part 2, we will explore the remaining two parts of the “4+1” model, retirement and legacy/philanthropy, along with how to make changes to comprehensive financial plans already in place.
The Final Two Pieces
Retirement. Specifics are vitally important to achieving comprehensive planning, and effective retirement planning requires that advisors get very specific. When addressing this topic, the “Four How Questions” will help you get the specific information you need:
1) “How soon” is the client planning to retire? They never know the answer, but as close to the month and year as they can get is the answer you are looking for.
2) Exactly “how much” income will they need starting then – gross or net of taxes? Clients typically do not know this right away either, but you can work with them to identify a target figure.
3) “How long” will they live in retirement? I carry a two-page handout from Horsesmouth called “Key Financial Data,” which shows, among other things, that the expected halfway point before death for 70-year-olds today is age 97.4! Women do tend to live longer than men, but most people will live to be far older than they currently expect. This means insurance and investments must last a much longer period than many are planning for.
4) “How many” asset buckets will they have to draw from? And how much will come from “taxable income buckets” as opposed to “tax-free income buckets” such as a hybrid, investment-grade life insurance contract?
Most clients base their retirement plans on what their parents and grandparents modeled for them, without considering how drastically life has changed since then. Zeroing in on the “Four How Questions” helps create a plan that disturbs a client’s passivity. It also reinforces why they need to work with a professional like you that “gets into the weeds” and presses them for answers they have not had to come up with before!
Legacy & Philanthropy
This is the area that truly few advisors venture into with a client or prospect. Ask them what legacy they wish to leave behind. What difference do they want to have made in the lives of their children – and their community?
For some, a financial legacy means ensuring a successful transfer of wealth to the next generation(s). To another, it is helping create or sustain a worthy cause. To still others, it could mean ensuring they can create memories with loved ones while they are still alive.
Your client’s answer dictates how their financial plan should contribute to that legacy and drive the options you recommend your clients explore, such as taking advantage of various tools, techniques, and strategies – which include certain tax-exempt or tax-deferred strategies and philanthropic vehicles.
This is another area where knowledge of federal and state tax laws can set your firm apart in your clients’ minds.
Changes To A Comprehensive Plan
Comprehensive financial plans are living documents that need frequent amendments or additions. They do not “raise themselves alone” very well. I tell clients that comprehensive planning is “a progressive revelation.” And that is why over 91% of our clients review their plans with us every year – or every other year – because their business and personal lives and the law keep changing over time.
Potential amendments to the plan come from both internal and external changes. Internal changes can be a marriage, divorce or sale of major assets. They can also include changes in your client’s view of their legacy. External changes can include recessions or changes in tax and social policies. As we have seen over the past year, health crises can also have a massive impact on a client’s finances.
Once these “four legs and tabletop” – the ones covered in this article and in Part 1 – are planned for, you can begin addressing other important issues such as business exit planning, asset protection strategies, buy-sell agreements, and funding with insurance, etc. As I often say – “sit, stand, walk, run.” It is about incremental change and breaking things down to these “manageable bites” – both for the clients and for us the planners.
By crafting comprehensive financial plans instead of addressing topics haphazardly, advisors will better secure the financial futures for their clients and their clients’ heirs. Not only does this approach provide better results for clients, it also sets apart the advisors from their competitors in skillsets and increases client loyalty.
About the Author
R. J. Kelly, ChFC, CLU, IAR, RICP, CAP, MSFS, AEP, CEPA is the Founder and Chief Visionary Officer of Wealth Legacy Group®, Inc. in San Diego, California, a company specializing in the diverse needs of closely held business and professional families. He is a 40+ year member of the Million Dollar Round Table, and credits much of his business and personal success to the extraordinary members – dedicated staff – and visionary leaders of that organization. Find out more at www.mdrt.org