I believe that successfully growing wealth over the long term is more about the financial planning process than just the actual investment selections.
That is why I preach a holistic approach to wealth management. Know who you are as an investor (i.e., Investor Profile). Build a written, comprehensive Investment Policy Statement reflecting your unique situation.
Financial success is more than just investing alone.
In fact, investment selection is a relatively minor factor. Diversification, asset allocation, cost minimization, taxes, cash flow considerations, investment objectives, personal constraints, time horizon, investment patterns, compound returns – all the things we have looked at in this blog are extremely important in building wealth.
Focus on the big picture and I believe that your probability of success and comfort level will improve. And it is not just me that thinks this.
Individuals who utilize comprehensive financial planning think so too.
Comprehensive Financial Planning
Canada’s Financial Planning Standards Council (FPSC) periodically conducts a Value of Financial Planning survey. The study analyzes the value of comprehensive financial planning for individuals.
the study defined ‘comprehensive, integrated financial planning’ as that in which one’s main financial advisor has provided financial planning for major life goals and events, or at least three of the following planning components: household budgeting, tax, retirement, estate planning, investing, debt or risk management.
Comprehensive financial planning takes a wide ranging approach to wealth management. Cash management, tax planning, investment approach, estate planning, insurance, etc., are just as important as asset selection.
Unsurprisingly, the survey found that a comprehensive approach provides value to individuals.
Value of Financial Planning
76% of respondents who deal with a CFP professional reported feeling more “on track” with their financial affairs, compared with 63% of those dealing with a non-certified advisor and 35% for those without an advisor.
51% of respondents who deal with a CFP professional feel on track to reach their desired lifestyle in retirement, as compared with only 36% for clients with a non-certified advisor and 38% for those without an advisor.
61% of those individuals dealing with a CFP professional feel they have peace of mind, as compared with only 51% of those with a non-certified advisor and only 36% for those without an advisor.
48% of individuals dealing with a CFP professional said they feel closer to their goal of not having to worry about money, as compared with 35% of clients with a non-certified advisor.
66% of those dealing with a CFP professional feel closer to taking the maximum advantage of all tax reduction opportunities, as compared with 53% of those working with a non-certified advisor and 29% of those without an advisor.
57% of clients with CFP professionals said they feel closer to meeting the goal of ensuring there is enough to pay for post secondary education for their children, as compared with 40% of those with a non-certified advisor and 19% without an advisor.
First, a caveat. I am a member of the FPSC and a Canadian CFP professional. It is in the best interest of the FPSC (and me) to show that hiring a professional financial planner can add value to clients.
But I agree with the results regardless of the motivation for the survey. I believe that a competent financial professional can improve the probability of success for client wealth accumulation. Also, a financial professional can make clients more comfortable about the process and the inevitable ups and downs along the way.
Of course, not all financial professionals are created equal. Before hiring a financial professional, conduct due diligence to ensure the person is a good match for your unique needs. In general expertise, specific expertise for any areas of focus, personality, and in his/her approach to financial planning.
For example, if you are a young family with life insurance requirements, make sure the professional you select understands insurance. If you are involved in tax optimization strategies, your professional should be tax competent. And if you are engaged in complex investing tactics, a professional with strong investment expertise should be sought.
Utilizing a financial planning professional can improve your wealth management efficiency and effectiveness. But I also realize that many individuals will continue to do their own thing.
A large part of this blog aims to strengthen your understanding of the wealth building process. So if you do not want to spend money on a financial planner, I hope that you will consider some of the advice from my posts. If you do, you will better comprehend wealth management and should strengthen your confidence in the process.