ACP Insights is a webinar series that features ACP member advisors. The series provides a platform for members to share their ACP experiences with prospective members and other interested parties. We hope that hearing from our members will help you decide if the ACP methodology of fee-only comprehensive planning is right for you.
In a recent episode, we spoke with ACP-certified advisor Kenneth Robinson, the president of Practical Financial Planning, who has been an ACP member for over 20 years.
We discussed how consumers often find it frustrating to coordinate the various aspects of their finances and how financial planners can stand shoulder to shoulder with clients at the center of their financial lives and deliver top-quality advice.
Read on for more advice about how holistic financial planning can benefit clients and advisors and why it’s such an essential tenet to ACP.
What is Financial Planning?
With its origins in the 60s and 70s, modern financial planning is a relatively new profession. In part due to the relatively young age of the profession, there are sometimes disagreements about what financial planning is and how it should work.
Typical financial planning models include the purchasing decision model, the asset management model, the limited project model, and the holistic financial planning model. While each of these plans contains beneficial elements, at ACP we believe that holistic financial planning is often the most helpful strategy when considered from the client’s point of view.
Rather than getting financial advice from various individual providers, clients with a holistic financial planner get comprehensive advice on topics including tax planning, investments, insurance, and more.
ACP provides its advisors with the training, tools, and community to create a comprehensive practice that offers more value for the client and the advisor. Comprehensive financial planning is an important differentiator, which is why ACP values it so highly.
Let’s look at each purchasing model to see how they differ from a holistic approach.
The Purchasing Decision Model
- No big-picture approach
- Fails to answer client’s most essential questions
The purchasing decision model directs clients to different providers depending on their needs at any given time.
For example, a client might go to a tax planning specialist for help with their taxes, an investment advisor for assistance with saving for retirement, and an insurance planner to obtain adequate insurance coverage. Because this model doesn’t consider the big picture of the client’s life, it’s easy to miss information and make decisions that don’t ultimately benefit the client.
Not only does the purchasing decision model fail to take a big-picture approach, it also struggles to deal with problems for which there are no product-oriented solutions. For example, an insurance planner might promote whole life insurance as a strategy for college planning, even though it might not ultimately be the best tool for the job.
One of ACP’s founders, Bert Whitehead, said, “If the only tool in your box is a hammer, everything starts to look like a nail.” The problem becomes two-fold: the client doesn’t know the best way to solve the problem, and a piecemeal strategy full of different professionals selling different products will likely not offer the most lucrative solutions.
Ultimately, the purchasing decision fails to answer the client’s most important questions:
- Is this what’s best for me?
- Is all of this really working?
- Have I missed something important?
Professionals focused on a transactional model related to the product, or individual service they provide may not be able to answer these higher-level questions or refer them to a different professional for advice.
ACP takes a different approach. The ACP model starts with something simple yet powerful: the client’s questions. One question can tailspin into another, so what began as a question about their 401(k) could reveal underlying spending issues, a lack of proper insurance coverage, or the deep need for an estate plan.
ACP provides advisors with meeting templates, questions, and tools to address these more central interconnected questions.
The Asset Management Model
- Exclusive focus on investments
- Ignores other vital areas of financial planning
- Misses crucial details about clients’ lives
The asset management model deals with an essential aspect of financial planning: assets and investments. However, it places an overemphasis on investing while ignoring other vital aspects of financial planning. For example, financial planners using the asset management model may not know how to help clients manage their spending, reduce their tax burden, or meet specific life goals.
The asset management model may also not be the best fit for clients in terms of cost. Asset managers often still charge high fees for the limited benefits of a single service and may also charge commissions.
Placing an exclusive focus on investments is often a recipe for missing crucial details about the client’s situation and may also encourage unrealistic expectations regarding investment performance. Overall, the asset management model excels at one particular aspect of financial planning but fails to provide a comprehensive approach.
The retainer-based model at ACP, on the other hand, doesn’t use unreliable benchmarks to set fee structures or parameters for advice. It offers the utmost security and flexibility for advisors to provide the level of service required in a comprehensive approach. Many of our ACP advisors come from other commission or AUM-based practices and discover first-hand the joy of practicing free of commissions and limitations.
The Limited Project Model
- Only deals with one specific problem at a time
- Client can be mistaken about their needs
- Financial planner may not be able to obtain a clear understanding of the client’s financial situation
While many clients come to a financial planner looking for wide-ranging advice, some may come to you with a singular issue. When a financial advisor deals with matters on a case-by-case basis depending on the client, this is sometimes known as the limited project model. It can make sense if a client truly does have just one distinct area of financial planning where they need help.
However, the trouble with the limited project model long-term is that the client typically doesn’t understand the scope of the work that is appropriate for their situation. They may think they only need advice for one area of financial planning, but they may actually need more assistance than they realize. Advisors have the expertise to determine exactly what the client needs, which may exceed the scope of a limited project.
The limited project model can also be prone to conflicts of interest between the planner and the client over cost. Because clients may be trying to limit expenses, advisors could face an uphill battle to obtain a complete picture of the client’s financial situation, problems, and goals.
Cost is a critical factor in the client/advisor relationship. The retainer-based model we use at ACP balances the service cost with the level of advice provided. Client’s don’t have to worry about questions that are “out of the project scope” or “added fees.” A retainer model allows open communication between the client and advisor, opening the door for deeper relationships and more holistic planning.
The Holistic Financial Planning Model
- Takes a comprehensive approach to financial planning
- Identifies gaps in a client’s financial plan
- Provides clients with knowledgeable, centralized guidance
Holistic financial planning takes a comprehensive approach to financial planning, covering many different areas to serve clients better. Holistic financial planners guide the client on what products to buy and what products to stop buying, and how to solve problems that don’t rely on products at all. Holistic financial planners are the only ones who genuinely share a client’s point of view.
Sometimes also referred to as comprehensive financial planning, holistic financial planning views the entirety of a client’s financial life rather than breaking it up into separate parts.
ACP teaches advisors to identify gaps in a client’s financial plan. For example, if they’re not adequately insured or have assets they’ve forgotten about, a holistic financial planner can identify these problems and provide actionable solutions.
Elements of a holistic financial plan include:
While not an element of all holistic financial plans, some other services often offered include:
- Tax preparation
- Mortgage review and analysis
- Education planning
- Pension, annuity, and rollover planning
- Record keeping guidance
- Small business consulting
License Requirements for the Holistic Financial Planner
Because holistic financial planning covers many different areas, you may need more than one license to provide different services. While licensing requirements vary depending on where you live and do business, you may need to obtain a license for:
- Investment advice
- Tax preparation or representation
- Insurance advice
You typically don’t need a license to provide legal guidance as a financial planner since you won’t draft legal documents or provide legal advice.
The ACP Success Program is designed to give advisors the education, tools, resources, and support they need to create a comprehensive financial planning practice.
Benefits of Holistic Financial Planning for Clients
Holistic financial planning has many benefits for clients. Rather than getting in touch with multiple professionals, clients can go to one advisor and feel confident that the focus is entirely on them. Because advisors know more about their client’s complete financial picture, worries, and goals, they can better create financial plans that meet their needs.
Clients get knowledgeable, centralized guidance rather than turning to multiple different professionals who are not in communication with one another. Holistic financial planning is better positioned to prevent future issues and ensure that clients reach their financial goals over time.
Benefits of Holistic Financial Planning for Advisors
Many advisors prefer holistic financial planning because of its focus on comprehensive planning and advice. This results in more appreciative clients who are genuinely aware of the added value you bring to their lives as advisors. As a holistic financial planner, you are deeply involved in many aspects of clients’ lives and serve as a trusted resource for any questions they might have. Holistic financial planning also gives advisors the ability to serve many more types of clients, such as those early in their careers.
Offering holistic financial planning services makes it easier for advisors to market their services as unique and results in fewer competitors. The future of financial planning is strong, with people growing more interested in a comprehensive approach that considers the details of their lives.
Holistic financial planning isn’t for everyone; some planners may want to have a niche focus, for example, on estate planning, tax planning, or investment planning. Holistic financial planning also requires a higher-touch approach and involves reaching clients emotionally, which not all advisors may be comfortable with. That said, holistic financial planning is a winning strategy for advisors who want to create truly comprehensive financial plans for their clients.
Why the ACP Method Works
If you’re interested in holistic financial planning, joining ACP can help you to grow your practice and better serve your clients. Prospective members have the opportunity to learn and apply the ACP system by becoming an associate member before becoming a certified member. Not only does ACP provide advice and resources for how to best advise clients, but it also provides helpful information about how to set up and maintain your practice.
If you’re interested in joining ACP, schedule a call with us today to learn more!