Sunday, February 8, 2015

Modular vs Comprehensive Personal Financial Planning

Recently a planner made the case for 'incremental' modular planning. Inherent in the concept of modular planning is a false premise... Here are my thoughts...

Modular vs Comprehensive Personal Financial Planning

            The premise of modular financial planning is the thick by the pound comprehensive plan is not only daunting but doesn’t lead to execution. And to add to this, I might add, an inch is a cinch a yard is hard.
            However, the argument for modular planning which sequentially adds up to a comprehensive plan in increments bifurcates planning and goes against the fundamental premise of personal financial planning – of coordinating the moving parts such that one doesn’t solve one problem in isolation and creates two others (or more).
            In fact, in the past, modular planning was just spin and a re-characterization of a package sale by those in ‘financial services.’
            There is a third way – which also has the benefit of increased continuity –institutional memory of the planner and client as planners and clients move on, pass on – as the thick unintelligible plans become ignored leaving no easy trail to follow other than the shredder.

            In applying to personal financial planning,  Managing by Objectives (something 99% of planners and 100% of those teaching planners mistakenly do not include in their curricula) rather than setting the plan in just beautiful prose, creates a repetitive form – which follows a process – objective by objective. Thus, once the client goes through one objective – he or she becomes more and more familiar of ‘the thinking’ behind each objective - can easily find the answers he is looking for following  the same process for the next prioritized (or not) objective etc.
            The beauty of this approach is it not only provides an easy to follow trail of thought by each personal financial planning objective, it also cuts down on the voluminous plans which are often are just validation by size (i.e. like the old Gaines Dog Food Commercial –‘My Dog Is Bigger Than Your Dog’). (If need be to justify fee or AUM by volume – attach an appendix per each objective).

            An excerpted example – copyrighted – is attached which I employed versions of as far back as 1977 when I was a in practice as a fee only personal financial planning employing the ENOUGH(sm) process incorporating a managing by objectives approach. Of course, one can change the measures used –i.e. % probability under monte carlo etc etc in the income replacement upon disability example attached or any other objective. For those sticklers arguing over which measure etc – play the music not the note or you wind up as Warren Beatty said in Shampoo, ‘I cut so much hair, I lost my concept.’
            In the form example provided – each objective is no more than 5 pages and again the process is repetitive in presentation – which allows both planner and client to more easily track the objective.. Another benefit, by managing by personal financial objective orientation (managing goals)– this changes the model away from managing assets (external comparison to indexes etc) and back to the client’s goals. Again personal financial planning – is about managing & achieving goals – not a Trojan horse for  managing assets under management.
            Thus, with this approach, comprehensive (the ((not if)) fundamental coordinated tenet of personal financial planning) is not sacrificed in the name of modular (err renamed package sale which is not planning). Furthermore, this form can be updated and used objective by objective for the quarterly and annual meetings – becoming more and more familiar and utilizable by the client in tracking. In addition, this form – or a similar form – allows the client to manage the planner while increasing the probability of institutional memory such that if the planner leaves practice the successor planner is not having to start from scratch.

(form sent upon request to to

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