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 uptrodden@aol.com)
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