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Comprehensive Planning Versus Focused Advice: It’s Not the Financial Planner’s Choice

Korean Financial Planning Professional Sunho KimBy Sunho Kim, CFP

The FPA and Ameriprise Financial conducted a survey of 3,022 people, in 2008, comparing the satisfaction of consumers who had received comprehensive financial planning or scaled advice. The survey focused on the way clients felt after working with a financial planner and asked questions about their peace of mind, their financial ability to achieve their life dreams and goals, and their readiness for retirement.

The results were:

Comprehensive Financial Planning

Scaled Advice

Able to keep peace of mind and not lose sleep

81%

73%

Ready financially to achieve their life dreams and goals

75%

61%

Well prepared for retirement

78%

60%

As it had been anticipated, the clients who had received comprehensive planning were far better prepared, financially, for their life dreams and goals, including retirement, with more peace of mind than those who had received scaled advice.

The variance of impact on a clients’ life between comprehensive planning and scaled advice was also evident in a Canadian survey. In 2010, FPSC or the Financial Planning Standards Council asked 6,890 people about the value of financial planning. The results were:

Comprehensive Financial Planning

Scaled Advice

Had peace of mind

61%

48%

Enjoying their retirement in the manner they wanted to

41%

27%

Just as in the U.S survey, it was verified that comprehensive planning provided clients better value than scaled advice programs.

However, just because comprehensive financial planning provides more value to clients, does not mean that a financial planner must prioritize comprehensive planning before scaled advice. This is because comprehensive planning will incur more cost on the client. This cost increase means not only the addition of fees and time but also the causes the client to process more complex information.

The Art of Choosing

For example, imagine a client asks a financial planner to help them with their educational fund planning, so they can secure an educational budget for their children. Then, the financial planner tells the client, “For the sake of appropriate planning, we will have to do additional planning for all other scopes of holistic planning, such as risk, investment, estate, and retirement planning.” While some clients may be able to enjoy the better benefits of holistic financial planning, others may become overwhelmed with all this planning and give up completely. As Sheena Iyengar explains in her book, The Art of Choosing, we may be able to make a wiser choice if given more options, but being faced with choices beyond a certain level (7±2), can adversely lead one to give up choosing.

The most important ethical principle for financial planners is to prioritize the clients’ interest above everything else. Comprehensive or scaled is not a decision to be made by the financial planner, but by the clients. The relationship between a financial planner and a client lasts over years, to say the least, or it can even get extended to a client’s descendants. It may seem unfortunate to the planner to provide scaled advice but if they succeed in continuing a long relationship with their client, they may be able to slowly replace scaled advice with holistic planning.

Another variable to consider in the debate of comprehensive versus scaled financial planning is the people who haven’t received financial planning services. Those who do financial planning on their own tend to have a lower level of financial wellbeing than scaled service clients. The US and Canadian surveys also showed a comparison of self planners to people who received scaled advice. Here are the results:

Scaled Advice

Self Planner

Well prepared for retirement

60%

46%

Enjoying their retirement in the manner they wanted to

27%

13%

To conclude, let’s not focus on the difference between comprehensive planning and scaled advice. The two are just a choice that should be made by the clients. Instead, let’s focus on spreading financial planning to people who have never experienced it. This will create the most value of all.

1 comment to Comprehensive Planning Versus Focused Advice: It’s Not the Financial Planner’s Choice

  • Yes, the concluding part what you expressed is the need of the hour what we all need to concentrate according to client’s need and our focus should be on spreading financial planning literacy.

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