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Holistic Advice: They Might Not Want It But They Need It

By Mark DiGiovanni, CFP

When the topic of this month’s discussion, the case for “scaled” vs. “holistic” advice, was first presented, my first response was “Huh?”  I ran to Google to find out exactly what I was expected to write. I learned the difference between scaled and holistic advice from Australian, Chris Nothling:

Scaled advice is advice about one area of an investor’s needs, such as insurance, or about a limited range of issues. This contrasts to so-called “holistic advice” which is the traditional advice model offered by many financial advisers.”

A Worldwide Issue

My Google search made me think that maybe I am an ignorant, detached American and that the world, including the financial planning world, is far larger than the borders of my own country. This debate about scaled vs. holistic advice is quite a big issue in Australia at the moment. Only about 20% of Australians seek the help of a financial planner. The reasons vary, but the government believes that one of the reasons is that many people don’t feel they should receive (or pay for) holistic advice if they only have questions in a specific area, such as life insurance.

From the Australian Government’s Treasury Department’s web site: “The Government will also take steps to facilitate the expansion of limited or ‘scaled’ advice both within and outside of superannuation.”  The Australian government is hoping to get more people to seek financial advice by enabling them to pay for it piecemeal. (I also learned that superannuation is Australian for retirement.  My veil of ignorance is slowly lifting.)

Financial Evolution Led Us to Holistic Advice

I can’t speak for Australia, but in the United States, government involvement is almost always a mixed blessing, at best. They act with good intentions – you know, the substance used to pave the road to Hell. The government’s desire to have more people served by financial planners may give the public what they want, but what they want is rarely what they need.

Financial planning, as CERTIFIED FINANCIAL PLANNER professionals practice it, evolved because people were only receiving scaled advice. They received insurance advice from an insurance salesman, investment advice from a stockbroker, estate planning advice from an attorney, tax advice from an accountant, and retirement advice from the firm of Grandma and Grandpa. If the individual did manage to reach their goals, the course they took was likely zigzagged and dotted with U-turns.

As often as not, the ship crashed on the rocks long before ever reaching that goal. The ship crashed because, while there were many specialists handling specific areas of the ship, there was no one on the bridge who could guide the vessel through dangerous waters. There was a time when scaled advice by experts in those areas was the only advice you could get. The shortcomings of that system led to the creation of an entirely new profession, the one you and I practice today.

Doctors Diagnose and Cure, Just like Financial Planners

We might look to another profession for some guidance on this issue. Doctors basically perform two duties – they diagnose illness, and they cure illness. If they have limitations imposed on them by the patient or by the government on the level of effort expended on the diagnosis, they will refuse to treat the patient. Imagine this scenario – I am having a problem with my lower back, so I go see my doctor. Before he begins the exam, I tell him, “Listen, Doc – I got this pain in my lower back. It hurts really badly, and I want you to fix it, but there are some limitations. You can’t charge me more than $200; you can’t ask any questions about my other medical problems, and you can’t examine anything below the waist.” I would get neither a diagnosis nor a cure because a good doctor would cease the exam right then and there.

A financial planner’s duties are similar to that of a doctor’s. We diagnose a financial illness, and we attempt to cure that illness. We understand that sometimes our diagnosis will not be accepted, which means that a cure will not be implemented. We also understand that sometimes the diagnosis is accepted, but the client refuses to take the cure. Like doctors, we must accept that not everyone will accept and follow our advice. What we must never accept is any attempt to limit our ability to properly diagnose the client’s total financial condition. In our profession, treatment is always “scaled” by the client’s willingness and ability to enact the cures we propose. Our diagnosis should never be “scaled” simply because some may find us more appealing. A scaled diagnosis dis-serves everyone.

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