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How To Write Effective Financial Plans

Korean Financial Planning Professional Sunho KimBy Sunho Kim, CFP

A financial plan is the main outcome of a CFP professional‘s services. CFP professionals pay attention to the financial plan’s quality and quantity, to ensure their value is recognized by the client.Some plans end up being the size of a small book, having tables, figures, statistics, references, and appendices in them.

This often leads one to wonder if CFP professionals have the wrong idea: should they measure their value by the thickness of their financial plan? The final plan might even require an executive summary in the front, which will add even more pages to the plan. This vicious cycle reminds me of a book: Deena Katz on Practice Management, written by Professor Deena Katz, CFP at Texas Tech University.

Deena Katz, CFP: Advice on Financial Plans

Professor Katz gave a lecture at a financial planning conference in Korea, in 2008, where she told the story of her first financial plan.

“My first financial plan was 103 pages. I figured it was my responsibility to tell the client everything about herself and her financial life that I could. My client looked at the plan, flipped through it and exclaimed, ‘Oh my goodness, you published!’ It took me fifteen years and many more clients to realize that a financial plan is not for the client, it’s for me.”

Financial planners should learn from Professor Katz’s epiphany and create financial plans that are tailored for their clients, meaning the plan should be concise and simple to follow. This is not an original idea. In fact, Kelly Johnson, lead engineer at Lockheed Skunk Works, made the expression “Keep it Simple, Stupid!” famous by calling it the KISS rule.

Making a plan simpler does not mean an across-the-board reduction of content. A good, simple plan should only include the essential information needed to solve the client’s problem(s). To write such a plan, we need to employ the Talking Stick and Grandma Test principles.

The Talking Stick Method

The Talking Stick method was developed by Stephen R. Covey (who passed away in July this year) in his book, The Eighth Habit: From Effectiveness to Greatness:

“Whenever Native Americans meet together, the Talking Stick is present. Only the person holding the Talking Stick is permitted to speak. As long as you have the Talking Stick, you alone may speak, until you are satisfied that you are understood. Others are not permitted to make their own points, argue, agree or disagree. All they may do is attempt to understand you and then articulate that understanding. They may need to restate your point to make sure you feel understood, or you may just simply feel that they understand. As soon as you feel understood, it is your obligation to pass the Talking Stick to the next person and then to work to make him feel understood.”

When a CFP professional sits down with clients, they need to let the clients speak, as if they are holding the Talking Stick, until they feel satisfied that they are understood, and the CFP professional needs to work to make them feel understood.

The Grandma Test

The Grandma Test was introduced by Scott West and Mitch Anthony in their book, Storyselling for Financial Advisors:

“Are your explanations of investing concepts simple enough that any grandmother out there would understand the principle or idea you’re talking about? If not, it’s not Grandma’s problem — it’s your problem. Until you learn to simplify by saying, ‘It’s kind of like…’ you’re going to find yourself explaining matters over and over and being met with perplexed stares.”

When a CFP professional uses the Talking Stick method and the Grandma Test during the financial planning process, the thickness of their financial plan will no longer be an issue. The best financial planning professionals are not simply knowledge experts but they are experts who can effectively communicate their knowledge to clients. So, if you are guilty of obsessing over the perfect financial plan that is full of unnecessary information, stop. Planners need to lend their full attention to clients and explain solutions in simple terms that anyone can understand. When these two conditions are met, both you and your clients will be more satisfied.

4 comments to How To Write Effective Financial Plans

  • Taylor Liao

    Mr. Kim, I like your article. It’s a interesting warning to all of us”financial plan is not for the client, it’s for me.”

    Taylor Liao, CFP Taiwan(jose.b123@gmail.com)

  • Right on the mark Sunho. If a financial plan document is not effective communication it is simply not good enough.

    But we should remember that while the document is a very important landmark, it is not the ‘main outcome’.

    The main outcome is the successful achievement over time of the client’s financial and lifestyle goals.

  • Badrish

    Dear Kim,

    Its worth making note of these ideas.Especially when we use software and other old way communicating with endless pages of report.

    Kim i would like to reiterate on one single point.

    Ideas followed by actions must be articulated clearly.

    Diagrams and other statistical analysis would put client under tremendous stress. It must help help in taking decision which is worth while.

    Generally clients perception about financial planning reports hinges on Fees Paid V/S Number of pages of report given to him.

    Thanks Hope some these observations would benefit our fellow planners.

  • I agree.The plan should be brief, understandable and easy to follow.There is no point making it voluminous.

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