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Strategic Financial Planning: The Critical Role of the General Practitioner

Joel Redmond, CFPBy Joel Redmond, CFP

Many think that simply being a CFP practitioner confers the ability to give comprehensive financial advice for all clients. The reality, however, is quite different. CFP practitioners are generally able to provide strategic comprehensive advice, but rarely can they offer full-scale planning in all practice areas of the CFP curriculum simultaneously.

One of the fundamental challenges of financial planning is that, like so many other disciplines, it is the art of approximation.

According to a 2004 CFP Board job study, candidates for CFP certification were given a course of study, covering 89 different job areas for practicing financial planners. The challenge for candidates and practitioners alike occurs when the question arises that all serious students must at one time ask themselves: what do I specialize in?

This question has serious ramifications, because it helps define the difference between modular planning and comprehensive planning. Modular planning typically means focusing on one or more specific area(s) of a client’s financial life; comprehensive planning focuses on every major aspect of a client’s financial life.

Instead of looking at all 89 areas that the curriculum covers, let’s look at the six major areas of study (not counting the newer ethics requirement). They are:

  1. Financial planning
  2. Insurance and risk management
  3. Investment planning
  4. Tax planning
  5. Retirement planning
  6. Estate planning

Situation Analysis in Financial Planning

One thing that stands out here is that each sub-segment itself has additional sub-segments! Financial planning, for example, touches on financial statements, but it also covers education planning, divorce planning, and other special situation planning. What do the people focusing on this sub-segment do? Well, they do everything from work at credit card companies, to underwrite mortgage loans, to help high school students and their families with college planning.

Perhaps a little simplification is in order. If we start with the conclusion that the CFP designation addresses the major problems that clients have, we can state them simply as:

  1. Financial planning – “I’m uncomfortable with my financial position and cash flows, or I have a special situation.”
  2. Insurance planning – “I’m concerned about managing my risk of death, disability, ill health, or professional liability.”
  3. Investment planning – “I want to make more money and lose less money.”
  4. Tax planning – “I want to give the government as little money as possible.”
  5. Retirement planning – “I want to make sure I never outlive my money.”
  6. Estate planning – “I want to make sure my money passes where I want, how I want, in life and in death.”

Each of these problems can have dozens of other problems behind it. For example, looking at the first problem, additional supporting problems might be:

  • “The interest rate on my mortgage is too high.”
  • “I pay high finance charges on my credit cards.”
  • “I don’t have an adequate emergency fund.”

Specialized Finance Creates Opportunities and Danger

When we evaluate the other five sub-segments and consider all the additional avenues these problems can lead us down, a sea of opportunity for specialization presents itself. For example, technical analysis is an aspect of investment planning that has a devoted following. This could solve one client’s problem with losing money in bear markets. Some retirement planning advisors focus exclusively on stock options and corporate executive benefits. This could solve a concentrated stock problem. High-end estate advisors may simply focus on one or two types of complex trust. This could solve an estate tax problem. These special areas of focus create two phenomena: opportunity and danger.

Opportunity arises because one practitioner may have tremendous knowledge of a particular sub-segment, and this specialized knowledge can lead to very satisfied client advocates. Danger arises, however, when planners try to be something they’re not. Not every CFP practitioner is an M&A attorney, or a business valuation accountant, or a fundamental analyst, or an investment banker. A question arises here. If you can’t be all things to all people, why bother with financial planning in the first place? Can’t any problem just be solved by a specialist anyway?

The answer is no; the reason is strategic perspective. Specialists speak the language of tactics – specific courses of action designed to help clients solve a problem. This is modular planning. But all CFP practitioners need to speak the language of strategy – the overall method of attack designed to help clients change the ultimate direction of their finances. This is comprehensive planning. The CFP practitioner is uniquely qualified to do this very thing; they can confirm, modify, or design strategy, all with the aim of helping clients change their overall financial lives. Tactics win battles for the client; but strategy wins them the war.

Read Joel’s Other Blogs

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