The Informed Investor

The Benefits of Comprehensive Financial Advice

When you are looking to buy a suit or a dress for a special event, you will encounter many options. You will likely whittle down your choices by asking yourself some questions. Is the event formal, semi-formal, or casual? Is there a particular theme? Are bright colors appropriate? Will the weather be a factor in your decision? And once you've purchased your suit or dress, you may have to go to a tailor to have it properly fitted. They will rework the fabric to fit your specific measurements.

This same kind of care and attention goes into delivering comprehensive financial advice. A one-size-fits-all financial strategy for everyone does not exist. People are complicated, with different circumstances, goals, aspirations, financial situations, etc. A business owner might also be a parent, an avid mountain climber, and a marathon racer. That same person might have inherited a large sum of money or have a modest nest egg and a good deal of debt.

Since everyone has a unique financial story, financial advisors must consider as much relevant financial information as possible when offering advice. For advice to be truly comprehensive, the advisor must consider many different paths their client could take to achieve a successful financial future. A comprehensive financial plan consists of not only general financial planning but may include investment planning, banking, insurance, and estate planning, depending on the advisor's expertise. The financial advisor could facilitate some of these areas, or they could recommend trusted experts.

Why is Comprehensive Financial Advice Important

Why is it important for financial advice to be comprehensive? At its core, comprehensive financial planning is about goal achievement. We all have different monetary-related goals, and a holistic financial strategy can help us obtain those goals. A comprehensive financial approach gives investors a direction—a path to follow when making decisions.

Comprehensive financial advice takes the investor's "big picture" into account. A person's big picture could include kids in college, a new home, plans to retire in Florida, or lingering credit card debt. Holistic advice aligns financial planning with a comprehensive investment strategy. As a long-time financial advisor, I believe comprehensive advice is foundational to smart investing. But how does this happen from a logistical standpoint? How do financial advisors organize the information they need to build a logical, customized plan for their clients?

How Financial Advisors Do Comprehensive Financial Planning

To provide comprehensive financial advice and holistic planning, a financial advisor must be a detective. It's vital to ask dozens of questions and ask the right questions. When I work with a new client, I start the process by asking about their goals. Client goals are the crux of each comprehensive financial plan. An advisor might develop a sensible financial plan for a client, but it's ultimately useless if it doesn't match their goals. A person's investment approach will change if they're aiming for early retirement, hoping to buy a multi-million-dollar mansion, or planning on selling their home and living in a recreational vehicle. In addition, a person’s goals might change over time. Responsible financial advisors will periodically check in on their clients’ goals and work with them to adjust their strategy accordingly. 

After learning the clients’ goals, the next step is the diagnostic meeting. The diagnostic meeting is a lengthy process during which the advisors ask a series of questions to determine the client’s unique financial situation. These questions typically fall into seven areas:

  1. Financial Statement Preparation and Analysis
  2. Insurance Planning and Risk Management
  3. Employee Benefits Planning 
  4. Investment Planning
  5. Income Tax Planning
  6. Retirement Planning
  7. Estate Planning

Certified Financial Planner™ (CFP®) typically ask questions related to one or more of these seven categories. For instance, a person may need retirement planning but have little use for estate planning. That doesn't mean this individual will never require estate planning services, but these services can be put on the back burner for a while or be considered "long-term concerns."

During this process, the advisor will likely ask dozens—maybe even a hundred or more—questions and collect volumes of data from the client. While this process may seem lengthy and complicated to the average investor, a CFP® should have no trouble making personal recommendations based on the data collected.

The information collected from the clients regarding their assets and liabilities—and projected assets and liabilities— is essentially a balance sheet. A financial advisor is a balance sheet steward. A good steward will have a broad and deep understanding of a client’s balance sheet and make recommendations accordingly. A less skilled steward will overlook or ignore certain areas of the balance sheet and make recommendations that do not necessarily serve the client.

 If a client works with a financial advisor who asks minimal questions, glosses over certain financial areas, or neglects to ask about client goals— those are major red flags. As a consumer, be wary. Make sure your financial advisor sets up a diagnostic meeting to discuss your financial situation and goals in depth. And, once the advisor produces a financial plan (or plans, preferably), make sure it is comprehensive and aligns with your current situation and aspirations. 

A Comprehensive Investment Plan

When a financial advisor creates an investment strategy for a client based on comprehensive, thorough data-gathering, the plan will likely be more accurate. The advisor has considered many variables, conducted detailed research, and applied their findings to financial best practices. Comprehensive advice informs a comprehensive investment strategy for the client. A comprehensive plan will likely involve a diversified portfolio to avoid placing all the investor’s proverbial eggs in the same basket.

Most of my clients understand the wisdom of pursuing a comprehensive investment strategy. However, not everyone is patient or prudent. Years ago, I worked with a young client who had made it big during the dot-com era. He had invested in tech stocks and made $5 million. Many would envy this person’s position. He could have been set for life with a prudent and comprehensive investment strategy. However, the client was not enamored with pursuing the comprehensive investment route. He invested nearly all his money in real estate. Not only that, but he also secured another $5 million from a bank in the form of a loan.

There's an axiom in the investing world: "The only way a wealthy person can become poor is through leverage." In other words, taking on unnecessary debt can be risky and, ultimately, costly. That was the case for my young real estate-investing client. The client bought land in Arizona and began developing housing right before the housing market went belly up. He ended up losing almost everything due to three critical mistakes:

  1. He funneled all his assets into one asset class
  2. He funneled all his assets into one deal
  3. He relied on leverage (debt) for his investing endeavors

His strategy was not comprehensive, but narrowly focused. These unwise choices were catastrophic for the young investor, and he returned to me for advice with his tail between his legs.

The lesson is that it can pays to approach wealth planning holistically and prudently. A trustworthy financial advisor won't tell a client to "Bet all your money on red." Instead, they would take time to gain a deep understanding of the client's financial situation, make comprehensive recommendations based on their assessment, and create a comprehensive investment strategy to make that advice actionable.   


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The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.