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The world of wealth management

A new trend in financial plann

This holistic approach that many are now promoting is termed Life Planning.

Probably the leading protagonist of this is George Kinder, founder of the Kinder Institute of Life Planning in the US. Kinder’s view is that financial planning cannot begin until life planning has been completed.

Life planning is a process which recognises that people often start planning their finances before they have actually given any thought to what they want to achieve from their lives.

To illustrate this, George Kinder (1) recently gave the example of a client who came to see him. The client was very excited that he had found a building in Boston that he wished to buy, which would not only serve as his home, but also provide office space for him and his wife. 

The financial planning implications of this option were that the client would need to take on a big mortgage, and work harder, in order to be able to afford the building.

Kinder took the client through a process of life planning in which he was able to establish that the client’s key desire at that stage was to spend more time with his six-year old son. In order for this goal to be achieved, buying the building would have been a terrible decision.

Ultimately Kinder and the client were able to agree on a plan that freed up a significant amount of time for the client. The building did not feature in this plan.

Kinder’s point is that a pure financial planning approach to a client’s needs may result in decisions that are actually inappropriate for the client’s life.

Consequently Kinder encourages financial professionals to explore a client’s life vision before even getting into the detail of financial or wealth planning. 

The challenge that Kinder present is interesting from two perspectives.

Firstly, how do financial professionals make a life planning approach economically viable? Do they charge clients the same fee for the life planning part of the process as they do for the financial planning part?

Secondly, the type of exploration that Kinder encourages mean that the financial professional will start talking about personal issues for which they may not be qualified.

As Bob Veres(2), a leading commentator on the financial planning profession in the US, recently observed that the life planning approach help people articulate and then make progress on their most cherished goals and objectives.

But there are always obstacles to the achievement of these goals, and as Veres says, “Where the obstacles to success (however that is defined by the client) are financial, financial planners or wealth managers are uniquely qualified to help people navigate through obstacles they never could on their own: the incredible complexities of the business and financial environment.”

But Veres highlights that “advisers are discovering a new set of obstacles in their real-world efforts to help clients move forward: obstacles that live - indeed thrive, inside the minds of clients.

They may take the form of limiting beliefs or dysfunctional money habits; they may manifest as inexplicable efforts to sabotage their own progress, or simply as an inability to move forward when the external obstacles seem to have been cleared away.”

Veres suggests that it is commonplace to hear advisers talk about unexpected difficulties in applying this new life planning service to clients and the world they live in.

As he says, “The advice seems to be good, the service and planning work seem to be right, and the clients may outwardly seem to respond by identifying their cherished goals and buying into a plan to achieve them."

"But the results seem to be held up by an invisible net of restraints that planners are not trained to find or identify, much less clear away.”

If life planning is the way forward for financial professionals it means that they are either going to have to acquire some very serious skills in understanding and dealing with people or, alternatively, to partner with other professionals who have those skills.

Veres cites the example of a financial planner who partners with a psychologist in the delivery of life planning services. With this approach the skills of the respective professionals are fully harnessed without either one of them being diluted. 

Veres says there are probably three options to deal with this issue. One is where the financial planner refers clients to psychologists.

However, with this approach the financial planner is left out of the loop and it won’t necessarily enhance his or her relationship with the client.

A second option is collaboration, where the therapist meets alone with the client, but the client and therapist sign disclosure agreements, which make it legally permissible for the psychologist to share information about the client that is uncovered in the sessions.

However, as Veres points out, this is less-than-ideal, because the client’s time with the therapist may never really address money issues.

The third option is the partnership approach, where the adviser and psychologist meet a client together and will work closely together in the exploratory phase of a relationship, and again when obstacles arise.

The exciting part of the third approach is that clients benefit from the services of two professionals.

While it might seem like overkill, it does highlight the client-centricity that advisers elsewhere in the  world are attaching to the service they provide, and the holistic manner in which they view financial advice.

The notion of life planning has definitely landed on the shores of South Africa.

Whether or not financial professionals adopt this approach to their work, at the very least it highlights that the world of wealth management is at its core about people, not money.

So, undoubtedly, the more holistic an approach an adviser takes with a client the more successful he or she will be in helping to meet the client’s needs.

Robert Macdonald is Head of Xchange Solutions