Financial Planning Does Not Have to Be Investing-Centric

We start with this:



Do you know what that means?

If not, then please allow me to take you back to yesteryear, and to little-you sitting in your little chair in arithmetic class, so that I can re-introduce you to your dear old friends, the less-than and the greater-than operators — to <  and to  >. Put those two together, wide-part to wide-part, and technically what you get is “less than / greater than” which, when you think about it means, “not equal to” or, more simply, does not equal.

In my internal dialogue, then, when I’m in Excel-rustling and logic-lassoing mode, trying to come up with a beautiful onion of nested parentheticals within an elegant squirt of Excel-ese that I can infinitely copy throughout the .xls without ever having to worry about it generating an invalid answer, I often find myself saying to myself, and if this cell here does not equal that cell there, then . . . — all the while as my fingers type <‘s and >’s and the like.

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So here’s the point I’m driving at:

      Financial Planning <> Investing

So why should we care about a bald assertion that financial planning does not equal investing?

Hmmm . . . .

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I have felt compelled to bring up this financial planning <> investing topic in many different contexts and for many different reasons, but today I write about it as a result of a single instigating cause, which was a conversation I shared yesterday with a fellow who has heard me describe my work on probably a dozen different occasions, several of them over an extended conversation, but who yet came away thinking that what I did was investing. He is not alone. Many a very smart person has met me, heard me talk about my work, looked me straight in the eye and nodded approvingly, and yet in the end not understood that my work is not necessarily about investing.

So to the instigator/listener I say thank you! You’re not the canary in the coal mine that first succumbs to the poisonous gas, but are instead the least-susceptible critter down there, yet, you too, are groggy and about to lose the battle.

Rather, this is another of those, it’s not you, it’s me sorts of things, or, more accurately, it’s me and the industry within which I ply my wares. So I fault moi the teller, and I fault the financial services industries for generating so much confusion, and for relying on business models and business practices that do so much to generate so much confusion, and in so many varieties and flavors at that.

Here I’ll just focus in on one of the confusions.

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As a refresher, I help people improve their overall financial health, wherever that task might lead.

Sometimes — oftentimes, even — that task leads, at least in part, to investing; indeed, my best guess is that, on average, about 20% of a person’s overall financial health is tied in with how s/he has stowed his/her Money-Saved, and investing clearly plays a big role in that stowage decision. And, yes, as a numbers-guy, I will readily admit that this 20% number is one that I grabbed out of thin air — but I hasten to add that I grabbed that number out of thin air many years ago (I have more to say about the circumstances surrounding this number-grabbing, down below, all the way at the end of this piece), and that, after all these many years of use, I continue to think it’s a just-about-right number.

So, then: what’s the other 80%?

I’d chalk up 50% (again, a total WAG number) to the Money-In part of a person’s financial life, which for most people means how they’re making a living, e.g., is their worklife adding to their overall wellbeing, both mentally and physically and every other which way, including numerically, or is it making them miserable and drilling a hole in their stomach, and in every other which way not working well at all a’tall?

I afford this full-halfsie to Money-In because most of us spend most of our hours during most of our days making a living, so that, if we don’t have that part of our financial life right, or at least mostly right, why then our financial health is very much sub-primo.

And then I’d chalk up the remaining 30% to the Money-Out part of our lives.

Does that seem like too much financial-health-determination factor to lay at the feet of the almighty spending deity?

Years ago I would’ve agreed, but having done this work for a good long while now, I’ve come to think of it as just about right, primarily because spending is the most top-of-mind part of our financial life. Think about it: we do it all the live long day, sometimes spending a few bucks (a coffee, a lunch, a movie, a this, a that) or some very-many bucks (a vacay, a car, a new fridge, an unplanned trip to the dentist, a kid’s education, a this, a that, a something-you-never-saw-coming, a something-you-did-see-coming-but-never-dreamed-it’d-be-that-expensive, and on and on and on and on . . . ).

It’s also where most people experience the most pain most often in their financial lives. It’s where denial lives. It’s where reality comes home to roost. It’s where we are what we are, no two ways about it. It’s where you can’t get blood from your own private turnip. It’s where we don’t keep up with the Joneses. It’s where our moms told us no, but now that we’re older, it’s not our moms telling us no (though it can be . . . ), but, instead, it’s something more stern and absolute, and totally unloving, telling us no. Add all that up — add up all those negative numbers and all those negative emotions — and it’s indisputable that, for most of us, Money-Out deserves a good-sized apportionment of the financial-health-determination-pie.

So if you’re good with your spending, all is well with a major chunk of your financial health, and if you’re not, then it’s not.

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So what’d’ya think? I’ve said that financial health is 50% about revenues, 30% about expenses, and 20% about balance sheet design. Sound about right to you? Inquiring minds want to know.

This is an inside-baseball pronouncement. Surely many FP’ers will think I’m outta my friggin’ mind. Please let this mind — friggin’ or not — hear some counters.

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As it happens, the business of financial planners — the pure dollars and cents — mostly centers on investing. As best I can tell, that’s because most of them prefer to mostly get paid via AUM fees — Assets Under Management fees — and so a lot of them don’t want to do financial planning unless there is also some long-term AUM fee-stream to be gained in the process.

It’s a wonderful business model in many ways, particularly for the AUM fee-receiver, yes, but also in some ways for the AUM-fee payor, who never really needs to think about the fee spend (because AUM fees are just about always set up as automatic withdrawals from their assets — effectively jettisoning this particular kind of spending from being most-top-of-mind to being 100%-out-of-mind for most folks) (that’s twisted in some ways, n’est ce pas?).

And in this just-about-all-planners-get-paid-mostly-to-do-investing world it comes naturally to most people everywhere, both sophisticated (as my friend last night was) and not sophisticated, to lump financial planners in with investment stuff. 

I, and a few others here and there, though, are saying t’ain’t necessarily so, as in financial planning needn’t be solely about investing.

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And, I would argue, that if what you’re getting paid for is investing, then what you’re really going to focus your energies upon is investing. And, I would also argue, if you are both (a) getting paid too much for something so that you can use that money to cross-subsidize (b) getting paid not enough for something else, then you run the risk of getting undercut price-wise on the former and out-performed excellence-wise on the latter.

That’s what happened to the old wirehouse model. Payment for investing advice, masquerading as $300 commissions, never stood a chance when confronted with $30 (now <$10) commissions for those trades. Cabals fail.

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So you know where that 20% WAG number came from?

It dates back to 2003, when I first set up my financial planning business and, as part of that process, had to file a form with the Department of Corporations of the State of California. That form required me to state how much of my business I expected to be investing-related. And I said 20%.

And guess what the name of the form was? It was the old Form ADV-II, which was the main form you submitted back then to become a registered investment advisor. So the pigeonholing regulation of the financial planning field pointed in one direction, and in one direction only: towards investments.

Of such things is the modern FSIC — the Financial Services Industrial Complex made. It’s all about investing. It’s all about Wall Street (and, to a lesser, related extent, Hartford CT). It’s all about gathering assets.

And if you want to do it as pure financial advice totally divorced from gathering assets and selling financial products, why then, you had best be prepared for swimming against a very strong AUM undertow. That’s the way our financial world is currently built.




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