A financial plan for life
Ferdi Booysen, Head of Client Solutions at Old Mutual Wealth
The traditional approach to financial planning has been under a lot of scrutiny in recent years. While it can be argued that this approach has had its flaws, it is very positive to note how the industry has embraced a more holistic way of providing financial advice by having the client's lifestyle underpin and drive the financial planning conversation. However, there is still some work to be done to simplify financial planning and shift from having product-conversations to rather discuss the client's end-goal to add even more value to your client's life.
It is of upmost importance for clients to understand all the different elements at play in their financial plan. We often tend to focus on specific elements, such as saving more. For example, if Jane wants to retire at age 60 instead of age 65, she will have to make some short-term sacrifices such as cutting her monthly budget in order to reach that goal. Old Mutual Wealth's Integrated Wealth Planning (IWP) tool, which it has been offering advisors since 2011, has taken integrated financial planning to the next level by demonstrating to clients how their decisions and all the different elements at play in a financial plan that could potentially impact their financial circumstances. The tool recently received a revamp in order to make it simpler and easier to model different financial planning trade-offs and conversations live with clients. This can be done at the office on a big screen or whilst having coffee with a client along the beachfront through the use of a tablet.
Having the means to paint a picture of the impact of choices on financial plans, brokers are better equipped to help clients understand the impact of their decisions and trade-offs required to meet their financial goals.
Integrated Wealth Planning facilitates a conversation that looks at various trade-offs and illustrates different scenarios to bridge the gap between where clients are today and where they would like to be when planning for retirement, lifestyle goals, death and/or disability. The core of Integrated Wealth Planning is planning for the person and not their money. We consider a whole host of factors such as: changing retirement dates, investment returns, the impact of inflation, saving more, liquidity, income and expense patterns, altering goals, tax efficiency, asset disposals, asset classifications, to mention a few. Our aim is to help clients better understand the role that each of these trade-offs play in their overall financial plan and to partner and co-create a financial plan alongside them that takes all of these different factors into account.
Financial planners who align, adopt and incorporate the IWP principles into their client engagement process are afforded the exclusive IWP designation from Old Mutual Wealth. These financial planners will form part of a unique community of like-minded professionals who share the same guiding principles.
With this new philosophy of financial planning, the IWP tool aims to assist brokers to give their clients a bespoke financial plan that takes more than just their finances into consideration. This new approach focusses on four different elements:
Understanding who the client is and their ideal lifestyle is the starting point in our discussion. This is usually discussed during the first interaction between the broker and the client where the client will visualize their ideal lifestyle for the broker, explaining what they want their life to look like in the next five, 10 and 20 years and what they want to be able to do. This includes aspects such as the client's hopes, fears and goals for the future. This is a vital part of Integrated Wealth Planning as this will become the core of their financial plan.
Once the broker understands their client and what it is that they want to achieve in life, the broker can better determine what the required investment return should be in order for the client to meet these lifestyle goals. If you don't fully comprehend where you're going, how will you know what monthly goals to set in order to get to your end-destination?
The client's required investment return will then assist the broker to determine what asset allocation will best suit the individual's investment strategy, taking the associated risks into account. The appropriate asset allocation is a critical element in any financial plan and a uniquely designed approach ensures that the client will be on an investment path that suits their life.
When looking at risk holistically in the context of what the client is trying to achieve, this will include how realistic their lifestyle and financial goals are based on their financial circumstances. If the broker spends time understanding their client's individual risk profile - not just investment risk exclusively, but also inflation risk and behavioural risk - the client will be sure to have efficient risk exposure that fits their profile. Following our Integrated Wealth Planning approach, brokers can add precious value to the lives of their clients which is not limited to developing a financial plan. In this way this becomes a plan for their life that just happens to take their financial circumstances into consideration.