Archives for September 2022

A reader writes in, asking:

“I’m currently ‘in the market’ for a financial planner. I’m looking at many different options, because I’m still a little unsure about exactly what I’m looking for. One phrase that I keep seeing is ‘comprehensive financial plan’ or other similar wording. What exactly would that include? On the one hand comprehensive sounds good. I don’t want anything important left out. But I also worry about the possibility of overpaying for services that I don’t really need.”

Financial planning includes several sub-topics. The following list is from the AICPA’s Statement on Standards in Personal Financial Planning Services. (Different sources have slightly different lists of sub-topics. For example, some omit elder planning or charitable planning.)

1. Cash flow planning
2. Risk management and insurance planning
3. Retirement planning
4. Investment planning
5. Estate, gift, and wealth transfer planning
6. Elder planning
7. Charitable planning
8. Education planning
9. Tax planning

Of course, for a given household at a given time, not all of those topics will be equally important.

But, whether you’re doing your own planning or working with a professional, those are the topics that should be addressed on an ongoing basis — unless there’s a clear reason to exclude certain topics. (For example, if you have no kids, no plans for kids, no student loans, and no plans to go back to school, you have no need for education planning.)

The truth is, there’s no way for one person to have a deep level of expertise in all of those topics, even if the person is a full-time professional with a ton of letters behind his/her name. There’s simply too much material.

Ideally, the financial planning field would work like the medical field in this regard.

For instance, there are outpatient dermatology practices that do what they do, and they’re good at it. But nobody at such a practice is going to perform your colonoscopy. And you know that without even needing to ask.

And there are big hospital systems. They have radiology, oncology, anesthesiology, you name it. But it’s not one single professional doing all of those things.

And with regard to the individual physicians, there are specialists with clear areas of expertise. And there are primary care physicians who know something about all of the various specialties, but they recognize the limits of their expertise and they regularly refer out to specialists as necessary.

Ideally financial planning would function similarly.

There would be broad financial planning practices with a team of professionals with expertise in various areas, with the goal of keeping everything “in house.” And there would be smaller practices, specializing in various areas and regularly referring to each other.

And financial planners (and financial planning practices) would make it clear that they do offer this and they don’t offer that.

What makes me nervous are the solo practitioners who offer “comprehensive financial planning” and rarely refer out to other professionals. I do not understand how a person can in good faith assert that they have deep expertise in all of the above topics.