When you first contact a financial adviser, they will generally start by conducting some form of fact-find meeting with you where they will try to find out all about your current situation, your future needs and your financial requirements.
Traditional financial advisers will tend to focus almost exclusively on the hard facts – how old you are, when you want to retire, your current assets, liabilities, income and expenditure – and then make decisions about your needs based on the answers.
For example, they might ask you about your pension arrangements, how much you would like to retire on and when you want to retire.
However, they will not ask whether you enjoy what you are doing with your life at the moment and how you would like your circumstances to change over your working life.
The outcome of the traditional process is that you inevitably end up being advised to take out a plan or invest in some form of savings scheme or pension plan, with the objective of building up a bigger retirement fund to retire comfortably. You may then start to wonder whether your adviser thinks more of you, as a client, or your money?
Traditional financial planning has tended to treat money, not people, as the client and has concentrated on products and services for accumulating, growing, preserving, spending and passing on monetary wealth.
Interestingly, people have started to wake up and examine how they view and live their lives. Many people have determined that life means more to them than bank account balances and spreadsheet projections.
Similarly, as financial products have become more commoditised, there has been continuing pressure on financial planners to evolve from their historic role as product salespeople to become more relationship or client-centred, hence the development of life planning.
Life planning recognises the human dimension of financial planning. Money touches every aspect of our lives and the financial planner is the only professional who can work with a client to ensure that their financial resources are completely aligned with their goals, aspirations, core values and purpose in a financial life plan.
By linking meaning to money, life planning allows individuals and couples to review the value and purpose in their lives and to assess whether their lifestyle is as rich within as it would appear to be externally.
In the life planning relationship, the adviser is able to help the client not only to unearth their core values and personal goals but to devise a strategic financial plan to make their goals become a reality. That plan will not only involve deep changes in how the client structures the external aspects of daily living, including cashflows, but will also focus on living a worthwhile life now, rather than simply accumulating a pile of money for comfort and ease for some vague point in the future.
One of the founders of life planning is George Kinder, founder of the Kinder Institute of Life Planning and author of The Seven Stages of Money Maturity. He suggests creating a life plan based on three simple, yet profound questions:
l Imagine you have all the money you need, now and in the future. How would you live your life?
l You have just found out that you have only five to 10 years left to live. Will you change your life and how will you live it?
l You have just found out that you have only 24 hours left to live. What regrets do you have? Who did you not get to be?
The answers to these questions reveal what people really want out of life but may be failing to accomplish due to a variety of money excuses.
In the hands of a qualified life planner, the core values that are revealed provide the building blocks of a meaningful life plan.
Once the ideal life vision has been created and obstacles defeated, the traditional financial planning skills of asset allocation, risk management and product selection are incorporated to complete the design and implementation of the plan.
The life planning process is an extremely efficient way to do financial planning, since it focuses on the client’s true goals from the outset and sweeps aside the money excuses that cause so many well-intentioned traditional financial plans to fail.
Simply put, life planning is just financial planning done well.
Patrick Murphy is director of wealth management at Thinc