Leveraging Comprehensive Financial Planning to Grow Your Practice

Chia-Li Chien, PhD, CFP®, PMP®, Apr. 8, 2019

I was a director for corporate financial systems in a Fortune 100 company many moons ago, before I transitioned into the financial planning industry. I had 176 people on my team and was on the road a lot. I had so much stress from work that I woke up one morning paralyzed on my right side from the neck down. After spending hours in the emergency room, there was no determination of the apparent cause for my situation. The doctor gave me some muscle relaxants, and I slept for one week straight. Later I discovered that I had a severe form of myofasciitus that required surgery. I could not afford the time to have the surgery. I had acupuncture instead, but the treatment took more than two years.

I knew I had to make a change in my job even though I was making real money, and I mean a lot of money. Somehow, I came across Suze Orman’s first published book. I hired a certified financial planner, Paul, who was in Texas while I lived in Connecticut. I was fascinated by Paul’s planning process and realized that maybe that’s my next career. After Paul delivered our comprehensive financial plan, I realized that Paul could not give us definitive answers to two questions. The two questions were, could I afford to retire now? and could I afford to make a career change? Plus Paul flat out turned me down on investment management since I did not meet his $1 million threshold for one single account. I puzzled and wondered for a long time, thinking that there must be other people like me who need financial planning but don’t meet those thresholds.

I gave myself two criteria for changing my career. One, I must pass the CFP exam as proper training. Two, I must save up four years living expenses as working capital. While I saved up the start-up capital, my husband TC and I started our search for where we wanted to retire. TC wanted to be close to his parents but not too close. He wanted to stay on the east coast with warm weather, but not Florida or Georgia. We spent three years purposely vacationing in Virginia, North Carolina, and South Carolina to find a retirement home when I was in my early 30s. We both liked Charlotte, NC, the most, and thought, why wait until we retire? As soon as I met my two criteria, we built our home in Charlotte. I quit my cushiony corporate executive job and moved to Charlotte.

I thought having a CFP designation would help to excel in my startup financial planning practice. Well, I was so wrong. I was technically prepared, but did not have the business-savvy for the financial planning business. Although I was the rookie of the year, there were plenty of challenges to be successful in the financial planning industry. Today, I‘d like to share with you some important aspects of the financial planning business including understanding consumer demographics, needs and communications, and the disadvantage of using the modular financial planning approach.

My husband TC is a baby boomer. Baby boomers were born between 1946 and 1964 (Tibergien & Dellarocca, 2017). I am a Gen X. Gen X was born between 1965 and 1979. Millennials were born between 1980 and 1994. Gen Z is between 1995 and 2014. My daughter is a Gen Z. According to the U.S. Census Bureau, baby boomers comprised 20% of the 2012 population (U.S. Census Bureau, 2012). If you structure your financial planning practice solely based on serving baby boomers, they might support you for a while. But by 2035, the boomers’ assets will move off your book of business unless you replace them with different age group clients.

Let’s take a look at the needs of the baby boomers for the next twenty years. My husband, as an example, is near retirement. He wants to retire today, but I will not let him. Don’t laugh. We’ve been married for a long time, and I know when he is not working, he spends money. In addition, I believe it’s better to have people generate income from their human capital assets as long as possible to sustain physical and mental fitness. Examples of reasons to spend down the portfolio of financial assets could include travel, medical expense, doing-nothing living expenses, transportation, entertainment, etc. The more you preserve your portfolio of financial assets, the longer you can stretch your assets throughout your life.

But if your practice has a high concentration of baby boomer clients, you might lose out on your firm’s equity value. More than 25% of the concentration of a single client type could increase the risk for your business, hence decreasing the equity value of the firm. The idea here is to structure your business revenue like any investment diversification you would recommend for your clients. Your business model must work for your future operator regardless of whether you have been in the business or not.

Early on in my financial planning practice, I was told to tell the clients that we are the quarterback for their financial affairs. Here is the problem. I never understood the quarterback concept. I don’t know about football. I don’t watch it and don’t understand it. I don’t use a football analogy with my clients at all. What I say to my clients is that I am their project manager for their financial affairs. My job is to assemble a team of subject matter experts to achieve their life goals. These team members are specialists in taxes, legal matters, insurance, divorce, financial behaviors, credit counseling, and so on. But you always start with all the client’s goals and objectives, not just financial ones.

Here is a list of common client goals and objectives you often hear from financial planners: lifestyle, retirement, education, parent care, estate, and special needs. I go beyond these common goals. For example, let’s look at my demographic group, Chinese Americans. Our number one goal in life is to put our children through higher education. Therefore, there will not be any argument about a saving-for-education priority that might conflict with retirement. My daughter received her BS degree in Biology from VA Tech a couple of years ago. She went out of state and cost us approximately a quarter-million dollars. We are very proud that she is financially independent of us. She is on full scholarship with stipend in her Ph.D. program. She is in her third year studying muscle stem cell biology. In layman’s term, she studies the connection between human cancer and the meat we eat that is naturally mutated. I sound so much smarter by saying that, and we are proud of her.

Our second priority is our parents—my in-laws who live in the DC area, and my parents who live in Taiwan. The travel expenses that we set aside annually are nonnegotiable, not to mention our financial responsibilities to them. Taking care of our parents is in our Chinese blood; unless you are unable, you are expected to. So, take time to go beyond clients’ common goals and get to know them. But you can’t get to know them well unless you take time to know them.

If you are currently using the modular planning approach, you are leaving money on the table. Modular planning addresses only the financial portfolio, not a holistic planning view. For example, John told me that he has three financial advisors today. He gave each $1 million to manage. I asked him if any one of his advisors knows his net worth. John reluctantly questioned, why would they need to know that? I pointed out to him that investable assets are one of the many assets he owns. For example, in the retirement balance sheet, assets include financial portfolio assets as well as rental real estate assets, direct business ownership assets, human capital assets, social capital assets, and so on. His advisors help him on one aspect—the financial portfolio assets —but are not able to integrate all assets in management, or proper protections, community/social and family legacy as goal driven financial planning.

Financial product implementation is great for your business revenue, but without comprehensive financial planning, you are just checking the box of suitability. How do you know what is in the client’s best interests when you only know one aspect of one asset in the overall balance sheet? Let’s walk through a case study. Pat and David came to your office asking for education advice. Pat is 40 and David is 55; Sally, their daughter, is seven. They started a family late in life. They are in the 35% federal income tax bracket. In a modular approach mindset, most of you would recommend opening a 529 account. You see, you jump to the financial product first, but here is a list of possible education funding:

• Pay-as-you-go out of current assets and income
• Make use of government tax incentives
• Obtain scholarships and loans
• Children may work their way through school
• Parents engage in a systematic plan of early savings and investment
• Parents give monetary gifts to children early enough to compound over time
• A combination of these techniques

Your clients will walk away with much more than just a 529 account if you service them from their best interests. It’s about the arts and science of financial planning. The science part could involve calculating how much education funding is needed by using the time-value-of-money method and also how much to save each month to accumulate that amount before Sally goes to college. But how do you know Pat and David are not looking for boarding school or prep school?

Use comprehensive financial planning to structure your business as many ways as you like in the industry. There are 12 different career paths for financial planning. Often, people tell me the bar to entry for financial planning is set high because it’s commission based. Says who? There are many salaried positions in the financial planning industry. You just have not found the right entry point yet.

Take my financial planning practice as an example. I first entered the industry through independent broker and dealer channel as an independent advisor affiliated with Sagemark Consulting or Lincoln Financial Group. I was the rookie of the year and built a nice book of business, but that was not what I wanted. Today, I am a fee for advice, retainer or project fee financial planning practice that specializes in servicing private business owners in succession planning. I don’t sell any financial products at all.

The road that I traveled in the financial planning practice is different from many that you come across. I recommend you reevaluate how you structure your client type using demographics as a starting point. Engage your clients from the project manager’s perspective to help them with overall life goals, not just financial. Most importantly, sustain your business by leveraging comprehensive financial planning to do the right thing for your clients and you!

Reference:

Tibergien, M., & Dellarocca, K. (2017). The Enduring Advisory Firm: How to Serve Your Clients More Effectively and Operate More Efficiently (Bloomberg Financial). Hoboken, New Jersey.: John Wiley & Sons, Inc.
U.S. Census Bureau. (2012). QuickFacts United States. Retrieved from U.S. Census Bureau: https://www.census.gov/quickfacts/fact/table/US/PST045217