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Kitces & Carl Ep 64: Why AUM Keeps Growing Despite Opportunities For Flat-Fee Clients

July 15, 2021 07:07 am 3 Comments CATEGORY: Kitces & Carl Podcast

In the early days of the financial advice industry, an advisor’s most valuable service for clients was simply providing access to financial products (as stocks, bonds, insurance, etc. couldn’t be purchased directly by consumers). However, the advent of online brokerages not only drove down the cost to purchase investment products, but made investing (as the slogan went) “so easy, a baby could do it”. As a result, advisors turned their focus towards building customized portfolios for clients, and rather than earning commissions on the products they sold, began charging recurring fees for managing those portfolios on an ongoing basis.

More recently, however, ongoing technological progress has automated portfolio management to the extent that it’s now “so easy, a robot can do it”, and once again, advisors have evolved to make their main value offering the advice that they provide across their clients’ entire financial lives. Yet, despite the introduction of alternative fee structures (including hourly and subscription models) based on the delivery of advice rather than management of assets (as well as the growing consumer demand for flat fees), growth of the AUM model remains robust.

In our 64th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how disconnects can sometimes arise between what potential clients may expect and how advisory businesses are structured to deliver advice, why the demand for quality advice continues to combat industry-wide fee compression, and why it’s been (up to this point, at least) such a struggle for alternative fee structures to gain better traction.

Over the past several years, as more options for automated investment management have become available, consumers have increasingly sought out ‘compartmentalized’ planning engagements (i.e., advice on ‘just’ one or two, rather than on all seven, aspects of the planning process), but often run into difficulty when trying to find an advisor that has the capacity to accommodate their requests, particularly when it comes to higher-net worth clients. As while there are advisors who are able to accommodate limited planning engagements, their numbers are limited. Moreover, clients who are further along the complexity spectrum may expect the sort of service found at larger firms, which simply aren’t structured in such a way to provide compartmentalized service.

Compounding the conundrum is the fact that it’s difficult for consumers to differentiate between advisors who actually offer advice and those who simply assume the title but may not be in the advice business. The supply of fiduciary advisors remains scarce, which (in turn) means that an advisor’s limited number of available spots can fill up quickly with clients who do want comprehensive planning (which is why so many of those advisors end out implementing wait lists). And with the high costs that advisors face to acquire clients in the first place, it just becomes impractical (at least at this point) to build a sustainable business that (primarily) serves clients on a limited basis.

Ultimately, the key point is that, while fee structures and advisory models continue to evolve to provide better and more varied services to clients who may not want (or need) comprehensive planning, the fact remains that it’s expensive to not only acquire clients, but to service them as well. Which, at the end of the day, is why a fiduciary standard is so important for the industry, as it would drive down the cost of advice in the aggregate and would make it more practical to profitable and effectively serve clients who would benefit the most from flat-fee engagements.

Planning For The Expiration Of The CARES Act Student Loan Payment And Interest Freeze

July 14, 2021 07:08 am 4 Comments CATEGORY: Debt & Liabilities

Beginning on March 20, 2020, most Federal student loan borrowers were given a break from having to make student loan payments, with interest rates set to 0% and no payments required. This policy began as an Executive Order, was then included in the CARES Act, and was repeatedly extended by both the Trump Administration and the Biden Administration. However, the payment and interest freeze is scheduled to sunset on September 30, 2021, and millions of borrowers will once again be required to make monthly student loan payments.

The resumption of student loan payments will be a significant change for many borrowers’ finances. It not only impacts cash flow but may also impact their preferred tax filing status, where they choose to keep their retirement savings, etc. In addition, many borrowers have had significant changes, both positive and negative, in their financial lives since the payment freeze began, so the best strategy to pursue after the repayment freeze ends may very well have changed. And with the resumption of payments for so many borrowers happening all at once, getting a plan in place and implemented well ahead of the September 30 end date is vital.

Borrowers on Income Driven Repayment (IDR) plans have many planning opportunities to consider. Both the timing of their income certification and their 2021 tax filing status could be set up strategically to minimize student loan payments. Especially since the popular strategy of Married Filing Separately to minimize payments may no longer be as appealing for families with young children, due to the American Rescue Plan’s changes to the Child Tax and Dependent Care Credits for 2021 (which are reduced or lost altogether for couples who file separately, and which have become fully refundable).

In addition, borrowers who may previously have been pursuing forgiveness strategies (e.g., deliberately minimizing payments to maximize their loan balance in anticipation of future Public Service Loan Forgiveness or IDR forgiveness) may now be able to pay their loans to $0, while others may have had a career change that makes them eligible for forgiveness programs they previously did not have access to. Borrowers should not assume that the student loan plans they had pre-pandemic still apply, and advisors can play a key role in helping them think about the moving pieces and how best to manage the tradeoffs involved.

Broad student loan cancellation of some amount has also gone from being a ‘pipe dream’ to having realistic odds of passing in the coming months. While this is far from certain, and many of the policy details are still unresolved, it is on the minds of many borrowers who don’t exactly want to accelerate debt repayment only to find out it would have been forgiven by waiting just a few months. For some borrowers, this may mean making at least a small bet on forgiveness, opting to pay some interest now in hopes of forgiveness, even if they have the cash to pay off their loans in one lump sum today. Other borrowers may decide to just wipe out their loans with the cash they’ve saved during the pandemic, simply to eliminate the debt (and its future interest and payment obligations).

Ultimately, though, the key point is simply that with tens of millions of student loan borrowers due to ‘suddenly’ begin repayments in October, a flood of service requests is likely to come soon to loan servicers. Which means those who are considering potential changes to their student loan strategies, from altering their tax filing status to accelerating (or not) their income recertification, need to be evaluating their plans now, including a consideration of how those plans might be adjusted if at least some level of student loan forgiveness does, in fact, come to pass!

#FA Success Ep 237: From Client Services Associate To President And Partner By Building Systems And Culture, With Brittany Anderson

July 13, 2021 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 237th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Brittany Anderson. Brittany is the President and Partner at Sweet Financial, a hybrid RIA in Fairmont, Minnesota that manages $860m in assets for 1,100 households.

What's unique about Brittany, though, is that she joined Sweet Financial directly out of college as a client service associate, and in the 15 years since, has moved progressively through the ranks, ultimately taking on the role of COO and now becoming the firm’s president and one of its owners.

In this episode, we talk in depth about how Sweet Financial has been able to steadily grow towards the $1 billion milestone despite being located in a rural Minnesota town with a population of just around 10,000, how Brittany’s firm hires new team members into salaried support roles so they can develop and learn within the firm’s culture (staying in those positions for as many as five years before becoming advisors and only then starting to gradually assume lead roles on client relationships), and how Brittany is able to recruit talent to work in a small town by treating job ads as marketing pieces and seeking to attract good cultural fits first and foremost (and then working later on teaching the technical skills).

We also talk about how Brittany and Sweet Financial concentrate on four main business development channels, including creating dedicated platforms to help women who are navigating major life transitions and to advise business owners on building culture and growing their businesses, how Brittany has implemented the Entrepreneurial Operating System as a means to set a three-year vision in order to keep the firm systematically and deliberately moving forward, and how it’s that EOS-driven three-year vision that acts as a filter through which Brittany examines various business opportunities and initiatives, to ensure the firm is only pursuing those which move the firm towards the vision that’s been set.

And be certain to listen to the end, where Brittany shares how she’s eschewed trendier marketing channels and instead has found continued success with longer-term drip email campaigns (noting that the key to staying at the top of prospects’ minds is wholly reliant on consistency), the challenges that Brittany faced as she transitioned out of the boots-on-the-ground operations role to become the leader of the firm with a responsibility to direct, inspire, and lead her team into action, and why Brittany feels that, with women controlling more wealth in the country than ever before, there’s never been a better time for women, in particular, to come into the financial advice industry and serve women of wealth from a female perspective.

So whether you’re interested in learning how Brittany and Sweet Financial have generated such impressive growth in a small rural town, about her journey from intern to President of her company, or how she leverages email drip campaigns, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Brittany Anderson.

Creating Sustainable Growth And Happiness Through The Right Mindset And Habits

July 12, 2021 07:04 am 3 Comments CATEGORY: Personal/Career Development

We’re all aspiring to grow into better advisors, with more clients, better niches, or bigger firms, but sometimes realizing that growth can be another challenge entirely. When we’re looking to grow, we may look to the most successful advisors, but feel that we can never truly emulate them due to a lack of time, networking, development know-how, or any other resources. In reality, those ultra-successful advisors have one secret weapon: mindset. Advisors who have a growth mindset, rather than a fixed one, are the ones most likely to see results!

Rather than having an exclusive growth mindset or fixed mindset, though, most of us tend to flex somewhere between a fixed and growth mindset. Whereas a fixed mindset tends to avoid challenges and criticism, ultimately plateauing more often than not, a growth mindset will embrace challenge and criticism, persisting through setbacks to reach increasingly higher levels of achievement. Therefore, in order to succeed, advisors can start by focusing on developing a growth mindset as an attainable goal, and cultivating the habits that sustain high performance in order to get there.

Importantly, high performance is not about grinding one’s way to success no matter the cost; instead, it’s more about sustainable success and achieving a lot without sacrificing too much. Accordingly, the key to high performance is in finding a balance between reaching goals and sustaining well-being and healthy relationships, which is supported by six primary attributes that are characteristic to help them efficiently overcome the roadblocks that come their way: clarity, energy, purpose, courage, and productivity.

To start, advisors can take a closer look at what may be holding them back. For example, many advisors fall into the ‘busyness’ trap, citing lack of time as their primary reason for not growing. Another common pitfall is a negative association with sales. Many advisors enjoy the art of financial planning and/or investment management and making a difference in others’ lives, but they shy away from the sales aspect. Lastly, and perhaps most critically, advisors can run into subconsciously limiting beliefs.

Each of these roadblocks is a common challenge faced by many advisors. To overcome these challenges, advisors can start by conducting a high-performance audit to help them identify their subconscious limiting beliefs (which we all have!) and assess their strengths. From there, a roadmap can be developed to bolster their most impactful key strengths and to develop weaknesses, one by one.

Ultimately, for financial advisors who have adopted a growth mindset, getting stuck is just part of the growth cycle. Getting past setbacks generally starts with self-understanding, having a clear purpose, developing a sustainable action plan, and committing to the courage and focus needed to implement the plan. The great news is that advisors who take the time to find and address their weaknesses, pivot, and create sustainable plans of action to resolve one weakness can reuse these principles again and again, to eventually reach their goals—and even to exceed them!

Weekend Reading for Financial Planners (July 10-11)

July 9, 2021 02:59 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a controversial discussion of the CFP Board's recent ramp-up of enforcement in the aftermath of the July 2019 Wall Street Journal expose about the organization promoting CFP certificants "in good standing" on the CFP Board's website even as they had material regulatory infractions reported on FINRA's BrokerCheck, and raises the question of whether the CFP Board is still doing enough to really clean up its ranks, or if the organization is actually trying to back away from its own standards by eliminating its own marketing messaging around being "the highest standard" and simply promoting the (admittedly still positive) general benefits of financial planning instead?

Also in the industry news this week are a number of other interesting legislative headlines:

A new Senate Bill would restore the tax deductibility for retirement advice... but only if paid via an employer's payroll system, which isn't feasible for most independent advisors
Whether the Senate may revisit a prior proposal to limit the maximum size of IRAs to 'just' $5M (in response to the ProPublica story about Peter Thiel's $5B Roth IRA)

From there, we have several interesting articles on retirement planning:

A new BCG study finds that mass affluent retirees are still underserved... advising large banks and broker-dealers to encroach further on what has historically been the domain of independent financial advisors
An Allianz consumer study finds that a lot of consumers are still reluctant to talk to their financial advisors about their retirement fears
The thought process of one self-directed consumer who decided to hire a financial advisor for the first time when transitioning to retirement (and what were, and were not, factors in his decision)

We've also included a number of articles on cash flow and budgeting, including:

Morgan Housel's take on 10 "Money Rules" to live by
How self-imposed frugality to achieve early retirement can cause a 'frugality syndrome' where retirees can't enjoy their money even once they do retire
Alternatives to minimize the zero-yield cash of an emergency savings fund, including leveraging an HSA instead (just keep the receipts!)

We wrap up with three final articles, all around the theme of personal productivity:

A review of several popular to-do and project management tools to stay self-organized
Why "5" appears to be the optimal number of hours of productive work every day
Tips on how to better focus yourself and make it easier to do the things that actually have the most positive impact in our businesses and our lives

Enjoy the 'light' reading!

Investing A Roth IRA In Early Stage Growth Companies Without Violating Prohibited Transaction Rules

July 7, 2021 07:02 am 9 Comments CATEGORY: Taxes

For entrepreneurially minded individuals, the potential to generate investment returns and wealth creation through the founding and growth of a business is often unrivaled. The caveat, of course, is that rapid growth businesses also face substantial taxation on that growth when they are eventually sold. Accordingly, when such individuals have retirement account assets – effectively legal tax shelters – the question arises: “How can I shift some of the value of my fast-growing business into my retirement account?” or better yet “Can I use my tax-free Roth IRA to invest into early stage growth companies?” (as was highlighted in a recent ProPublica article about Peter Thiel’s early stage investments into PayPal and Facebook to create a whopping $5 billion Roth IRA).

Because the reality is that while a Roth IRA can certainly own shares of stocks – including privately held companies that are not (yet) publicly traded – there are limitations on who an IRA can buy shares from, and who can be compensated by an IRA-owned company, under the so-called “Prohibited Transaction” rules.

At the highest level, the Prohibited Transaction rules restrict an individual from using their (Roth) IRA to engage in various types of transactions with certain “Disqualified Persons”. Which is important because, in the case of an IRA owner, failure to abide by these rules results in a deemed distribution of the entire IRA in which the transaction occurs as of January 1 of the year in which the Prohibited Transaction occurs (causing a forced liquidation of the entire retirement account and forfeiting its tax-preferenced status altogether!).

Among the Prohibited Transaction rules outlined in IRC Section 4975, IRAs are prohibited from buying/selling property to/from, lending/borrowing to/from, or furnishing/receiving goods, services, or facilities to/from, a Disqualified Person. Disqualified Persons are also prohibited from using IRA assets for their own personal benefit. Finally, Disqualified Persons who are also fiduciaries must avoid dealing with the income or assets of an IRA for their own account, or (in general) receiving any consideration from the IRA.

Critically, an IRA owner is always a Disqualified Person, and fiduciary with respect to their own IRA. Other Disqualified Persons, with respect to an individual’s IRA (who may or may not be fiduciaries), are the individual’s spouse, ancestors, lineal descendants, and any spouse of a lineal descendant. In the event an IRA owner, along with those related Disqualified Persons owns 50% or more of a business, then the business, itself, also becomes a Disqualified Person, along with its officers, directors (and persons with similar responsibilities), 10% or greater owners, and employees earnings 10% or more of its total wages.

The end result of these rules is that in order for a Roth IRA to invest into an early stage growth business, it must have someone besides the IRA owner (or his/her family members) to buy the shares from (as they cannot be contributed in-kind to an IRA). Which means businesses that are fully owned by the founder (and/or their family members) are effectively ineligible to be purchased inside of an IRA! And even if the business isn’t fully owned by Disqualified Persons, if the IRA owner (and other family members) own 50% or more of all shares, the business cannot even issue new shares to the IRA and must find other non-Disqualified-Person owners to buy from (and even then, there is a risk that the IRS will scrutinize the transaction further under the self-dealing rules for IRAs).

Interestingly, though, for individuals who want to start a new business owned by an IRA, 100% IRA ownership is achievable. As the Tax Court has repeatedly determined that since prior to the formation and capitalization of a company, it has no owners and thus, cannot yet be a Disqualified Person! Accordingly, the company can issue 100% of its shares/interests to an individual’s IRA.

However, even when a business is fully owned by an IRA, entrepreneurs must still be cautious with respect to their compensation. Because in situations where the business is owned 50% or more by an individual’s IRA, “control” essentially always exists (either directly or indirectly), and thus receipt of compensation personally should be universally avoided (to avoid running afoul of the self-dealing rules for IRAs). Though at the same time, absent the receipt of compensation, an individual can still create a Prohibited Transaction through the provision of services (‘sweat equity’) to their IRA-owned business. As while an IRA owner can perform certain administrative and decision-making duties on behalf of an IRA-owned business (e.g., paying bills of the IRA-owned business with IRA money, deciding on investments to be made by the company), it cannot do the work of the business.

Ultimately, the key point is that while IRAs can be used to purchase private, non-public companies, the Prohibited Transaction rules significantly restrict both who can sell shares to the IRA, what compensation the entrepreneur can receive when working for an IRA-owned company, and even the ability to contribute sweat equity to an IRA-owned company. Which is important to navigate, given the harsh tax consequences associated with the Prohibited Transaction rules!

#FA Success Ep 236: Crafting A Comfortable Sales Process Focused On Relationships And Relevance, With Shauna Mace

July 6, 2021 07:03 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 236th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Shauna Mace. Shauna is the founder of Inspire Growth, a sales consulting firm that helps financial advisors establish and refine their business development processes to more systematically convert leads into clients.

What's unique about Shauna, though, is her focus on helping advisors achieve real growth results without coming across as “too salesy”, by instead teaching advisors how to create relevance for prospects by actively listening to their responses to open-ended questions, uncovering their needs, and demonstrating what working together would really entail.

In this episode, we talk in depth about Shauna’s three goals of listening during initial meetings with leads, which include determining if the lead would be a good fit for the advisor, uncovering their most pressing needs, and booking the next meeting to keep moving forward (if appropriate), the importance of asking the potential client for permission as they move through the four stages of the sales process from being a lead all the way to being either “won” or “lost”, and Shauna’s suggested cadence for following up with prospects… as many as seven times over the span of a month.

We also talk about the gaps that Shauna finds that advisors have in their business development process, particularly when it comes to overcoming the mindset that they simply “aren’t good at sales” (which can otherwise lead advisors to not prioritize developing those skills as a result), the ways that Shauna helps her financial advisor clients bridge those gaps by systematizing the workflows, templates, and execution of a sales process so they can feel more confident in their ability to grow, and the key performance indicators that Shauna feels best measure whether or not the dollars an advisory firm is allocating towards marketing are being used effectively.

And be certain to listen to the end, where Shauna shares her experiences going out on her own to launch her new consulting business just as the world was coming to grips with the reality of the pandemic, the importance of having an action plan for each and every day and executing on that plan (especially when you’re in the early stages of growth), and the emphasis that Shauna puts on prioritizing self-care and setting personal goals (both for herself, and the advisors she works with) as a means of managing the inevitable stresses that arise from being an entrepreneur.

So whether you're interested in learning about how Shauna helps advisors systematize their sales process, the prospect follow-up sequence she recommends, and the key sales KPIs that advisors should be tracking, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Shauna Mace.
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The Latest In Financial #AdvisorTech (July 2021)

July 5, 2021 07:02 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the July 2021 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that SmartAsset has achieved “unicorn” status with a $1B+ valuation… driven primarily by its pivot to using its consumer financial media content as a lead generation channel for financial advisors, which has quickly grown to generating $1.5B/month in new asset flows for advisors, and has become the “key driver of revenue growth” as the platform approaches $100M of annual revenue. Of course, the caveat is that “cold” leads from third-party media sites don’t necessarily have a high conversion rate, leading to a ‘game of numbers’ of needing to sift through a large number of non-qualified leads to find the few that are a good fit, and necessitating dedicated business development staff to be able to nurture the opportunities. Which in turn is making such lead generation services especially popular amongst the largest independent advisory firms, that are both struggling to otherwise scale their organic growth, but do have free cash flow to invest into new leads (and a business development team to convert them).

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Broadridge acquires AdvisorStream as digital marketing for financial advisors continues to heat up
Principal shuts down RobustWealth as another robo-for-advisors fails to convince advisors to switch platforms
Addepar raises a fresh round of $150M of capital, raising questions of whether the company will expand further into portfolio management tools to attract more ‘downstream’ mid-to-large-sized RIAs
JPMorgan acquires OpenInvest as demand continues to rise for ESG (as implemented through direct indexing)
Orion partners with FeeX to make it easier for advisory firms to not only bill upon but directly manage held-away 401(k) plans

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

Pershing announces a new NetXServices Developer Hub as it continues to expand its APIs further towards an open architecture ecosystem
Goldman Sachs and LPL officially launch standalone RIA custody platforms for fee-only advisors
FP Alpha launches new tools to digitally scan clients’ estate planning documents to automatically create estate flowcharts
Pulse360 rolls out a new “meeting intelligence dashboard” to provide centralized management of an advisor’s weekly meetings (and all the agendas, meeting prep, and follow-up!)

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (July 3-4)

July 2, 2021 02:55 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a discussion of some recent White House proposals that would crack down on popular high-net-worth estate planning strategies, including dynasty trusts and IDGTs, as the administration increasingly focuses not on increasing estate tax rates or reducing the estate tax exemption, but on tightening enforcement to just make it more difficult to avoid the estate tax system as it currently exists.

Also in the industry news this week are a number of other interesting headlines:

A Spectrem Group study finding that what clients value most now is "unbiased advice" and expertise ("having knowledge [the client] is lacking"), while "helps me avoid emotional financial decisions" is actually one of the least valued services according to consumers themselves
How the IBD model is evolving away from being a broker-dealer altogether, as the entire advisory industry continues the transition from commissions to fees

From there, we have several interesting articles on communication with clients and prospects:

Tips on 'icebreaker' questions to ask in an initial prospect meeting to get the conversation going
How to prepare for a difficult conversation with a client (e.g., when it's time to raise your fees!)
How to accelerate the trust-building process with new prospects in the first meeting

We've also included a number of articles on practice management, including:

Why it's so important to manage client capacity to avoid burnout (and what's a realistic number of clients/advisor before hitting the capacity wall)
What it takes to scale an advisory firm from a small practice into a large business
Why the fastest path to achieving scalability may not be implementing better technology, but instead in reducing the number of service options offered to clients in the first place

We wrap up with three final articles, all around the theme of the ever-evolving office of the future:

Why the idea that "offices are necessary to promote spontaneous interactions for innovation" may not actually be valid
How firms are shifting to "bonding trips" as a way to promote team connection in the absence of offices
Why we may miss the daily commute even if we prefer to work from home (because it was actually more beneficial as a time to clear our heads than we may have ever realized?)

Enjoy the 'light' reading, and happy 4th of July weekend!

Kitces & Carl Ep 63: Delivering A One-Page Financial Plan And A Full-Plan ‘Technical Appendix’

July 1, 2021 07:08 am 4 Comments CATEGORY: Kitces & Carl Podcast

Back in 2015, Carl Richards made a bit of a stir in the financial planning community when he published his book, “The One-Page Financial Plan”, which suggested that most important aspects of a full financial plan could (and should) be delivered to clients on a single page (effectively a form of executive summary). The appeal of this approach was offering a useful and easy-to-produce deliverable for clients (that could be updated on an ongoing basis to account for the fact that conditions and circumstances are in constant flux), and more generally was a way to reframe the concept of the ‘full’ financial plan by drilling down to just the most actionable points of advice (which is all the client really ‘needs’ to implement in the end anyway). Yet if advisors are really going to encapsulate their entire recommendations into a single-page financial plan, the question arises: can financial advisors really get away with eschewing a full financial plan, and if most clients never read the full plan after it’s presented anyway what is the real purpose of producing the financial plan in the first place?

In our 63rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the origin story of the one-page financial plan, the key elements of a good one-page financial plan, and why it’s not meant to be a replacement for a full financial plan (which then exists as a form of “technical appendix” to provide in-depth support to validate the one-page summary), but instead, act as an executive summary of the full plan as well a reference-point that advisors and clients can use when making decisions.

As a starting point, it’s important to understand that the full financial plan is incredibly important. The breadth and depth of the work that financial planners do cannot fit on one page. But it’s equally important to acknowledge that the full financial plan becomes ‘outdated’ the instant that a client walks out of the presentation meeting, and in the end, most clients simply can’t absorb the full extent of numbers and details that are encapsulated in a comprehensive financial plan (which really functions more as support calculations to ‘prove’ that the recommendation itself is technically accurate).

Accordingly, one approach to address the full financial plans that some financial planners have adopted is to also include an executive summary, or, one-page financial plan, that is meant to provide not only a quick reference that advisors and clients to use as a guidepost, but as a living document that is easily updated as life happens and things evolve. Beyond which the entire remainder of the financial plan serves as a “technical appendix” for that executive summary.

While various planners have adapted these one-page plans to fit their needs, items that are commonly found on such a document include: a Statement Of Financial Purpose, which acts as a sort of guiding star, or overarching “Why”; a list of goals, which can be listed in such a way that prioritizes those goals which carry the least desirable outcome if not achieved; and finally, a list of the things that need to happen over the next 90 days. Put another way, the one-page plan summarizes the Why, What, and How of the larger plan, and is a tangible deliverable that advisors and clients can use as a yardstick against which financial decisions can be measured and that can (and should) be regularly updated as action items are completed and goals are achieved (or get shifted).

Which, again, isn’t to say that the full plan doesn’t (or shouldn’t) have a place in the planning conversation. Rather, the action items on the one-page plan are necessarily the result of a rigorous analysis of the client’s situation to demonstrate that it is technically accurate. And while a relatively low percentage of clients have an interest in digging in to examine the nitty-gritty of how final recommendations are calculated, for newer advisors (in particular) who are still establishing their credibility, the full plan can act as an audit trail of sorts to not only show where “that number” came from, but as a tool to boost an advisor’s own confidence levels.

Ultimately, the key point is that one-page summaries of the most meaningful and actionable information in a financial plan (i.e., the Why, What, and How) can be a powerful tool that financial advisors can use both as a living document that can be regularly updated as “life happens” and as a filter through which advisors can help their clients navigate important financial decisions as they arise. Which, at the end of the day, acts as an executive summary of the valuable analysis in the full plan and as a way to keep advisors and clients focused on what matters most.
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