The Cornerstones of Financial Planning

We asked Joel Edelman a platinum adviser from Principal Edge Financial Services in Sydney, what he thought makes a good financial adviser and what the industry might focus on in providing  a better service for it's clients. Here are Joel's 5 key cornerstones...

 

 

 

The Cornerstones of Financial Planning

In my experience as a financial adviser, I believe that there are 5 key cornerstones that we as a profession need to be aware of and apply every day and to every client. They are:

1. Never lose sight of the most important role that financial advisors fulfil

The single most important role as financial planners is to protect the lives, lifestyles and livelihood of our clients and their families. This is primarily about maintaining dignity in life regardless of the journey.

Without a comprehensive personal risk portfolio consisting of income protection, life cover and trauma insurance, our clients risk losing:

• Their primary asset base.
• Their future ability to earn an income.
• The ability to provide for their family’s goals.
• The ability to cover the cost of long term care that comes with severe illness and disability.

Ultimately they risk losing the lifestyle of their families that they have established and developed over several years. I firmly believe that we must revert to the fundamental art of personal protection and focus on delivering this crucial service to our clientele in a comprehensive way. 

2. Be clear on the aspects of the investment plan that we can control

The media frenzy and the seemingly endless reporting of the market volatility is a test for all of us. It challenges the very fundamentals of investing and investment planning.

Long ago, I decided that market timing was virtually impossible to achieve and something that was not really a value add for clients. Human nature is such that even if you provide a client with a ‘winning tip’, they will likely cash in for a profit and ask “What’s next?”  Ultimately, you build yourself up for failure at some future point.

As financial advisors, focused on helping clients achieve their goals and objectives, I believe that the primary aspect we can control within investment planning is asset allocation. Clearly nobody can reliably control return.

As a result asset allocation is where time is invested with our clients. They need to understand and embrace the risk / return fundamentals of markets. From here I work with them in identifying a portfolio mix that is appropriate for their individual needs. At each review a rebalancing ensures that clients remain on track.

3. Risk tolerance is a moving target

My experience is that you do not ‘know your client’ after 1 or 2 meetings. Nor are you likely to know them after 1 or 2 years. Realistically it takes a full business cycle to fully understand a client. This is because you are able to see how they respond to the market emotion extremes of fear and greed.

Specifically, are they influenced by short term market noise or are they capable of keeping their own objectives in focus?

For this reason, their advisor needs to be flexible enough in their advice and portfolio construction to acknowledge that a client’s risk tolerance may change with their time horizon. 

4. The client drives their own bus

There are many strategies that may appear on the radar when developing a financial plan. Some are more obvious than others and some are complex requiring detailed explanation.

The role of the financial advisor is get a deep understanding of the clients’ goals and objectives and then deliver a strategy aligned that is with this. It is then for the client to make the decision to implement and follow through with the strategy and engage in the advice process, and simply elect the best solution for them. So always let them drive, because it is their bus.

5. The simplest rules are often the best

I am regularly asked about how I source clients. The truth is our clients come from many different walks of life; however they share some fundamental beliefs:

• They have a defined set of objectives.
• They recognise that time, rather than money, is their most valuable asset, and are actively engaged in securing their financial future.
• They are open to receiving advice and engaging in working relationships.
• They seek guidance through their life as their lives and needs change.
• They are not influenced by speculation, short term market behaviour or media noise.
• They take ownership of their financial plan, action it, review it and maintain a highly disciplined approach in focusing on achieving their goals.

I often explain the 3 bucket theory, whereby out of every $1,000 earned (gross), a target minimum of 15% is saved and split across the buckets.

• The first bucket represents shorter term liquidity needs. 
• The second bucket is used for investment planning that may have a target time frame or material objective.
• The third bucket is for their own retirement as well the protection of their children and grand-children. It may also include estate planning measures such as charitable giving. 

By adopting and committing to this rather simple premise, I provide options for my clients over all time frames. And having several options in life is by far the preferred option!

by Joel Edelman, Financial Adviser

Article by:

Joel Edelman

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