imgbd Futurist Edge

Is life planning really different from comprehensive financial planning?

In a nutshell

Imagine a financial planner asking his client, "How regular are you with your morning walk and how long is a typical walk for you?" Or another question that goes something like this, "What does independence mean to your 20 year old son who is studying in the US?"

These are not the kind of questions you find in a typical financial planning questionnaire. The answers to such questions don't get you to fill in any number in any box in your template that allows any kind of number crunching. And number crunching is, as we know, at the heart of a typical financial planning exercise. Why then must financial planners digress into such issues?

Welcome to the world of financial life planning.


How is life planning more holistic than comprehensive financial planning?

Many advisors struggle to grasp the difference between a comprehensive financial plan and a life planning process. After all, a comprehensive financial plan delves into huge detail, covering all aspects of a client's present and future financial circumstances. A comprehensive plan addresses issues covering the entire lifespan of a client, and beyond. So, what more does a financial life planner do, than what a financial planner achieves with a comprehensive financial plan? Comprehensive financial planning is touted as a holistic approach and so is financial life planning. So, what is more holistic about financial life planning?

Its about one level versus at least three

The essential difference between financial planning and financial life planning is that the former operates at one level - the geo-financial level, while the latter operates on at least three levels: geo-financial, bio-medical and psycho-social. Confused? Lets try to de-jargonize this statement.

The geo-financial level is what we are all familiar with. This deals with all the assets and liabilities - present and future - and offers solutions to ensure that assets are more than sufficient to cover all liabilities and obligations - present and future, including making appropriate plans for contingencies.

There are two other levels of issues that typically impact a financial plan at some stage, and which are usually not addressed in a typical financial planning process. The most important one is the psycho-social level. There are numerous psychological and social factors that influence a person's beliefs, values and perspectives, which in turn impact his saving, investing and spending habits. Some of these factors remain as unstated or dormant needs and aspirations, which become clear perhaps when its too late to plan and save for them. A life planner delves deep into these factors to discover needs and aspirations that often remain unstated, so that they can be appropriately planned for, in time.

An example of psycho social factors

So, lets take the case of the question we posed at the beginning of this article. "What does independence mean to your 20 year old son who is studying in the US?" Different clients can give different answers; here are just a couple of contrasting answers:

"My son is fiercely independent in all ways. He has a mind of his own, he has a clear idea on what he wants to achieve, and he is already financially independent. He studied well to ensure he gets scholarships, he works part-time to pay for his expenses. He is proud of the fact that he is one of the few students in his batch who does not look for financial support from his parents back home. He wants to be a self made man. I am really proud of him."

Here is a contrasting response:

"Independence for my son right now means no mom and dad nagging him daily to wake up on time, to study every day, to come back before curfew time. Its all about freedom to do as he pleases. The only times he really talks to me is when he wants me to send money every month. Going by his mounting expenses, one would think the US is experiencing hyperinflation!"

For a life planner, these two contrasting responses would set him off on a discovery process that would probably lead to very different conclusions on one key financial need for this client, which may remain otherwise unstated and therefore unplanned. Many parents feel obligated to ensure that their children maintain a standard of living that is at least equal if not better than what their children experienced at home, before they became independent. They feel guilty about leading a luxurious life when their children are working their way up in life, with less comforts than they enjoyed in their parents' home. From a financial planning perspective, this means a lot of unplanned cash outflows - gifting a good car that the son could not afford, gifting an overseas vacation that the son's family hesitated to take for want of adequate money - and so on. It could mean a desire to provide a house - not as a legacy - but much earlier. When a life planner delves into this issue, he is likely to come up with a whole stream of cash outflows to be planned for.

On the other hand, a life planner could encounter parents who have clearly communicated to their children the need to be self-made individuals. To work hard, save wisely, learn how to deny oneself the urge to splurge, and earn their lifestyles.

A life planner's role is not to sit on judgement on which set of values are right and wrong - but he does see his job as understanding the values that drive his client, so that he can discover needs and aspirations that may surface at some point of time, driven by these values.

Values, beliefs and perspectives are in the realm of psycho-social aspects, which are an integral part of a life planner's discovery process, though these tend to get ignored in a normal financial planning process.

Bio-medical aspects

The other aspect which life planners find very relevant is the bio-medical aspects. Lets go back to the question at the beginning of this article: "How regular are you with your morning walk and how long is a typical walk for you?"

Health care costs have emerged internationally as the biggest disrupter of well laid out financial plans of retired people. Health care costs keep spiraling and are unpredictable by nature. Life planners try to reduce the unpredictability and the disruptive potential of health care costs by a thorough discussion around bio-medical factors that can potentially create health issues down the road. It is not uncommon for a life planner to quiz a 45 year old client on his diet and exercise routine, his smoking and drinking habits, the history of his family's health issues particularly his parents and grandparents ailments and other details which could be pointers to health issues down the road. Ensuring adequate and appropriate health cover for these probabilities is then the life planner's responsibility.

Go beyond the obvious

Psycho-social and bio-medical aspects are two of the most common areas where life planners go deep into, in order to enrich the discovery process and offer genuinely holistic planning services, which not only cater to known and stated needs and aspirations, but also some unknown and unstated ones as well. These are by no means the only arenas which life planners delve into. Any aspect of a client's life which may have a bearing - today or in future - on financial needs or financial resources - becomes the domain of a life planner. That's what really sets him apart from a financial planner. A financial planner is guided by a template, a life planner is guided by much more than a static template. His template may vary from client to client, but his job remains the same: anticipate and prepare for much beyond the obvious.


Content is created by Wealth Forum and must not be construed as an opinion by DSP Blackrock MF.

Share this article