Flubbed Up Financial Plans

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It wasn’t until I became a CFP® professional that I understood the elements of a financial plan. My “aha” moment was when a potential client came in with their 401(k) statement. He proudly pointed to the middle of page one. There was a picture of a sunny day and the words, “You’re retirement is sunny and bright! You can expect to draw $6,000 per month in retirement.” I asked him what that meant. He boasted, “Well, I don’t think I need your services because my 401(k) is awesome! I put my information in and it calculated out how much I can draw and $6,000 is plenty!”

That was when it hit me.

All the online calculators and software programs combined cannot replace a human in the financial planning world. If they could, there wouldn’t be over 85,000 CFP®s in the U.S. Unfortunately, not all CFP®s are created equal and being a CFP® doesn’t make you a good advisor. It is no different than being a fiduciary. There are plenty of fiduciaries who are not good at their jobs, and this couldn’t be more obvious than when looking at how firms do financial planning.

Early in my career, I was trained to sell annuities. The firm I worked for had fallen victim to the “double your income, double your time off” promise from a high-volume annuity wholesaler. Free steak dinners and PowerPoint presentations about reducing or eliminating market risk were all the rage. I thought I was helping people. Granted, the sales were all suitable and did accomplish some of the clients’ goals, but I was selling a product and not creating financial plans. As time went on, I realized that financial planning software was looking more and more like a sales tool, positioning whatever financial product you wanted to sell by showing a client a gap in their financial situation. Most often, the solution was an annuity or life insurance. Go figure.

A financial plan lays out the necessary steps to generate future income and cover future expenses while a financial forecast is an estimation of future income and expenses. To go one step further, a financial plan will take multiple financial forecasts and compare them to find the best plan that fits your situation by minimizing taxes, maximizing Social Security, reducing controllable costs such as health insurance, it will then lay out all the steps to do those things, and monitor your progress along the way.