What Really Constitutes a Financial Plan
By Ryan Goldsman, CFP®, PAIP®
“We have something to learn from Domino’s Pizza.”
Over the years the pizza giant tried to reduce costs by tightening a little on the sauce, a little on the cheese, a little on the dough, a little on this topping, and a little on that topping. Eventually, the entire situation blew up in their faces since there was little accountability for the final product… Until the customer chose to go elsewhere with their dollars.
After close to two decades in the financial industry, I though I had seen it all. That is, until I reviewed the financial plan of one of my very close friends and realized that it wasn’t a financial plan at all, but instead it was a templated presentation for a hypothetical client who earned a certain salary. I was in shock.
After speaking with her advisor, I received confirmation of what I already suspected. It wasn’t a financial plan at all, but instead a case study of a similar client. Apparently, a number of these were available depending on one’s income and family situation, but rest assured, a full financial plan would be undertaken for my friend in the next two weeks.
For those who are not aware of what a full financial plan really looks like, here’s my two cents: it should be close to 40 or 50 pages (including the appendices), it should have many appendices, and there are certain basics that should be covered.
Rather than get technical, let’s consider dinner. Retirement can be considered the main course and the estate plan (including wills, estates, and powers of attorney) is like desert. It’s nice to have, but you don’t always get it. For those with additional goals, they can be considered as the appetizer, or even the palate cleanser. But I won’t say which of those would be the insurance analysis.
Looking “under the hood” is rarely a pleasant thing to do when it comes to finances, but it’s something that most responsible Canadians do from time to time, to ensure they’re at least somewhat on the right path. Depending on the needs of each client and the qualifications of their advisor, what goes into a financial plan can vary.
In all cases, a cash flow analysis and retirement plan should be part of the plan. In addition, there should be a section for wills, estates, and powers of attorney which at least explains the reasons for having a valid will and/or power of attorney in place.
After that, goals can vary. Some clients may have children or grandchildren whom they want to send to a post-secondary education, or potentially a disabled member of the family that they need to plan for. It all depends on one’s individual situation.
For certain individuals, income splitting or tax planning may be a concern. For others, it may be how to pass on a company to one’s beneficiaries without a large tax bill. It all depends on the needs of the client, but what’s for sure, it that a personal balance sheet and income statement are the base of the pyramid. That means assets, liabilities, and expenses. From there, the advisor and the client need to decide how their relationship is going to work, and what value will be delivered.