IPB 134: Holistic Financial Planning is Poised to Win Big

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To kick off the new year, we are raising the white flag.  We have to concede a position we've long held because consumer sentiment appears to overwhelmingly head in the opposite direction.  For years, we've lampooned the notion of the “holistic” financial planner.  Simply, the notion that one person or small firm encompasses the entire spectrum of financial planning facets that you will face throughout your life.  The appeal is a one-stop shopping experience where one outfit can take care of your investment, insurance, tax, legal, and strategical financial life.  Sounds awesome in theory, but we've held sharp skepticism and for good reason.

I'd Like to Talk to you about the Kind of Work I do

When I stared in the financial services industry over 10 years ago, I fancied calling myself a financial advisor–though technically I wasn't supposed to.  I chose to frame my career in this fashion for two primary reasons.

First, it was easily recognizable–or so I thought.  Without much effort, I could encapsulate all elements of my day-to-day life by simply telling people my two-word profession name and they'd instantly get what I was all about.

Second, and just as important, it would warm people up to me.  Everyone needs a financial advisor, right?  Lots of people would raise their eyebrows at hearing my profession and then mutter something like “I need one of those.”  I could hear the register ringing (in my head) with each conversation.  Look at all the opportunities…I foolishly told myself.

A few years later it dawned on me that no one knows what the hell a financial advisor does…I'm not even sure I was all that certain at this point…and without a clear vision of what I got up every morning to do no one was going to hire me to do anything for them let alone talk about their financial lives.

Relationship Selling

Still, despite the struggle to get people on point with my vision of financial “advising” everyone around me working in my industry with more experience than I had offered up the same advice…relationship selling.

The idea is that you not focus on the product you wish to sell, but rather the problem it solves tied into the web of other problems each of us faces day in and day out as we accumulate (or don't accumulate) wealth.

People don't buy products, they buy solutions…I'll bet many of you have heard that one before.

So while struggling to get my “business” going using methods that cast what I actually did in as vague a light as possible, I chose to do the most logical thing…double down.

I subscribed to the fancy planning software.

I crafted ingenious marketing material that used a plethora of euphemisms for all the words I felt needed masking–I was so proud of this and today I honestly have no idea why.

I spent hours developing an elevator speech and a value statement.

I attended all the seminars that were supposed to teach me how to use the software I bought as well as the elevator speech I spent so much time creating.

And I bought all the feel-good self-help books other agents in my office recommended.

Now, the above list mentions (in honest) detail the things I did to try and develop and improve my practice as a “financial advisor” during my first year to year-and-a-half in the business, but take note of what it doesn't mention.

Study financial products, tax law, insurance regulation, and products, or anything else pertinent to the actual dispensing of advice to everyday people?  No.  Why on earth would I do that?

Insurance: Where I Turned a Corner

While I honestly fancied myself an investment guy and wished to spend loads of time talking about my many investment strategies, insurance intrigued me.  Luckily I landed at a place more than willing to talk about insurance all day every day and this certainly helped to develop my advanced understanding of insurance products–especially insurance law related to the tax code.

So instead of trying to master an “approach talk” or fine tune a presentation within software that showed someone how likely their current path was going to fail them, I chose to spend more and more time understanding the minutia of insurance contracts and how to design them as efficiently as possible to deliver maximum value and remain within regulatory guidelines as insurance.  This interestingly led to a niche position of expertise and ultimately resulted in my launching The Insurance Pro Blog back in 2011.

I went from fighting with people to talk to me about their finances and/or fielding super basic questions I wanted little to do with helping people implement some really awesome insurance policies laser focused mostly on the pursuit of maximum cash value accumulation (not always but most of the time).

While I understand that the majority of the clients that have come to me over the years do have the solution the product creates in mind, they always come asking about the product first.

And in all honesty, life for me hasn't been bad at all since my decision to become a subject matter expert on insurance and ditch the idea of being a “financial advisor.”

And it's for this reason that I've long held the belief that specialization was the key to success within the industry.

But I've come to realize that specialization is a unique position very few of us have the privilege to hold.

The Holistic Financial Planner

The idea of being a “holistic” financial planner (substitute advisor if you wish) isn't new.  It predates my entering the industry by several years.  I feel, however, that the idea is picking up a lot of steam more recently.

The concept is simple, I'm your financial “guy” (or “gal”) and I act as your quarterback (the industry loves sports analogies if you haven't noticed).  I don't really hold a great deal of knowledge in any one area but I know a little bit about a lot of things and I'm going to try and tie all of these things together in one coherent and easily accessible plan so that you don't have to establish new relationships with people you don't already know.

This also helps to eliminate problems of developing plans with other advisors who don't have a complete understanding of a plan you developed with another.  This way all the facets of your financial life work and talk with one another.

This sounds great in theory, but I assure you from experience (both personal and empirical) that it's extraordinarily difficult to pull off.

The Pitfalls of being Holistic

For starters, this is not a solo act.  While some advisors have attempted to work solo in pursuit of being all-encompassing, it never works out.  There's just too much to know spread across a myriad of laws differing slightly (but importantly) from one state to another.

You may be a subject matter expert on just about every financial planning aspect and law in the state of Texas, but if your client chooses to move to Vermont, will you truly know everything they need to know about that move and how it impacts their financial life?

So the obvious workaround is a firm that relied on several professionals who all bring a unique topic of expertise to the table.  Partnerships are great, I have one that has worked amazingly for years.  Problem is, not all partnerships work out, and the odds decline against your favor as you add partners.

But even with the odds stacked against the holistic financial planner, the pursuit is most likely worth it.  With consumer demand showing signs strongly in favor there's likely a big reward to the few who successfully pull it off.  Given this, it's no surprise that orchestrating a truly competent holistic operation requires significant effort and risk of failure.

Technology and Financial Planning

Financial planning greatly benefits from advancements in technology, but some have resisted its use for decades.  The old yellow pad continues to win in many advisors eyes.  Sadly, if this is you, I think your days are numbered.

It's unlikely that financial advisors will satisfy the demands associated with holistic financial planning without technology that also streamlines processes.  The good news is, this should bring significant efficiency to any financial planning practice.  The bad news, for some, is that it requires extreme usage of new tools that some have avoided.  It also likely brings additional operating costs as most productivity software uses a monthly subscription model.

The Single Focus Practitioner Loses

It makes me sad to admit it for I truly believe in the wonders of specialization, but singularly focusing on an area of expertise in financial products will likely become an ever more difficult career choice.  The 1990's worked hard to blur the lines between financial services sectors and ever since then every sector that touches financial planning appears nearly indistinguishable from the other.

While the DIY types will likely continue to appreciate the expertise of a single subject matter expert, I hold a dubious view on just how many true DIYers exist up against the number of singular subject specialists.

I don't think that singular specialists will go away completely, but the competition for such a spot will increase and dramatically contract the number of them moving forward.  Those who don't succeed in the specialist category will either find an entirely new career or work on building their part of a holistic practice.