I occasionally get inquiries from prospective clients who are interested in a “one off” financial plan. Essentially, these folks want an assessment of where they are and a financial roadmap to get where they want to go. I politely explain that our firm doesn’t offer such a service. There are myriad reasons why, but the main reason is that a financial plan is not the same thing as financial planning.
We do a comprehensive financial plan for every client. Our plan projects the client’s future wealth and cash flows based on input from the client with our best assumptions. The result provides our client a range of potential outcomes. The variance in possible outcomes gets wider the farther into the future we go, much like the projected tracks of hurricanes have a cone of uncertainty. While a financial plan is useful, it is almost assuredly inaccurate because we have imperfect information about the future.
A financial plan is a map. A map, like all models is useful, but limited. It is a snapshot of a point in time. It doesn’t reflect current weather conditions or changes to the landscape. It doesn’t indicate whether the terrain is sandy or rocky and it doesn’t provide detail on altitude. A sherpa has a map, but he also has experience navigating the terrain. He knows what clothing and supplies will be needed to successfully make the journey from point to point.
Our greatest value isn’t providing clients a financial plan, it is in helping clients navigate the plan when life’s inevitable uncertainties arise.
Here’s a partial list of action items we’ve helped clients address in the past few months:
- Evaluate various purchase options for a client’s entry into a continuing care retirement community (CCRC).
- Analyze and secure disability insurance for a client who has recently started their own company.
- Analyze potential premium and benefit changes in an existing long-term care policy.
- Evaluate whether or not to pay off a home equity line of credit (HELOC) given the increase in interest rates.
- Recommend distribution elections and investment options for a new participant in a deferred compensation plan.
None of these decisions existed when we prepared the initial financial plan. This clearly illustrates the difference between a financial plan and financial planning. The map is not the terrain.