Tag Archives: investment management

Financial Advising or Financial Advice – Some Thoughts on the Evolution of Financial Planning

I have been a Certified Financial Planner since 1986. Fortunately, many things have changed over the years and I can truthfully say the tools we use are vastly superior to when I first started. The first financial planning software we purchased back in 1986 cost $25,000. That software almost had the capabilities of the financial planning apps you see on most of the free websites these days! Of course like most software now, we never really purchase it – we only pay to use it. The changes come so fast that it has to be that way.  The good news is now we can update our client’s plans easily.

That expensive software in 1986 did a great job of producing a plan – normally 100 pages or so – that was obsolete by the time the client even got to see it. We made projections that showed investments in things like the stock market that went up exactly the same amount every year. Of course that never happened. The markets change continuously.

ships-wheelAt that time, we gave financial advice. Think of it this way. Let’s say you had to take a boat trip across the ocean.  You have never tried to pilot a boat across a body of water like that before, so you would probably get some advice on how to make the trip.  You consult someone that knows how to make the trip and they tell you if you are leaving from point “A” and want to go to point “B” you should take a compass heading of X number of degrees and that should take you straight there. Also, if you travel at a speed of 20 knots per hour you will arrive at point B in Y amount of time.

Anyone that has ever navigated any type of vessel will tell you that while the advice you received may have been technically correct, you have very little chance that your trip would actually happen that way. Winds can easily blow you off course. Currents can easily change your direction.  Bad weather can produce heavy seas that leave you with little control of your vessel. And that idea of traveling at a certain speed probably isn’t going to happen either.  Heavy seas will slow you down. Smooth seas and a good following wind may increase your speed. Also, you need to consider that each time you make some type of correction because you think you are off course, you might actually have made a bad decision that put you even further off course than if you had done nothing!

It’s a good thing to get advice before you start your trip, but it would probably be better to have someone you can trust with you along your journey, advising you what to do as things change.  That way you are almost certain to get from point “A” to point “B”.

The future of financial planning is financial advising. It is helping you get from where you are financially now to wherever you would like to be. Life has a way of making sure it is never a straight line. Things change. Good financial plans are built to be dynamic. They can change with your ever-changing situation and goals.

The question is not “How did I do last month or last year?” it is “How do I get from where I am now to my financial goals?”  If you don’t have a financial plan, especially if you’re nearing or in retirement, you need to get one. If you have a financial plan and you’re not on a program of having it updated regularly, you may have drifted off course.

The switch to financial advising is bringing more professionalism to financial planning. But it is even more important that everyone understands that it is really financial advising that can aid you in reaching your financial goals.