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Why the Financial Planning Process Is the Best Prescription

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Why the Financial Planning Process Is the Best Prescription

For decades, individual investors have been spoon-fed piles of sugar-coated garbage by the traditional financial services industry (Wall Street). Brokers, bankers, insurance agents and others wearing the moniker of “financial advisors” have conditioned investors to expect immediate “solutions” to all their financial ills. Of course, these folks just happen to sell these fancy “solutions” in all the various styles and colors imaginable. In reality, the financial services industry is incentivized to push product prescriptions as quick and easy fixes and dis-incentivized to engage in the actual financial planning process.

In many respects, this is akin to going to a doctor that has never seen you before and asking her to prescribe a serious, complicated drug. Usually, there has been no diagnosis (or even an attempt at a diagnosis) and the doctor doesn’t know your medical history or current health issues. This has disaster written all over it.

Yet, folks come to us looking for exactly that. We don’t (and can’t) go down that path because we believe, borne out by decades of experience, that the financial planning process is the best prescription. Trying to ‘fix’ something without understanding the underlying problem is inappropriate because it may mask the real problem or perhaps make it even worse.

What’s Your Financial Speed?

A quick example might help. A while back we met with a very nice couple a few years away from retirement. This couple had done a good job saving over the years and lived well within their means. Their overarching question, however, was entirely focused on finding “the best investments” and “maximizing returns”. Nothing else mattered. When we mentioned that their financial speed or overall risk level should be set to sustain their lifestyle in retirement, (which would translate into a level well below “maximum”), there was a deafening silence. The elusive quest to “optimize and maximize” had full control over them and represented a huge blind spot between their expressed values and their actual behavior. Despite good intentions, they were treading into dangerous territory.

Perhaps the most valuable function of the financial planning process is to help close the gaps created by blindspots that we simply can’t see on our own. We try to shine light on these blindspots so that they don’t sabotage important long-term goals.

Solutions or Scams?

Wall Street is set up to design product “solutions” and make money from these, even when the “solutions” don’t make money for investors. Wall Street keeps churning out these products because investors clamor for the immediate “pain relief” that they promise. It is difficult to ignore the similarities between Wall Street peddling products and health providers pushing pills. Both make piles of money for the manufacturers ($344 Billion annually in the U.S. for prescription drugs) but usually have limited long- lasting benefits.

Neither financial or physical health come from a bottle. Look instead to the process for more long-lasting results. Start there.

Related: 7 Steps to Future Proof Your Financial Life

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