The New Generation Of Asset Allocation: It's All About Life Planning

The traditional view of financial planning looks at two primary components: a client's financial situation and the client's broader life.

Under the life umbrella, clients have different goals and objectives . Some may be saving for large scale purchases, such as homes and college education for the kids while others may have highly refined goals, such as retiring at a certain age or amassing a specific amount of money within an investment portfolio. While it appear obvious that life and financial goals are intertwined given how money impacts so many elements of our daily lives, “financial planning” hasn't always meant “life planning.”

However, more clients are demanding broad-based, encompassing approaches to financial AND life planning and advisors need to be prepared to meet demands for more holistic plans, not just showing clients facts and figures regarding investment returns. Some advisors are already stepping up to the plate.

These planners “are leaders in the trend of integrating financial planning and life planning. That means they are dedicated to understanding each client’s unique set of values, priorities, challenges, and opportunities to make the most appropriate financial recommendations,” notes Sound Financial Planning, Inc .

Consider the combination of financial and life planning, or “FinLife,” an important cornerstone in the rapidly evolving financial services landscape.

Filling The Void

The old rules of financial planning are ripe for disruption, particularly as client demands and tastes evolve. It used to be enough for an advisor to recommend investment ideas, properly allocate portfolios among stocks and bonds and help clients plan for retirement, but the landscape is shifting.

Today, clients want advisors to give them input on career choices and spending habits ; things clients view as important chapters in their financial life stories. Unfortunately, meaning advisors currently lack the skills and resources necessary to meet these client demands. No, this doesn't mean advisors need to become career coaches and credit counselors to appease clients, but it underscores the points that there is an element of psychology/therapy to the business and the more services an advisor can offer, the easier it will be to attract and retain clients.

Said another way, advisors need to realize clients want quantitative data (i.e. investment strategies and outcomes) and qualitative data (“soft” skills, such as spending plans, etc.)

“The quantitative side is the normal numbers side. The qualitative is the deep understanding of what people care most about, their values, their money mindset (how they approach money), and their fears,” according to Financial Life Focus . “We understand that the emotional/behavioral side of money can lead people to great success or massive problems. Financial life planning helps people and the planner understand how to best help a client live their values.”

Closer Than You Think

It may seem intimidating for some advisors to add some of the “softer” offerings mentioned here, but it doesn't need to be and when it comes to offering holistic advice and planning, many advisors are closer to doing so than they may realize.

Obviously, you're already building investment portfolios, plan for retirement and many advisors have long offered insurance analysis and estate and tax planning to their offerings. Those are elements in the holistic life planning approach. Adding cash flow management and goal setting to the mix should be viewed as a natural transition for advisors, not a bridge too far.

Whether the “FinLife” label sticks or not, what is apparent is that financial planning is no long about capital, it's about people.

“Over the years the financial planner has evolved from product vendor to trusted advisor,” according to TIAA CREF . “The progression from product-centered to advice-driven is grounded in the genuine sense of responsibility to the client. It continues to evolve. The breadth and depth of financial planning is expanding and in the process a new model is emerging that may define financial planning going forward. At the core is the recognition that the client is NOT the money; it is,rather, the person.”

Related: How Advisors Can Work With Clients Receiving Defined Benefit Pensions