Why we lead with planning

I meet people all the time who ask me what they should invest in. It always freaks them out a little when I say “I don’t know.” They think I’m joking. They’re waiting for a stock tip or a mutual fund recommendation or maybe a catch-all rule of thumb they can apply.

I go on to explain that without having any information about what their future needs will be, I can’t offer anything useful to them. There are no stock tips, fund picks or rules of thumb that will actually help them.

Years ago, when Barry and I began taking clients on together, we realized that the best asset management on earth wouldn’t do clients any good if it wasn’t attached to a real-life financial plan that addressed each investor’s personal situation. This led us to re-orient our practice around true financial planning and have the asset management side be in service to helping clients achieve their goals.

A lot of the industry operates the other way around – products or strategies are promoted first, and “financial goals” are just words on a brochure.

My colleague Ben Carlson has seen a similar situation in the institutional world…

One of the biggest problems with the way many financial firms operate is that they prescribe before they diagnose. They first create a product or portfolio and then try to convince people to invest in it. They try to make a sale without first gaining an understanding of their potential client’s circumstances. It’s completely backwards.

A number of years ago, the investment office I worked for took a meeting with a large, well-known consultant as a favor. We never planned on using this company’s consulting services, but thought it wouldn’t hurt to take the meeting to see how they viewed the world. The firm didn’t really understand this dynamic and came into the meeting with guns blazing. They had a huge team with a well-rehearsed pitch they used to try and impress us.

Keep Reading:

Goals-Based Investing (A Wealth Of Common Sense)

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Ritholtz Wealth Management

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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  1. What is Goal-based Financial Planning Anyway? | Stable Investor commented on May 03

    […] Indian financial industry (which is full of agents and distributors having incentives that are not totally aligned with those of clients) is to be blamed too. Instead of first understanding what the client actually wants to do with the investment in future, “the industry operates the other way around – products or strategies are promoted first, and “financial goals” are just words on a brochure.” [The Reformed Broker]. […]