In the first part of our post, I discussed the importance of documenting the your firm’s financial philosophy. The point is not to cultivate some finely crafted universal principles that everyone can agree to, like the Financial Common Ground initiative. The point is actually to state your views that do not have universal agreement — because the goal is to make it clear what your personal beliefs, biases, and guiding principles are, to ensure that those you’re working with share and agree with your fundamental philosophy.
In other words, don’t state where you agree with everyone, state where you differ, so it’s clear what is unique about you and your beliefs, and clients can align themselves accordingly (or walk away). After all, the reality is that if there’s not real alignment in philosophy between the advisor and the client, the relationship is likely to be full of friction and not work out anyway. Stating the guiding beliefs — and highlighting the mismatch up front — will just save everyone a lot of time and trouble and cost.
Once the financial philosophy has been stated, the firm can publish it, include it in the firm’s marketing materials, and show it on the firm’s website. For instance, you can see my version of the “What I Believe” page for this blog, where I share some my underlying views, beliefs, and the bias of my perspective regarding the practice and profession of financial planning. I realize that not everyone will agree with all of these statements, but all of my readers, subscribers, and anyone who wants to work with me should be aware of and understand my perspective. Hopefully, we will agree — or at least respectfully disagree — on the points. If we don’t have alignment on most/any of these issues, so be it, but to say the least, knowing this will probably save us a lot of time in not trying to work together.
Of course, in the context of an advisory firm, the “What I Believe” philosophy should not be about the practice and profession of financial planning, but about the service and delivery of financial planning to your own clients.
Notably, one of the benefits of publishing your financial philosophy on your website is that if/when/as you want to add something to it, refine it, or change it outright as your perspective changes, you can easily do so. In other words, just as our perspective on the world changes as we live our lives, so too should the financial philosophy document be a living document that changes over time.
Importance Of Having An Established Firm Philosophy
Why does it matter so much to have a clearly articulated financial planning philosophy for your advisory firm? There are many benefits. The first, as noted earlier, is that it helps to ensure that clients will be a good match. After all, the reality is that if a client is dead set on absolutely maximizing wealth with aggressive tax strategies and picking active managers, and the advisor believes in satisficing, focuses on conservative tax strategies, and prefers passive investments, the financial planning relationship is unlikely to succeed in the long run.
Which means, in essence, having a clear financial planning philosophy just helps to weed out mismatched clients from the start, which is a far more effective approach than investing heavily with time and effort into a new client relationship just to have them leave a few months later when it’s clearly not working out.