What Is the Philosophy of Your Financial Planning Firm?

In a world where financial planning is guided by a standardized process but a lot of leeway about precisely what financial planning recommendations are crafted and implemented, the reality is that two well-intentioned financial planners can come up with remarkably different solutions for clients depending on their views and perspective. Whether it’s the active vs. passive debate, or permanent insurance vs. buy-term-and-invest-the-rest, some planners just tackle client problems in a materially different manner than others.

So how can clients find the planner that’s right for them, and how can planners ensure they’re a good match for their clients? Consider crafting a “financial planning philosophy” document, that explains what you believe when it comes to all things financial planning, so clients understand the perspective of the advisor they’re potentially going to work with. The point here is not to craft a politically balanced and sensitivity positioned document, but to help make it clear what your financial planning “deal breakers” are — the things you just don’t believe in and won’t recommend to your clients, period.

The goal of going down this path is to find people to work with who believe in what you believe — a crucial fundamental first step in having a positive long-term relationship. In fact, using your financial planning philosophy as a screening tool can be effective not only in trying to connect with prospective clients, but also potential affiliated professionals you might work with or refer clients to, advisors you might hire into your practice or work with as a partner, or even to evaluate the prospective fit of a potential successor, buyer or merger of your advisory firm. In the end, it all comes down to shared beliefs, and the easiest way to ensure that your viewpoints are aligned is to state clearly what your financial planning philosophy is in the first place.

While the CFP Board establishes a standard 6-step financial planning process — establish the scope of the relationship, gather data, analyze the situation, craft recommendations, implement the recommendations, and monitor the plan — the guidelines for financial planners leave a great deal of leeway in the key 4th step: crafting recommendations. While certainly the CFP Practice Standards require a fiduciary obligation to deliver planning recommendations in the best interests of the client, in many situations there simply is no clear consensus about what constitutes the “best” recommendation in the first place.