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How Do You Compare Two Financial Plans? — Hidden Value

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Welcome to Hidden Value, the new column where Joe Elsasser, CFP, answers common questions with insights advisors and their clients may not have considered.

QUESTION: How do you compare two financial plans?

JOE ELSASSER: The short answer to this question is this: objectively.

It isn’t always easy for advisors to determine which plan is best for a client. Many advisors run into challenges when what they suggest and what their client wants are entirely different.

Should the client do something different with their finances or continue on their current course? Should an advisor recommend what she or he thinks the client wants to hear? Should the advisor influence the client to select a financial plan that pays her or him the most? The least? How should you shuffle the deck so that everyone wins? How do you build a bridge to common ground?

(Related: The Advisor & The Quant: Is the 4% Rule Dead?)

One way to navigate this tumultuous process is to look at objective measures. This objectivity is the basis for the fiduciary movement in the financial services industry.

Here are objective benchmarks that we believe make sense when working with advisors who serve mass-affluent people in the retirement transition and beyond:

  • Will the client’s retirement income last as long as they do — even if they have unexpected expenses or unlucky timing with the market?
  • If the client’s assets are unlikely to support their income need over their lifetime, what percentage of the income need is met?
  • If the client’s assets are likely to support their lifetime income, what is available (net of tax) for the people or causes the client cares about?

Using these benchmarks makes it much easier to decide which financial plan is right for your client.

As the industry continues to evolve, we will likely see further iterations. Different frameworks may exist for clients in different situations, but ultimately, some objective framework is necessary. This objectivity makes it easier for advisors to explain the value of the services they provide and reasons underlying the recommendations made to their clients.

The interesting thing about the transition to a fiduciary mindset is the incongruity between what’s best for the client and the industry frame of mind.

  • What’s best for the client is the evaluation of how financial decisions interact with each other and work together to enable a desired goal.
  • The industry frame of mind is centered on revenue generation, which is generally focused on product selection.

A true fiduciary mentality is focused on decisions that may or may not lead to product sales, or could even stop a product purchase that may have otherwise been made. Further, real fiduciary advice cannot be limited to the products on the advisor’s shelf. For example, an investment advisor representative who offers financial planning for a fee, investment management for a fee and insurance products under their separate insurance license should not hesitate to recommend that a client pay off his or her mortgage if quantitatively that decision improves the client’s financial life. Yes, it will reduce the available assets for investment or product purchases, which will likely reduce the advisor’s compensation for that particular client. However, when recommendations are appropriately made, clients can readily see whose interests are at the forefront of the financial plan, making the advisor easier to refer and fulfilling the promise he or she makes to clients.

The hidden value: Advisors who prove that they are willing to put their clients’ needs above their financial interests will retain those clients, and also gain additional clients from referrals. Ultimately, objectivity will increase business for the advisor.

Joe Elsasser, CFP, Covisum

Joe Elsasser, CFP, RHU, REBC developed Social Security Timing software for advisors in 2010. Through Covisum, Joe introduced Tax Clarity in 2016.

Based in Omaha, Nebraska, Joe co-authored “Social Security Essentials: Smart Ways to Help Boost Your Retirement Income.”


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