What's In a Financial Plan?
There is a rampant misconception of what a financial plan entails. Unfortunately, too often financial advisors or insurance salesmen will use the term financial plan loosely in referring to a simple retirement plan or possibly investment recommendations that are largely product based. Such proposals may include a plan for income distribution in retirement and an investment strategy chosen for their client’s time horizon. Yet, these fall far short in comparison to the full comprehensive financial plan that you would expect from a fee-based financial planner.
As a financial planner, I believe the relationship with my client’s is as important as the finalized plan. Before I can ever begin to approach providing a detailed plan, I need to have a very deep understanding of my client’s deep-set feelings about finances, including their needs and desires. It’s only when we are on the same page that we begin working towards a solution with a deep dive analysis of their financial picture.
This starts with dissecting and mapping relevant financial data into our advanced fin-tech programs, utilizing a process we refer to as our Technology Empowered Advisor Method (TEAM) approach. Our advanced software tools will generate an assortment of reports that will provide the necessary data to guide us through the financial planning process.
Various financial analysis, assessments and projections may be necessary for a financial plan, depending on the needs and the scope required. For an individual concerned mostly about outliving their retirement funds, the process is much simpler than a family concerned with generational wealth planning. Regardless, the most common components in a financial plan will most likely include all of the below customized reports or analysis and action steps.
Financial Analysis Facts – An itemized and detailed report of current state of financial affairs. It includes full reporting of assets, property, insurances, liability and expenses summary and more. This report reveals itemized reporting of all securities, including rates of return, mean rate and standard deviation.
Cash Flow Analysis – Analyze a year by year cash flow showing income, expenses adjusted for inflation, liabilities, pre tax savings and medical deductions, income tax, and more. We will also illustrate the changes in medical; such as group medical, to retiree medical, and eventually medicare. This allows you to fully understand your gross income, expenditures, and whether you will have surplus income or need to draw from existing investments.
Income and Distribution Planning – From the cash flow we will be able to determine if you need income planning or distribution planning. If you will be drawing on assets we want to make sure there is a plan for how you draw on those assets.
Social Security Analysis – A full analysis of current social security rules to understand which filing options are most advantageous for your overall financial strategy.
Life Insurance Analysis – Premature death will be simulated so we can review the changes in household income for the surviving spouse. Due to pension and social security reductions and loss of group life insurance at retirement, this change can be a significant risk. A full analysis will expose threats to a spouse outliving retirement funds.
Risk Tolerance Analysis – Our advanced algorithm programs will assess your comfort level with investments of varying risks and rewards and assign a rating to your risk tolerance. This psychological assessment gauges your reaction to market fluctuations.
Investment Allocation Review – Using the Risk Tolerance Analysis we will assess if your current investments are properly aligned for your personal needs. This review will allow us to see if adjustments may be necessary. We will also review accounts from a performance, risk and fee standpoint.
Tax Projections and Planning – When determining cash flow in coming years, we include projections for the tax impact. As a tax advisor, an important part of the holistic financial plan is developing strategies to minimize the overall tax burden. Tax strategies may include pursuing a tax-free retirement or tax-advantaged wealth transfer options.
Monte Carlo Stress Test – This analysis tests the overall viability of the comprehensive financial plan and encompasses every aspect of the plan. The monte carlo testing incorporates all unknowns, in extensive scenario testing. Such variables include inflation, mortality, investment returns, tax rates and much more. This stress test randomizes 1000 different scenarios to calculate a probability of success. We can then make adjustments where necessary to improve the probability of success.
Beneficiary Reviews – We ask for confirmation of beneficiaries on all insurance and retirement accounts. For bank accounts and investments, we will look for Payable on Death instruments. We will educate you on per stirpes vs. per capita to make sure you don’t accidentally disinherit a loved one.
“What-If” Scenarios – Our full planning procedure analyzes options and the impacts to the overall financial projections. Such scenarios include choices such as, “What if I change my retirement date to this date?”, “ What if I work part time” or even the impact of a severance, a major purchase, downsizing the home or other major financial decisions. Our Decision Center will allow you to see the impact of every decision so you know what you are gaining, or giving up, by making that decision. Then, we apply a new Monte Carlo Stress Test.
Roth Conversion Study – As part of our tax planning, we include a full analysis of the impact a Roth Conversion may have on your taxes in the short-term as well as the long-term. While a tax-free retirement is enticing, we compare scenarios that include the reduced assets and their growth as a result of ‘early’ payment of the tax liability. (An additional fee may apply for this optional report.)
The point of all of these various reports isn’t to overwhelm you with data, but to bring all of the important financial pieces together. Every individual has a unique situation and every piece of their financial situation has an impact on the entire picture. As such, no individual investment, transaction or financial strategy can exist in a bubble, but must fit as part of the long-term, financial plan to achieve goals. Our planning includes the integration of income, growth and safety, liquidity, taxation, inflation, health-care, longevity and survivor-ship risks, legacy planning and much more.
In addition, as a fiduciary we are not just looking for a suitable solution but the solution that is in your best interest. That means we dissect all investments and financial products. Our recommendations are based upon a detailed analysis focused on achieving financial goals with an emphasis on reducing fees, risk exposure and taxes.
We provide a written analysis that details the complete financial plan. These reports are typically 50-100 pages. In addition, our client’s financial overview is accessible to them by utilizing our Wealth Management Tools. Each client has access to this online financial reporting tool that details the plan, as well as tracks the individual’s investments, expenses and balances in real time. This allows easy access to monitor progress of financial goals after the planning process.
Finally, the full value of a financial plan can be realized by the ongoing relationship that is derived from updating the plans as life changes occur. In most cases, clients choosing McBeath Financial Group for planning realize the value in their investment advisory services, which include regularly updated planning and advisory services.