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When to Review a Client's Financial Plan


Financial planning should be an ongoing process that includes scheduling time to review the plan with clients on a regular basis. In this article, Bryce Sanders explains the importance of defining the review, developing a plan and being proactive to help clients start their financial plan and stick with it.

11th Apr 2022
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Has your dentist ever tried selling you an electric toothbrush? It aligns with their mission, caring for the health of your teeth. Using it will be good for you, but the sale of the toothbrush is a transaction, making them money. The electric toothbrush isn’t an integral part of the ongoing relationship. Financial planning should not be the same as that situation. It should not be considered a one-time transaction. It’s an ongoing process that adds value to the client relationship.

Defining Reviews

A financial plan review is not a portfolio or performance review. When the stock market is volatile, clients often wonder how they are affected, asking, “How am I doing?” Answering that question is not the same as a financial plan review. House prices are dynamic, too, but clients don’t fret over daily fluctuations in the price of their home because the price is not reported daily in newspapers and online, whereas stock prices are reported.

Different people and firms use different terminology. Let us consider a financial plan a roadmap to help the client get from point A to point B. A portfolio review looks at investment performance. Progress to goals is self-explanatory. You are revisiting the objectives outlined in the plan: Are you on track? My former firm used the term Wealth Report, which looks at areas including net worth and projected income in retirement using the Monte Carlo analysis.

The Initial Development and Implementation

If your accounting practice provides financial planning as an advisory service, you understand it’s not a one-time transactional product like the electric toothbrush. Financial planning is an ongoing service. An ocean liner crossing the Atlantic is a good analogy. You have a starting point and a destination. GPS technology lets you know your location during the journey. The ship’s captain sometimes makes course corrections to avoid storms. Other times they need to maintain course and endure the rough weather, endeavoring to stay on schedule. The analogy holds another important point: Buying a ticket for the voyage does not guarantee you will arrive safely or on schedule. Put another way, paying for a financial plan does not guarantee the client success. There are always unknowns.

A major value of financial planning is the ability to address unique situations. If a client lives a simple lifestyle, they could probably make do with an online planning tool. Most people think their situation is unique. As an accountant you have heard the expression: “More money, more problems.” Financial planning can help address scenarios like providing for children from a previous marriage or children with special needs or caring for aging parents.

When a financial plan has been prepared and reviewed with the client, the implementation process should take place over a series of several meetings. These might be spaced at one-month intervals. Why the delay? Imagine you said, “We need to address retirement, planning, portfolio management, insurance for income replacement and estate planning. Let’s do it all today!” The client would be overwhelmed. They would feel their life was turned upside down. They would be faced with lots of decisions. Their eyes would glaze over. They would say: “Stop. I’m not sure I want to do this!”

If you break up implementation into segments, it’s like eating a series of small meals slowly. The client can digest the last segment and be ready for the next one. Most accountants and financial planners are not in a position to implement all the recommendations in house. They may need the services of an estate planning attorney or a mortgage loan specialist. You might recommend a few qualified professionals, but you need to follow up to confirm the relevant aspects of the plan have been completed. Your client would not be the first to setup trusts as part of an estate planning strategy but neglect to fund them because no one followed up.

Reviewing the Financial Plan

The client’s financial plan should be reviewed at least annually. Twice is better. A major part of the meeting should be reviewing progress to goals. This helps clients focus on the big picture.  It’s easy for clients to get anxious about the day-to-day movement of the stock market, especially if they watch financial news channels on cable TV. They may want to beat the indexes. They wonder if they should pull out of the market. Maybe they should buy the hot stock everyone is talking about. That is not healthy for many reasons.

By focusing on progress to goals you are able to calculate the return they need to reach their investment objectives. I’ve heard a financial advisor use the term “The Family Index.” Now you aren’t agonizing about beating the market but maintaining the return you need to reach your goal. If the time is long, often the required return seems modest. Here’s a great advantage to the concept: If you exceed the required return and recalculate, you now need a lower return going forward. That is useful as clients age and should theoretically reduce investment risk. Here is the drawback: If you have bad years in the stock market, you need a higher return going forward (or add more money) to stay on track.

Portfolio Review Frequency

Portfolio reviews focus on asset allocation along with buying and selling investments. These should be done at least on a quarterly basis. Years ago, statistics showed client perceived they were getting good service if they had a meaningful conversation with their financial advisor six or more times a year. Portfolio reviews are meaningful conversations. Asset allocation reviews are an opportunity to take money off the table if stocks are doing well and equities are now overweighted.  In declining markets, it is an incentive to add to equities when prices have retreated.

The Importance of Being Proactive

If you offer financial planning services, it is important to be proactive. You have other reasons to talk with clients besides conducting financial plan reviews or portfolio reviews. Ask if there have been any life-changing events or major changes since your last conversation. You client may have decided to take early retirement. Maybe they inherited money or their in-laws have moved in with them. This means their financial plan should be updated. It is a dynamic document. In this case, the life-changing event would trigger an unscheduled financial plan review. Even if there are no significant life events, plans should be updated every three to five years.

On-Demand Reviews

If you offer financial planning or investment services for your client, you must be responsive to their requests. It is also important to understand life isn’t about pop quizzes. If they call you at home at 10:00 PM on Friday night, it is unreasonable for them to expect you can answer detailed questions involving numbers. (Actually, you can, if you have online account access.) You should be responsive, although you might need to delay responding in detail until Monday when you are back in your office and have access to the data you need. Another approach is to schedule those periodic reviews ahead of time. Now you can say, “I can get back to you with answers on Monday, but we have a scheduled review in eight days. Would you prefer to wait until them?”

In conclusion, financial plans should be revisited once or twice a year. Portfolio reviews should be quarterly, and you should be responsive to on-demand requests from clients.  Scheduling reviews in advance helps relieve the on-demand pressures.

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