How can you plan unless you know what you are planning for?

An article about establishing needs and objectives might seem a bit outdated seeing as they have been a basic principle of financial planning for so long, but their importance is probably more paramount than ever before.

A client would like a review of their pension

A fairly straightforward request probably received by countless IFAs on a daily basis.

What happens next though will determine whether the client receives product related advice or what we would call ‘financial planning’.

Obvious initial questions might include:

  • ‘Why have you got a pension in the first place?’
  • ‘At what age are you planning on retiring?’
  • ‘What level of income do you need in retirement?’.

All easy questions to ask, but perhaps harder to answer (try answering them yourself!!).

Without having answers to these questions, you will inevitably end up comparing one product with another and making a recommendation based mainly on charges / performance / product features etc.

Past experience tells us this results in a less engaged client, greater push back on fees, a harder to write advice letter (ask any Paraplanner!) and a client who hasn’t experienced the real benefits of financial planning.

What do we mean by ‘needs and objectives’?

Having to establish a client’s needs and objectives is nothing new, but what has changed at Old Mill over recent years is what we mean by ‘needs and objectives’ and the manner in which our Planners establish them.

In a firm with a number of Planners it can be very difficult to tell Planners what to do and how to do it without stifling creativity and innovation, so instead we decided to set a series of outcomes that all Planners should be aiming to achieve with their clients and provided access to various resources / learning materials to help them.

One such outcome is to establish client objectives based on human outcomes i.e., any objectives must be personal to the client and measurable.

As the financial planning profession has evolved so has the need to move away from product related sales and switch the focus to planning.

Common sense dictates that to plan you need something to plan against

Establishing a client’s needs and objectives is therefore the foundation upon which everything else happens.

If we refer back to the earlier pensions query and on the assumption that the client is unsure of the answers, how do we progress the conversation to allow a plan to evolve.

Dealing with a situation such as this is an essential skill that all Planners should be equipped with.

There is no one answer

But something as simple as rephrasing the questions can start to open up the conversations

An example of this is discussing financial freedom. Many clients may not know when they want to retire, but they might have a better idea of an age at which they would like to have the choice i.e., having the financial freedom to retire at a certain age if they wish to.

If you can then add a figure to this (possibly based on their existing standard of living) you could end up with:

Your longer term objective is to have the financial freedom to retire at age 60 on an income of £40,000 per annum.

You can now start to plan!