Historically, clients would turn to financial advisers when they required help on a specific issue, such as investing a lump sum, reviewing multiple pensions, or taking a retirement income.
However, more recently, financial advice has taken on a much more holistic view. Financial plans can range in their complexity based on client objectives; nevertheless, it is becoming increasingly more difficult to consider a single area of work without looking at the bigger picture.
Whilst it is important to consider the risks and rewards of investing, it is also crucial to think about these aspects in relation to your goals. For example, you need to consider when you will need to access the money, whether you can afford to lose the money invested, and the most tax-efficient option.
Holistic financial planning puts your goals at the forefront of any action plans assembled. Financial products and investments are secondary, as they are essentially just tools to help you achieve your goals. A comprehensive financial plan takes a bit of work at the outset, but it can be highly satisfying to see it all come together.
Establish Your Goals and Objectives
The first step towards a holistic financial plan is to establish your goals. Goals need to be more specific than ideas about your ideal future and what you wish to do. They need to be measurable, achievable, and have a time-boundary.
Retirement is an important goal for most people. However, you may also want to make home-improvements, make gifts to your children or grandchildren, or go on an extravagant holiday. Goals can be as big or as little as you like and can have a long or short time-horizon. Goals can also be updated and changed as you see fit.
Once you know what you want to achieve, your decisions will become much easier.
Gather Information
Now that you have identified your aspiration, you need to understand your starting point. A holistic financial planner will need lots of information from you to get a clear picture of your current situation. This will include details of:
- Your income
- Expenditure, as well as any upcoming major purchases
- Cash balances
- Debt
- Protection plans, including benefits from your employer
- Investments, including shares, funds, and ISAs
- Pensions, including defined benefit and money purchase
- Any business interests you have
- Your will and power of attorney
- Any large gifts you have made or intend to make
Once you have provided sufficient information, your adviser will then write to the relevant companies to obtain policy-specific information which can then be further analysed. This process takes time but is well worth it to build an accurate plan.
Create a Plan
After considering your goals and current situation, your adviser will prepare a plan for you. This will normally cover a number of areas, including:
- Cash management
- Debt reduction
- Investment strategy, including your attitude to risk
- Retirement planning
- Tax efficiency
- Risk management
- Estate planning
Implement the Strategy
It is only at this point that financial products become relevant. Your adviser may recommend:
- Investments, such as ISAs, investment accounts, or bonds
- Pensions
- Protection plans
You will need to consider if it would be best to invest a lump sum, regular contributions, or consolidate your existing plans. Your financial adviser may deem your existing plans to be suitable for your needs. If not, they will discuss the pros and cons to investing in a lump sum or regularly contributing to a plan.
When reviewing your existing plans, your adviser will consider cost, value for money, and whether the product meets its intended purpose. Investment choice and performance are also important considerations.
One of the many benefits of holistic planning is that it considers your position at a future time. This means that any arrangements you set up now should remain suitable for the long-term.
Regular Reviews
Your financial plan will initially include numerous assumptions, for example, inflationary increases and investment growth. The only certainty is that these assumptions will be wrong. We can make assumptions based on the past but the world is unpredictable and things can change drastically for various reasons, such as new products or new tax rules.
Financial planners cannot predict the future. Only by reviewing your plan at least annually will you be able to analyse if you are on track to reach your objective. More importantly, it ensures that any changes required can be made. If markets fall or you spend more than predicted, you can make small changes to your accounts to bring the plan back on track, such as a small increase to your contributions. Small, regular adjustments are easier to deal with than correcting a plan that has run off course for several years.
Your regular reviews will also give you a chance to ask any questions and get an impartial view on your financial decisions. This can help you decide whether the decision is financially sound and if it still aligns with your goals.
Holistic financial planning looks at the bigger picture, and ultimately gives you a better chance of achieving your goals than making financial decisions in isolation.
Please don’t hesitate to contact a member of the team to find out more about financial planning.