Holistic planning: a hurdle too high?

Aren’t you tired of hearing about holistic, lifestyle planning? I am. Not that the concept is wrong, it’s just an impossibly tall order.

Licensees and planners who offer the public a holistic service had better review their value proposition, marketing materials and service competencies to be sure they are all aligned. If they are misleading prospects and clients about the scope of their ability, the courts will continue to pass negative judgements on unfulfilled promises.

‘Holistic’ is a metaphysical term meaning that “life, mind and conscience cannot be understood by the study of their parts because the whole is more than the sum of each part”. Clearly, offering holistic planning is promising a whole lot more than a competently completed fact-find and access to the newest wrap account.

Planners, however, may be able to give comprehensive advice, which is a more defensible term. When applied to financial planning, comprehensive advice means it is understood that quantitative data collection alone does not provide sufficient information to provide advice. Only when quantitative data is matched (and given appropriate prominence) with qualitative data, can a comprehensive approach be taken.

Nevertheless, even this level of advice seems relatively hard to find, especially in risk management and estate planning.

If we take as given that all financial planners undertake rigorous quantitative data collection, what do they need to do to capture relevant qualitative data in order to provide comprehensive advice? What additional products, services and approaches would be necessary? By using a life-stage model, we can look at what a financial planner would need.

Standard to every life-stage are six critical tools essential to the rapid construction of meaningful financial plans (see table 1).

The first life stage is the 25 to 35-year-olds. At this time, people are usually trying to establish a career, perhaps starting a family and in the first stages of home ownership. What help do they need from a financial perspective? (see table 2)

A second life stage (usually age 40 to 50) might be where clients are consolidating their lives and their finances. Mortgages and children are still an issue, but if career is settled, and both partners in a couple are working, this can be a time where clients can start to really accumulate wealth.

It is also a time when potential issues such as marital breakdown, death of parents, redundancy, unemployment, career change, traumatic illness or financial melt-down can put significant strain on a client’s ability to work and save. While clients at this age may have more money, they also have more problems and issues (see table 3).

Retirement planning usually starts before the actual retirement date. The advice given at this stage will impact on the client’s lifestyle throughout their retirement — which in some cases could last over 30 years. There may be a place for part-time or casual work to supplement income in retirement or obtaining third career advice (see table 4).

It is currently not possible to provide even comprehensive advice, let alone holistic advice, as many of the required tools and competencies are not yet available.

Even trying to provide plain old ordinary advice may be difficult. With all eyes focused on the lower hurdles set by FSRA, the higher hurdles of common law may be missed. It is only by clearing these higher hurdles that clients’ needs can be appropriately addressed.

There are significant issues for comprehensive financial planning. First, how can comprehensive financial planning be done profitably and without breaching the new disclosure and conflict of interest rules?

Second, in all three life stages residential property has a major role. Clearly planners will need to have competencies in property acquisition, improvements, maintenance and borrowings. With many Australians retiring with insufficient superannuation, the management of the family home, be it through down-sizing or reverse mortgage, will become ever more important. How and when will these competencies be included in training and education?

Last, can comprehensive planning be included in a statement of advice (SOA)? SOAs relate to consumer protection issues when recommendations are made in regard to financial products. Can advice that is not related to financial products be provided in this document or would that mislead the client? They might think they have ASIC protection on these recommendations, when in fact they do not.

If comprehensive advice cannot be given within a SOA, how else is this advice to be provided and what will protect financial planners and licensees from common law claims from unhappy clients?

Holistic planning is too great a challenge at the moment. We need to walk before we run. Let’s deliver comprehensive advice first.

Paul Resnik is principal of Paul Resnik Consulting Group. Disagree with Paul? Share his views? Either way, you can contact him at [email protected].