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Comprehensive Planning Goes Modular

By Murray Coleman February 16, 2015

Advisors can spend weeks creating a financial plan to incubate a nest egg through multiple phases of the saver’s life. But all that work is fruitless if clients ignore the intimidating tomes, which often run to hundreds of pages. Indeed, an industry meme is that many clients look at their financial plan once — when the advisor first presents it — and never again. That’s why experts now recommend breaking comprehensive plans into smaller, more digestible morsels.

“People tend to get overwhelmed by the sheer volume of paperwork and complexities involved in the traditional planning process,” says Tim Kneen, chief investment officer at IFAM Capital in Greenwood Village, Colo., which manages $1.4 billion. “That’s why we’ve found it works much better to take a step-by-step, modular approach in presenting plans.”

By their nature, modules help focus clients’ attention on their immediate needs, injecting more urgency into the planning process. It’s easier for clients to tackle an issue with real-time relevance, like household budgeting or taking care of a tax bill as April 15 approaches, than to see their whole financial lives in one great arc, according to proponents of slice-and-dice planning.

That doesn’t mean advisors should dumb down their approach or lose sight of long-term goals, says Steve Stelljes, president of client services at the Colony Group in Boston, which manages $3.8 billion. “A more dynamic planning process should help people prioritize their most immediate goals, not gloss over bigger issues,” he says.

Recently, a technology executive in his mid forties approached Stelljes about diversifying a heavily concentrated stock portfolio. It turned out the man was about to start a new job. Yet he hadn’t bothered to update a financial plan prepared years ago by another advisor — even when he’d endured a layoff and other job disruptions earlier in his career.

All he wanted from Stelljes was investment planning, but the advisor treated it as a discrete piece of a larger plan, he says. He coaxed the man into talking a bit about his future goals — including having enough to retire on some day after supporting his growing family.

The prospect has turned into a client, but it might not have happened, Stelljes says, if he hadn’t worked with the man one step at a time. “We didn’t simplify the process to a point where his big-picture goals were completely ignored,” he says. “It was more a matter of giving him the flexibility to address different challenges at his own pace.”

Tim Kneen

IFAM Capital divides financial planning into six segments: building and maintaining income, estate planning, tax planning, asset protection, investment analysis and education funding. “We don’t expect everyone to use all of our modules, but more choice gives people a better sense that what we’re working on now is part of a broader, more comprehensive process,” says Kneen.

By contrast, Pinnacle Advisory Group in Columbia, Md., breaks plans into two less specialized modules: accumulation-distribution planning, where portfolios and retirement strategies are developed; and risk management, which covers estate planning and taxes.

“No matter how compartmentalized planning becomes, we’ve found that different goals just naturally overlap between modules,” says Jake Mason, an advisor at Pinnacle, which manages about $1.5 billion. “That’s why we prefer to keep modules broad and less specific in scope.”

For example, Mason recently became concerned that a longtime client’s small business had grown to the point where she needed to start focusing on estate planning. When he reviewed all her assets, he found the woman needed more than just a will and some trusts. Her situation also called for new insurance coverage and tax planning strategies. Everything fell within the firm’s risk management module.

Mason, a longtime advisor who joined Pinnacle about eight years ago, says he finds the modular approach helps clients stick to their plans. That’s in part because, while its modules may be wide-ranging, the firm sends people home with specific action points. A section of the risk-management module explaining why a client needs more insurance, for example, might end with a summary including recommendations for particular types of property and casualty coverage. Or, in the accumulation and distribution module’s section on asset allocation, an advisor might recommend converting a traditional IRA into a Roth.

The summaries, which are written in jargon-free English, are a great way to make complex parts of a module easier to consume, says Mason. And they tend to energize lethargic clients.

“They’re easy to reference and make great talking points during follow-up visits,” he explains. “We find that well-written and concise actionable takeaways are important tools to keep clients engaged throughout the entire planning process.”