Financial planning for the coming age of austerity

by Tony Novak, CPA, MBA, MT

Fee-only vs. fee-based financial planning options
Changing Professional Designations
Sustainability
Overhauling the approach to personal financial planning
Cutting fees while improving results
Leadership
Looking back / looking ahead

Financial planning for the decades ahead involves more than calculating our actions based on projections of the future. Baby boomers and their children are charged with the much more difficult task of making decisions about the future based on past experience and knowledge that is either irrelevant or contradictory to what lies ahead. Recognizing our lack of insight and inability to make accurate predictions dominates financial planning today.

Dramatic fundamental change in the world ahead will challenge even our most basic concepts of finance. Our concepts of what is an assets and what is a liabilities will certainly change. Income distribution, taxes, public policy and "the American Dream" will likely continue to be perceived as in crisis mode as we deal with austerity measures. We can best cope with these changes by utilizing the findings of recent neurologic research of financial behavior. The science of "not knowing" helps us cope with the dizzying pace of change are actually our best tools for effective financial planning today. In short, it is possible to plan effectively even when we don't grasp the future.

I am energized by the possibilities that come with the re-launch of my professional career in 2012 after being forced to take the last five years off to recover from an injury. This re-launch presents me with a fresh perspective on my work and an opportunity to elevate work relationships to a higher level of trust, service, performance and efficiency than ever before. The new focus is on individual financial planning for lawyers. This focus emerged from an analysis of past successes, strengths and weaknesses and, of course, an assessment of where the greatest market need exists now and will likely remain in the future. Attorneys who recognize the major trends in personal finance today appreciate the availability of truly independent professional advice.

Perhaps the single most exciting aspect of operating a professional advisory practice today is the ability to deliver research-based financial planning services. It is amazing that our industry (and many other industries) could exist for so long without reliance on evidence-supported procedures, but the change in approach is welcome by all who come to recognize the distinction.

Fee-only vs. fee-based planning options

A fee-only financial planner avoids the appearance of conflict of interest by arranging compensation solely by the client. Neither the advisor nor any related party receives compensation that is contingent on the purchase or sale of a financial product. Fee-only planners may not receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the advisor’s planning recommendations. This approach works best in specific situations. Yet several of the most important life stage considerations almost always involve transactions with built-in costs. It may not make sense for some lawyers to retain an accountant/adviser on a long term basis purely to provide advice and still need to maintain another trusted relationship(s) to handle ongoing matters with transactional responsibilities.

Fee-based financial planning services are the likely method of choice by attorneys who wish to maintain a long term adviser relationship based on trust but with the option to simplify executions and control costs. A discussion on the availability and suitability of these two options is a central theme in developing a new client/adviser relationship.

Changing Professional Designations

The professional designations that I used previously in business including 'Registered Financial Planner (RFP)', 'Registered Investment Adviser (RIA)', and 'Certified QuickBooks ProAdviser' are replaced with 'Certified Public Accountant'. The difference between a CPA
and other financial planning perspectives, in my opinion, is the scope of perception. A worldwide perspective, a focus on sustainability and a system of measurement beyond currency and historical financial performance will lead to better results over the next several decades.

Since much of my work revolves around health and health care finance, I've added the NAHU's Certified Consumer Driven Health Care Consultant (CDHC) certificate in 2012 and am a program candidate for a Chartered Health Care Consultant (ChHC) with The American College.

Sustainability

Reliance on cloud-based technology platforms combined with flexible green office space arrangements now makes possible a 'paperless' financial planning practice and virtual meetings on demand. (I continue to maintain availability of office meeting locations around Philadelphia but these continue to decline in importance and use by clients). New disruptive technologies continue to cut costs, reduce stress for clients (and advisers), improve efficiency and significantly increase the value of advisory services to clients on an almost monthly basis.

Overhauling the approach to personal financial planning

Financial planning today focuses on helping others realize a long healthy life shielded from the risk of catastrophic errors, avoidable liabilities and over-spending. We minimize the unproductive and distracting conversations, for example, about choice of investment vehicles that has consumed too much attention in the past. We now know that it is possible to achieve significantly better results than financial planners in the past by simply helping clients address the major strategic omissions and psychological errors with their personal finances.

The new focus emphasizes the choice between fee-only planning as an engagement service and fee-based financial planning as an ongoing relationship service.

Cutting fees while improving results

By embracing new approaches to old challenges, we can be more effective than ever before in improving overall financial results. The current consumer advocacy approach emphasizes improved utilization, saves money and improves efficiency. I am pleased to have broken free of both the asset-based fee method and the hourly fee structure (two methods that simply do not make sense for most financial planning clients) and have evolved to a pricing structure based on value as defined by client results.

The new fee structure allows us to provide strategic planning help to a young executive at the same perceived rate of return as a financial project for a corporate employee benefit plan.

Leadership

Leadership development is a lifelong process that takes place within ourselves, our families, our community and work environment. It should be an integral part of the management strategy of every organization because it has tremendous power to transform the world. I've studied the topic of leadership from the perspective of a coach, a parent an organizational manager and a financial adviser and am always eager to learn more on effective leadership techniques. My hope is that this process of sharing stories, articles, examples and inspirations will encourage others to consider the possibilities that deliberate study of leadership may have in their own lives.

Looking back / looking ahead

I've been fortunate to have served clients that include CEOs from two public companies. This is not typical of an independent financial planner. More typically my clients are self-employed lawyers, either attorneys in professional practice or business owners who expect to somehow achieve financial independence during their working years ahead. While self employed people face more challenges today, there are also more financial planning resources available today than ever before.

I've also been blessed with the opportunity to spread the word about many of these topics in publications, personal presentations, through public media and in the classroom. Over the past 26 years I've written thousands of Q+As, op-ed bits, advisory articles and newspaper columns on health care topics and made hundreds of personal and electronic media presentations to groups and clients in all 50 states and the District of Columbia.

More than ever before, health care financing needs to be at the center of personal financial planning. I am pleased to be an individual member of the National Association of Health Underwriters (NAHU), an industry association that shares similar objectives and values. I've been an active health care reform advocate for almost three full decades promoting the power of individual responsibility in transforming the system. Gaining control over health care remains a core issue to our long term financial success both as individuals and as a nation.