Should a Financial Plan Really Be Boiled Down to an Index Card of Advice?

May 16, 2019 / By Michael Kitces, MSFS, MTAX, CFP, CLU, ChFC
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If clients never read their financial plan after it is initially presented, is it still worth creating a full-scale document?

Most professionals have heard some version of the famous allegory of the handyman and the $100 nail.

A man was frustrated by a loud creak in his floor, but couldn’t figure out how to fix it. Eventually, he contacted a handyman to come out and investigate. The handyman got down on his hands and knees, pushed on a few of the floorboards in an effort to identify the source of the squeak, pulled out a single nail, hammered it into the precisely right spot to solve the creak…and handed an invoice for $100 to the man.

The man exclaimed “$100? For a single nail!?”

And the handyman replied “No, it was $1 for the nail, and $99 to me for knowing precisely where to hammer it.”

The story of the handyman’s invoice, which has been told in many permutations over the years, is meant to illustrate the difference between the value of work (and deliverables) on their own, versus the value of the knowledge and wisdom it takes to perform that work well. Which is relevant not only to handymen and carpenters and plumbers, but also doctors, lawyers, and virtually anyone in a knowledge-based profession where experience matters—including financial planning.

The Index Card by Helaine Olen and Harold Pollack

In recent years it has been increasingly popular to talk about the concept of “The One-Page Financial Plan.” From the book of that very name by Carl Richards, to our popular Financial Advisor Success podcast episode with Matthew Jarvis (who uses a one-page financial plan), and even consumer media, people have picked up on the idea of boiling down financial wisdom to what can be written on a single index card (see the book by Harold Pollack and Helaine Olen).

That raises the question: In the end, is the value really “The Plan” (the physical financial planning document), or the financial planner’s knowledge? Could a financial advisor really get paid thousands of dollars for “just” the one page of financial planning recommendations, like the handyman who got paid $100 for a nail (and the wisdom to know where to hammer it)? Would clients really still pay for the financial planning recommendations on an index card, if there was no financial plan to go with it?

The 3 roles of the physical financial plan

In considering the consequences of “just” providing financial planning recommendations and not producing an actual physical financial plan, it’s worth considering the role that that physical financial planning document plays in the process of delivering advice.

1. The financial plan provides recommendations

Certainly, the culminating recommendations and action items are a key aspect of the financial. After all, the whole point of seeking financial advice is that at some point, the advisor has to actually give advice about what to do, what needs to be changed, and what the client should implement. The recommendations and action items—whether as a standalone page (or index card), or part of the overall financial plan—are an essential component of providing The Plan.

Yet the reality is that the recommendations and action items aren’t the only element that The Plan plays in the advice process.

2. The financial plan validates the client’s trust

Perhaps the most important aspect of the physical financial plan is that it validates the subsequent advice and recommendations being given.

After all, without the presence of a physical financial plan, the advisor’s recommendations on a one-page financial plan would have to just be taken on faith that they are technically accurate, that the advisor properly and fully analyzed the situation, and that the action items reflect the best course of action. Especially since—unlike the scenario of the handyman’s invoice—there’s no immediate result to affirm that the Index Card of advice is actually correct.

In other words, if the handyman’s nail doesn’t actually solve the creak immediately, the handyman can’t invoice $100 for the nail, because it will be immediately obvious that the job hasn’t been done. Unfortunately, not so with financial planning, where it may be years or decades before the outcome is known. Which means the client has to trust, up front, that the advice is correct. And what better way to validate the recommendations than to actually show that the advisor did the analysis properly?

Thus, in practice it may be problematic to entirely eschew The Plan, even if the client never reads it again, because it helps to establish trust in the advisor’s Index Card of subsequent recommendations. Just because the client doesn’t continue to reference The Plan later doesn’t mean producing the plan was useless. Because it may have been necessary for the client to see the plan, and the work that was done, in order to trust the advisor’s recommendations enough to never need to look at The Plan again!

Or stated more simply…the physical financial plan isn’t just about the analysis of the plan itself. It is a tool for establishing the advisor’s credibility and trustworthiness, too! Which means at a minimum, advisors who don’t want to produce full plans will need to have other strategies in place to substantiate the client’s trust.

3. The financial plan is a crucial conversation piece

The second function of a physical financial plan is that it helps to support financial planning conversations—not just about what the financial advisor recommends to the client and why, but about what’s possible for the client in the first place.

After all, the reality is that most of the time, if you ask a prospective client “What are your financial goals?” they can’t articulate their goals very well. At best, they may volunteer some numbers or loose goals—“I’m hoping to retire at age 65 with $1,000,000!” But deeper follow-up questions quickly reveal the looseness of the goal.

Why age 65? No personal reason, just because that’s when most people retire at their company. Why $1,000,000? Because it seems like a nice round number…that may or may not bear any real relationship to what they need to afford their retirement lifestyle (as it could have been $800,000 or $1.2M instead). In fact, often the answer to the question of “When do you want to retire, and with how much?” is “I don’t know. That’s why I hired a financial planner to figure it out!”

In other words, a key aspect of the financial planning process is “goal discovery”—to figure out what’s even possible for the client to pursue in the first place. In this context, the financial plan becomes a conversation piece about goals—starting with some baseline goal the client has stated, and then illustrating what financial planning goals are actually possible, and which are not, in turn inviting additional what-if scenarios as the client evaluates the prospective trade-offs to decide which path to pursue.

Without the financial plan, the client likely does not have concrete ideas to clearly visualize what is possible, in order to evaluate their trade-offs and choose their goals. Which makes it impossible to proceed to the final stage of making recommendations in the first place!

Moving beyond the physical financial plan?

So what does all this imply about moving beyond the physical financial plan to a one-page financial plan approach?

At a minimum, if the role of a physical financial plan is a combination of trust-building, conversation, and providing actual action items and recommendations, it means that the one-page financial plan or proverbial index card won’t be sufficient. Because it doesn’t address the other roles of the physical plan.

Instead, even if the focus shifts to a one-page financial plan, the financial advisor still has to either: (a) establish enough trust to validate that the plan is “right” even without “proving” it with the supporting materials; or (b) at least provide the supporting plan details in the form of a technical appendix or some supplement to the one-page plan.

So perhaps veteran financial advisors whose experience conveys greater credibility and trust may find it easier to minimize the physical financial plan, while those younger or newer advisors who are still trying to establish their credibility will likely struggle more in moving away from the physical plan. And those who have stronger communication skills and are more effective at showing empathy to build trust may find it easier to just deliver recommendations, compared to those who need the plan to demonstrate their expertise and credibility.

Similarly, even without the physical financial plan, it’s still necessary to have some means to facilitate a discussion about financial planning goals, trade-offs, and evaluating the possibilities in the plan. The good news in this regard is that financial planning software is becoming more collaborative. It is shifting from something that advisors have in their office to do analysis to being part of the conference room, where it can be used live and interactively with clients.

So it is increasingly feasible to use the financial planning software itself to facilitate financial planning discussions, rather than presenting “The Plan.” Of course, it does require a higher level of mastery of the financial planning software to be able to use it live and interactively with clients, who will see immediately if the advisor is making mistakes and cannot figure out how to use their own software!

This means the construction and the delivery of the financial plan may simply need to be reshaped to a process that pushes the collaborative use of the financial planning software to the forefront, with the supporting plan details printed later for supplemental support. That would reduce the bulk of The Plan itself to little more than the recommendations and action items that emerge out of the collaborative planning session.

Or viewed another way, the physical financial plan may not be able to be fully eliminated, per se, but it can be replaced with an alternative process that addresses the key issues and roles that The Plan currently fulfills.

Key elements to replicate

The transition from getting paid for The Plan to getting paid for a one-page financial plan is essentially about the shift from getting paid for The Plan to getting paid for the financial advisor’s planning knowledge. and knowing where to apply it. It’s like the handyman who is paid not for the nail, but knowing where to hammer it. With the caveat that validating the value of an intangible and long-term service like financial planning is far more challenging than showing you have quieted a creaky floorboard.

It’s important to recognize that this means the financial advisor really must have the knowledge to impart in the first place! In other words, the reality for many advisory firms is that producing The Plan has been a way to demonstrate at least some planning value in the absence of having any well-trained financial advisors!

The value was literally created by the analytical capabilities of the software, not of the financial advisor, and the advisor’s value was simply providing access to the output of the software. Given the sales-based roots of financial advisors, this isn’t entirely surprising; historically, financial advisors haven’t been paid to sell their own knowledge, because it was easier and more straightforward to simply sell The Plan as though it were a product (along with the other products that came at the time of implementation).

In other words, getting away from The Plan requires actually having the knowledge of CFP certification as a baseline, and ideally a post-CFP designation/specialization as well, to be able to demonstrate value beyond just what’s printed out in The Plan. That’s why the handyman can charge $100 for placing the nail, but the salesperson at the hardware store can only sell the $1 nail. And why a CFP certificant can charge for their financial planning advice, but a salesperson can only charge for The Plan itself.

The bottom line, though, is to recognize that there is a real opportunity for value creation beyond producing and delivering The Plan, which few clients will ever read after the financial planning meeting anyway. Even though many experienced financial planners probably could reduce most planning recommendations to a series of simple bullet points on an index card, doing so is not necessarily sufficient to actually get paid well for financial advice.

Instead, it’s still necessary to have a means to engage the client in meaningful conversation about their goals and trade-offs, and to establish the trust and credibility necessary to validate that the recommendations really are the result of bona fide expertise. Only then can the financial planner actually get paid not just for The Plan, but for the actual expertise that manifests in great financial planning advice.

So what do you think?

Do you get paid for The Plan, or your financial planning advice? Do you think you could get paid to reduce your entire financial plan to a single page of recommendations? Have you already tried it? Please share your thoughts and experiences in the Comments box below!

Michael Kitces, MSFS, MTAX, CFP, CLU, ChFC, is the director of research for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Md., that oversees approximately $1.3 billion in client assets. He is the publisher of the e-newsletter The Kitces Report and the blog Nerd’s Eye View. Kitces is also one of the 2010 recipients of the Financial Planning Association’s Heart of Financial Planning awards for his dedication to advancing the financial planning profession. Follow Kitces on Twitter at @MichaelKitces.

Comments

Your screen name is: Horsesmouth Member

We have not provided our clients a "physical paper copy" of their financial plan for 5 years. We provide a synopsis of Action Items and then online access to a scaled down version of the MoneyGuidePro presentation. This way they can do additional "What-If" scenarios; without changing the entire plan. We have only had one client in the last 5 years request a paper copy.
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Great article on the value of the full plan. How it’s “useful” to the client. I get great feedback on providing simple, easy to follow action items. Boiling down the complex to simple steps to implement, check off, and move on. That’s what my clients pay for. But I love the points that even without a large plan document I need to continue to focus on building trust and also goal exploration trade offs. Great reminder.
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This is such a love/hate relationship for our practice. I go back and forth on what will serve the client best (or at least I think it does) versus efficiencies in our practice. I have not had many clients over the last 22 years comment on the lengthy plan we sometimes give them after a meeting. However, I have had positive feedback from a succinct email detailing what we discussed and decisions made directly after a meeting. Along with this I will often attach reports from Naviplan however this is more for my compliance than anything. This helps us as well as we can quickly pull up in our CRM what was discussed in our last meeting and what was delivered. I have also played around with the Mind Mapping concept although I feel we are performing double work in this regard. Would love to hear Michael's thoughts and others.
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One page executive summary coupled w/the entire enchilada....Boom!
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