Financial Planning Process – Finding a Financial Advisor for Accountability

I have a great dream and vision for my life, that is build a profitable business and a charitable foundation to help the lost, sick, poor and needy patients in their healing process. But I can never accomplish this vision by myself. I need to partner with like-minded people to achieve the goal. I need not only partners, but also good mentors to lead and guide me to fulfill my purpose so that I am effective and strategic in the endeavors I undertake.

Similarly, all of us need life mentors and partners around us to achieve our goal in life. This also applies to our financial life and goals. Many times, we set out to achieve a targeted financial goal, for example, to accumulate enough for our dream wedding, dream house, dream car, dream lifestyle and dream retirement. But as the days go by, we find ourselves falling short in our financial resources and have to lower our expectations. Eventually, we look at our current resources and let it decide the kind of lifestyle we can have, rather than looking at our desired lifestyle and finding strategies to achieve it. I believe many of us do plan for our desired lifestyle, just that we have distractions along the way, and lack of self discipline to stick to the plan. I also believe that the key to the solution is this, Accountability.

In our country, Singapore, I think many people have the perception that ‘financial advisors’ are essentially insurance agents, doing up a financial plan for clients and eventually recommending an insurance policy. Financial advisors can be from insurance companies, banks and also independent financial advisory firms. In my opinion, most financial advisors are remunerated by commission, which is tied to how many products they sell for their company, resulting in the focus on selling their company’s products, as their livelihood depends on it. However, there are also some advisors who are fee-based, and may be based on per hour of consultation or by the amount of planning work that needs to be done. This kind of fee structure is currently more established in the Western countries, and I believe Singapore is also heading towards that direction and also other Asian countries in time to come.

So what exactly is the role and value of a financial advisor, other than recommending financial instruments? Besides understanding your financial goals, knowing your risk profile, establishing a written plan, recommending suitable instruments and periodically review your roadmap, I believe the key value of a financial advisor is to be an accountability partner. Let us better understand how a competent financial advisor can add value to your financial success.

Understanding your financial goals

First of all, your financial advisor must be someone you trust. There must be a good relationship to begin with and trust is the foundation of all relationships. You must be comfortable with your advisor so that you can share without restrictions about your heartfelt dreams for your future. An advisor is also akin to a counselor, and should be a good listener, to understand heartfelt concerns which may require the advisor to ‘read beyond the lines’. A good advisor should inspire and encourage you to achieve your maximum potential, but also realistic in your situation. For example, if the client wants to achieve $5 million in 5 years so that he can be financially independent, the advisor must be able to manage the client’s expectations, so that the client has a reasonable expectation of what can be achieved and how.

Knowing your risk profile

You may find it surprising, but I feel that many of us, including myself, do not actually know ourselves very well, especially in the area of taking risks. We may feel that we are risk takers, mainly because we like fast cars, like action movies, and live for the thrill of the moment. However, when it comes to money matters and investments, once the markets drops 30%, we may start to have stomach cramps and unable to sleep at night. Therefore, it is important that the advisor ask good questions to discover your true risk appetite when it comes to money. Risk profiling is not just filling up a questionnaire and signing off. Rather, it is really asking personal questions with regards to real life situations and listening to the client’s response. For example, the client may like sky diving, and wants to double his money in 2 years, so that he can start a business. However, he has limited funds and needs to take care of his sick mother, as he is the only child. Can he invest all his money into a high risk instrument that can either double his money in 2 years, or lose 50% of his funds? A good advisor must keep things in perspective and advise the client for his welfare, rather than grabbing at every opportunity to invest the client’s money for commissions.

Establishing a written plan and recommending suitable instruments

The advisor, after understanding your goals and knowing your true risk profile with regards to money matters, will then proceed to formulate a plan and strategy to achieve your goals. Strategy formulation will be an important part of the financial planning process and you may wish to enquire about the experience and credentials of the financial planner you are working with. A good credential in the financial planning industry will be the Certified Financial Planner (CFP) designation. A good strategy will mean that needs will be prioritized, the risk that the client needs to undertake will be suitable for him, he has realistic expectations on the goal that he will be set to achieve, and financial resources will be effectively utilized.

After the plan is in place, the advisor will usually recommend some financial instruments that will help the client achieve his goals. These instruments will be either equities for wealth accumulation, bonds for wealth preservation, insurance plans for wealth protection or estate trusts for wealth distribution. The list is not exhaustive, and the advisor can use creative ways to help the client grow their wealth efficiently. In my opinion, a great asset and value that the advisor can provide is their network of contacts. Usually advisors are relational people and they have friends who are professionals and business people in other fields of work. The advisor is able to link up their clients with people who are seeking opportunities to people who have the opportunity. Like the famous Robert Kyosaki said, “The poor look for work, while the rich look for network.” Indeed, a person’s network may well determine his net worth.

Periodic review and Accountability

The financial plan and recommendations will usually take about 2 weeks to complete, but a good advisor usually partners the client for their whole financial life. This is because our financial life is so dynamic and events happen which can affect our financial situation and future, which we need a professional advisor who understands our situation will enough to advice on the right decisions. An advisor is like a doctor. If you have a chronic illness, would you like to go to a hospital that keeps changing doctors such that when you visit, you have to repeat your whole medical history to him? Or would you rather go to your family physician who knows your condition so well that you are confident with the decisions he makes are for your absolute welfare? I believe the answer is obvious.

Not only an advisor is like a doctor who is mandated to conduct periodic reviews, either half yearly or annual reviews, he is also an accountability partner to the client. In this aspect, commitment is required from both parties. I believe nobody wants to fail in achieving their intended goals in life, however, temptations are at every corner, distracting us from the course to success. And one of the reason people usually get into trouble, including financial ones, is that they don’t have to answer to anyone in their lives. They have blind spots which they think they can handle on their own. Accountability is the answer to these problems.

Financial accountability is to be regularly answerable in the financial area of our lives to qualified people. We need to give an accurate report, on how we are progressing towards our financial goals. If it is not progressing well, what is the issue at hand? These are tough questions, and the road to success is never easy and most times there is a price to pay, and that is discipline and some good pressure from our accountability partner regularly. It should not be sporadic or an ad-hoc basis. Therefore regular reviews are necessary to keep the accountability in check. I will recommend quarterly for a portfolio review and semi-annually for a full financial plan review. Qualified people will be people you trust and respect in the area of finance and wealth management. And who is more trusted in respected in the realm of your personal finance than your own financial advisor?

In conclusion, I believe the missing link as to why some people succeed beautifully in achieving their financial life dreams is because of accountability and discipline. We need to be disciplined daily to make the right decisions towards our financial success and have someone we respect, ideally our trusted financial advisor, to hold us accountable to the financial goals we have set for ourselves and our family.

Set out to find a trusted financial advisor and accountability partner today. Kick start your way to a roaring financial success. I believe we can all live the dream lifestyle we desire for ourselves and our family in the future, when we make the right decisions everyday.