Helping new advisors create a repeatable financial-planning process

We all have gone to the doctor with aches and pains and maybe major problems that are unique to us. The doctor’s job is not only to give us a quick, simple fix but to really explore the problem and solve the underlying issues. How is the doctor going to get this done? Well, a good doctor will start by asking you a series of investigative questions to get an understanding of what you’re feeling and where your pain points affect you the most. He or she then will proceed to run a series of tests to get a complete medical picture. After obtaining this information, the doctor is now able to prescribe a treatment for the problem to help you move forward and on your way to recovery.

As a financial professional, your job is very similar when it comes to solving your clients’ financial and investment concerns and needs. How can you give good advice on a product, strategy, or solution if you don’t know your client’s entire financial picture? An effective financial advisor needs a simple, clear, and concise process to plot a client’s assets, leaving no stones unturned in developing that financial picture. By obtaining a full financial profile, the tool I use is a great visual aid to show your clients where they currently sit in terms of risk allocation and tax allocation.

Like the doctor doing a physical examination with specific steps, an allocation template or matrix is an effective way for the advisor to do a financial checkup for their client. It’s a way for the advisor to identify all of their client’s assets, including investments that may not be performing well in CDs, savings accounts, or other “lazy dollars” that could be used more effectively.

After collecting information on assets such as bank accounts, CDs, brokerage accounts, retirement plans, IRAs, real estate, and life insurance, an advisor can fill in this allocation matrix to show a client an accurate map of where all of their money currently sits in terms of risk and task allocation.

The matrix helps clients understand how we see the dynamics of risk management, asset management, tax efficiency, building income streams, and the relative time horizons of their assets. What assets, for example, need to be the most liquid, what assets require a high degree of risk management, and what assets might be best for first fueling retirement income? We look across three rows and three columns. The three columns identify asset allocation for a client, looking at the categories of cash or cash equivalents, “safer” investments that are not exposed to market risk, and market-exposed investments. The three rows are labeled “taxable,” “tax deferred,” and “tax efficient.”

With this information, advisors can show clients how assets can be moved into different investment categories on the matrix to better align them with the client’s needs and goals in terms of asset and tax management. This can also serve to begin the process of estate planning.