fbpx

The Future of Planning Frameworks

For the last 50 years, investment management drove the value proposition for financial advisors with any innovations in technology also focused around investments. The results were tools that helped manage cash-flow-based or projected future values. Today, planning frameworks are moving in a new direction.

On this Elementality podcast, Reese Harper and Chad Jardine look at current technology and then peer at future trends to see where the latest innovations are taking the industry. The value proposition provided by cash-flow-based and goal-based tools is becoming trivial. Now, as the value of traditional financial planning grows, planners are wanting new tools that show a client’s financial progression over time, rather than just one-time financial snapshots of the past.

 


Podcast Transcript

Reese Harper:
… and it came from MoneyGuidePro and eMoney, and the two 2000s fighting over the space in the market. One was saying, “We’re the goal-based company,” and one saying, “We’re the cashflow- based to company.” And then the cashflow-based company, eMoney, gets to the point-

Chad Jardine:
And they separate into Catholics and Protestants and you march on down there.

Reese Harper:
Then some people… both of the platforms have to create the way to solve the problem the other one solved. Because advisors on eMoney are going, “Well, it’d be nice if we could do some simple goal-based planning that wasn’t as complicated.” And then people on MoneyGuidePro are going, “Well, it’d be nice if we could do some cashflow modeling that’s a little more detail-oriented,” so they started coming up with their own version of Monte Carlo simulations.

Jordan Haynes:
Welcome to Elementality. I’m Jordan Haynes, financial planning specialist at Elements. In this episode of Elementality, Reese and Chad talk about the variety of different planning styles be it goals-based, cashflow-based, or others, and how with new innovations being directed toward financial planning, advisors can use these approaches effectively in their practice. As you listen, consider how you can utilize all these approaches with clients as you focus on building and maintaining strong relationships with them. Enjoy the episode.

Reese Harper:
Welcome and to Elementality, everybody here, for another episode in the studio. Super excited to be with Chad. Beautiful day and we’re going to be touching a topic that I’m sure will be exciting to me. Chad, what’s the latest in advisor land?

Chad Jardine:
So exciting. Perhaps the most scintillating and… Okay, well, it’s a good one. I don’t actually know how exciting this is because this is a big knowledge gap area for me, but I trust it will be exciting once it gets into your hands.

Chad Jardine::
So, I’ve been listening to people talk about… and I’m reading. I’m trying to come up to speed as best I can. It seems like that there’s a lot of different frameworks that people use for how they get organized and deliver financial planning. I hear about goals-based planning. I hear about cashflow-based planning. I hear about a bunch of a bunch of different frameworks and I just wonder if maybe you could take a stab at cutting through the fog of all these things? How do you make sense of these? What do you see from your vantage point? And how would you explain to a newb like me how I should parse all of these different approaches that are out there?

Reese Harper:
Well, this is an interesting one for me because I’ve been… The last few days have actually had a lot of conversations with advisers in a type of planning called life planning. George Kinder’s a big influencer in life planning. Money Quotient: Amy Mullen at Money Quotient has got a really interesting and useful framework as well.

Reese Harper:
The way I would look at the industry is like we… I’ve mentioned this in previous podcasts, but investments were the main value prop. All the software designed supported the delivery of some kind of investment strategy, investment reporting, investment trading, and rebalancing.

Chad Jardine:
Right. That’s right.

Reese Harper:
All of the innovation over the last 20 or 50 years was really in the investment space. Financial planning is nascent. It’s new. It’s the growing part of the value proposition. Investment management value proposition is not going to die, especially for active managers and for people that are differentiating their businesses on investing alone. They’re still going to be… I see a lot of ways to innovate with investments as your value proposition, but it’s not as strong as a financial planning, financial coaching, financial management, personal CFO kind of value proposition. That part is growing, but it’s historically been very small and we really only had a couple of things to do back in we’ll say…

Reese Harper:
George Kinder is a good example because he’s been around for a long time talking about life planning. Life planning is us a philosophy around financial planning that ties everything in your life, or in your money, to the things you really deeply value, the things you really care about the most. It’s less about quantifying some future outcome or even… And it starts getting in a little bit to goals where some people, the most important thing to them, it might be a purchase of some kind that really might be the capstone of what they feel like they value, and that’s what they want to use money for. From my perspective-

Chad Jardine:
Yeah. I can appreciate that. I had an old mentor of mine and his thing was his BMW M3. If he had a BMW M3-

Reese Harper:
That was it.

Chad Jardine:
… life was good. You know?

Reese Harper:
Yeah.

Chad Jardine:
A few rounds of golf a week and life was good.

Reese Harper:
So that framing to me is probably… We didn’t have software in the 80s and 90s. Financial planning really didn’t start until the 80s in a meaningful way, and so it was mostly this conceptual Excel spreadsheet, 10 B2 calculators, 12 Cs until the early 2000s. The Internet really gave birth to things like cashflow-based planning using tools like eMoney or using tools like MoneyGuidePro, NaviPlan, MoneyTree. There’s a lot of like pieces of software out there.

Reese Harper:
And they, a lot of them took different angles. Some of them really were as simple as replacing the 10BII calculator because before in the 80s and 90s, when we wanted to buy the BMW M3 or buy the cabin, we could just present value/future value calculation our way with our calculator into telling the client what the current deposit amount needed to be, solve for payment and give them the number. And then, we came up with software to do that. We can have software that like defines goals and we want to have $200,000 saved for child X and that’s what the financial planner does. We have software that lets us run now a super detailed calculation of all future cash flows in the client’s life.

Reese Harper:
I think what we’re seeing is that those two words you mentioned, goal-based planning and cashflow-based planning, those things are… they served a purpose at a time when those really were pretty big things. They’re still solving for a savings deposit amount for a future purchase is always going to be a quick conversation to have, but think about the value proposition of that for a human to do that. It’s so trivial. It’s like the fact that you need to talk to someone about how much you need to save, to save up for this thing, that’s not like a bad value prop, but it’s just getting weaker as time goes on.

Chad Jardine:
When you say that that’s true, is it because it’s simple and easy to do?

Reese Harper:
It’s simple and easy to do. If you say like, “Well, I’ll help you quantify how much you need to save to reach your goals,” I just don’t know that that value proposition is going to be very strong for the next generation. They are going to want something more than that. That’s a dimension of what you do, but at a time in the past where we went from calculator to computer and we could actually display it in a more visual way, it was an interesting exercise. I’m not trying to minimize that, but I am saying I don’t think that’s where the future lies.

Reese Harper:
Right now, what you’re seeing is we have solve for goals; we have map out my cashflow; we have life planning kind of stuff that’s still out there. All of those three to me are like that that’s where each financial advisor kind of thinks planning is one of those three things.

Jordan Haynes:
Do you ever wonder if you do enough for your clients to be worth what they’re paying you for? Do you feel like you’re delivering enough value? Many advisors wrestle with questions like these.

Jordan Haynes:
I’ve used the Elements Financial Planning System for a couple of years now. With it, I can deliver periodic insight about a client’s financial health and progress by utilizing standardized measurements. They know I’m watching their progress and can actually see how my advice is improving their life. With the Elements Financial Planning System, you can also give your clients consistent planning guidance and the valuable advice they expect. Check it out at getelements.com/meet.

Chad Jardine:
I was going to ask, so if you were to lay out all the frameworks, is this like a religion? You find the one that’s best for you and…?

Reese Harper:
Yeah, there’s a lot-

Chad Jardine:
Is there some objective truth out there that we…?

Reese Harper:
I think so and a lot of people say… and it came from MoneyGuidePro and eMoney in the 2000s fighting over this space in the market. One was saying, “We’re the goal-based company,” and one saying, “We’re the cashflow-based to company.” And then the cashflow-based company, eMoney, gets to the point-

Chad Jardine:
And they separate into Catholics and Protestants and you march on down there.

Reese Harper:
Then some people… both of the platforms have to create the way to solve the problem the other one solved. Because advisors on eMoney are going, “Well, it’d be nice if we could do some simple goal-based planning that wasn’t as complicated.” And then people on MoneyGuidePro are going, “Well, it’d be nice if we could do some cashflow modeling that’s a little more detail-oriented,” so they started coming up with their own version of Monte Carlo simulations.

Reese Harper:
The point is these frameworks solve very specific problems that a financial advisor can use, but there isn’t one method of planning that you need to jump into and say, “This is the way.” Solving for a goal is just a part of your advisory practice. Occasionally, mapping out a very detailed model of future cash flows might be very useful at a point in the client’s life cycle.

Reese Harper:
At the core though, understanding your the values of your client is a really important thing that I don’t think is ever changed. No-one’s debating whether life planning has any merit. People like Money Quotient and George Kinder, they continue to have modest followings of people that advocate for that part of the relationship that’s really important. The truth is that there’s so many more things though that are starting to come into existence right now that as the investment management’s value proposition keeps declining, and the financial planning’s value proposition gets bigger, we’re going to see all the innovation happening in planning.

Reese Harper:
I saw an app just recently, a consumer-oriented app that’s doing something a lot like what Elements is doing with benchmarking. You download it, you put on your phone and it’s like it benchmarks everything in your whole life about your finances to people on the system and peer group data. Benchmarking’s becoming a really important way that the next generation makes decisions, that what should I do given maybe what everyone else is doing? How is everyone else doing compared to me?

Reese Harper:
Accountability to a coach and measuring your progress is a whole new category of thing that’s starting to evolve as well. At elements that’s actually the main innovation that we have currently on our platform is a really accurate, super detailed, quarterly net worth statement that’s monitoring liquidity asset mix, the rate of growth of someone’s net worth. Tracking progress over time has been… That that’s not a thing right now for most firms. They’re doing one-time snapshots. That’s just two examples of a dozen innovations that I’m seeing. They’re all happening within the financial planning space. I think an advisor who is seasoned is going to say yes to all of these things in a way that gives their financial planning practice more depth and makes [crosstalk 00:13:09].

Chad Jardine:
I’m going to switch metaphors for just a second and set aside the religion metaphor that I brought up earlier. What this feels like-

Reese Harper:
A little divisive.

Chad Jardine:
Yeah, isn’t it? This feels like more is a little bit like the evolution of martial arts. You rewind when we were kids, and the world of martial arts was a lot about styles and historically a lot about style. “Oh, I got this Northern Chinese style; I got my Wing Chun,” or whatever, where what I hear you saying is that financial planning is becoming like the MMA. The mix of styles and platforms and that really people are going to be amalgamating the things that they really feel like are working from different frameworks and platforms into something that is… promises to be greater than the sum of its parts. [crosstalk 00:13:56]-

Reese Harper:
Eventually, I think that’s where we’ll get to. Instead of these simple camps of theological extremism… right…?

Chad Jardine:
Yeah.

Reese Harper:
We’re going to get to a place where you go, “Well, values have a really important place to play in this conversation.” I don’t want to be critical of anyone who’s doing any one of these frameworks to an extreme, but if I do talk to a life planner, I’ll often hear the life planner rank a values-based life planning conversation far higher than a cashflow-based conversation or a goals-based conversation.

Chad Jardine:
None of these things-

Reese Harper:
That’s okay but…

Chad Jardine:
None of the things took hold because they weren’t working it in some way. Just having a framework at all, being organized and thoughtful about how to wrestle with the complexity of client finances, the complexity of the financial world, I think would be super valuable.

Reese Harper:
Yeah. And I think that’s the… Theologically, if you want to say financial planning has some kind of philosophy at least, if theology’s too strong of a word, I do think that it’s important to recognize when your life experience is causing you to be a little binary around one particular angle. Just because cashflow planning may not be applicable to someone at age 34, it doesn’t mean you’re not going to pick that up when they’re 65, right before they retire and do a nice Monte Carlo simulation for them.

Reese Harper:
Just because benchmarking isn’t relevant to someone at 75 doesn’t mean it wouldn’t be relevant to someone at 42. Just because like light life planning and values-based conversations… We know those are very important, but they actually don’t serve as a rationale for someone interacting with you about your data often. Sometimes I just need updates on information. In order to have a values-based conversation, I can have a much more robust values-based conversation if I have data to support that conversation as opposed to just a coaching relationship, which is what it can turn into if you don’t have good information, and then the client’s values drive the whole conversation and you have no idea if that-

Chad Jardine:
No way to counter that if-

Reese Harper:
… counter that with any data. And vice versa, if you’re so heavy into the data and you’re so heavy into the analytical side, and you never contemplate the client’s actual values, you’re going to have a miserable client your whole life, and yet they’re the wealthiest person in the world.

Reese Harper:
And so, I think we’re going to start seeing values, and coaching, and consulting, and therapy, and goals-based conversations, and cashflow conversations, and benchmarking, and progress monitoring, and project management, and scoring and ratios, and KPIs, and CRM innovations, and reporting innovations. It’s going to be really cool to see. You still have 120 million households in the country who for them money is by far the number one stressor. All we have given them all we’ve given them up till now is, “Hey, for any of you who have a lot of money out here, we’ll sit on it and charge you 1%.” That’s what we’ve delivered to America and they’ve said, “Money’s our number one stressor.” And we’re like, “Well, if anyone has a lot of it, we’ll sit on it and make a lot of money. And if you don’t have enough, just come back to me when you do, and my minimum’s half a million or something.”

Reese Harper:
It’s like, wow! We’ve done a really great job as an industry. We are serving less than 10% of the population and we’re not doing much more than just managing their assets. I’m being extremely critical here, very binary to make a point, but I know there’s at least 1,000 advisors out of the 200,000 that are doing a good job. Just kidding.

Chad Jardine:
There was a lot about your answer that was more and deeper and better than I expected, and you certainly did not fail to deliver on the promise of an interesting topic. So until next week, I’m tapping out.

Reese Harper:
Thanks, man. Carry on.

Jordan Haynes:
Next time on Elementality…

Mac Gardener:
I like to joke around with people like, “How often do you go to your doctor?” Well, hopefully once a year if you’re pretty healthy, make sure everything’s good. “How often do you go to your attorney?” Well, hopefully not if someone’s suing you or you’re trying to sue someone. But your CFP or your financial planner is someone that you hopefully have a really strong relationship in your life and you keep in contact with fairly regularly because they’re helping you plan your financial life and understanding what I call the three Fs: your family, your finances, and your future.

Jordan Haynes:
You can learn more about the Elements Financial Planning System at getelements.com/meet and schedule a time to meet with me, or one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Chad Jardine. Elementality is produced by Abby Morton and directed by Jordan Haynes.

 

Leave a Reply

Your email address will not be published. Required fields are marked *