Why Financial Planning might not help you

Managing your finances is an important part of building a life that works for you and your family, and planning and goal setting greatly improves your chances of success.  So why does financial planning seem to fall short on it’s promises so often?  I believe the current system has three major flaws.

First is with the industry itself.

If you need an investment, finding an investment professional can be a challenge, but overall if they do well in growing your money, you do well, so your interests are mostly aligned.  If you need insurance, discussing this with an insurance advisor is simple, they provide products, you watch your budget.  Same can be said for debt, the bank offers you rates, you watch your cash flow.

This contrasts the planning process, as the financial industry usually gets paid on amount of debt you have, amount of insurance you buy, and amount you invest.  Contrasted with the most common path of wealth creation, paying off debt and minimizing expenses.  Both of these decrease the advisors income.

With this, it is common to see debt reduction a small part of the budget, or in some cases even an increase in debt to be part of the plan.

Second, it’s all too technical.

Now I do not mean to imply that the process is too technical, detailed knowledge can only help the advisors.  With the focus on products, tax rates, sales process and other numbers, too often forgetting the human factor.  People are emotionally driven, (yes, even the toughest guy).  To create a successful plan it must fit with the individual, how they feel and what they respond to.  When motivated, engaged and inspired people do amazing things!  When bored, stressed or distracted the best plan is likely to underperform if not fail.

The industry has spent time training on the emotional side of selling, but from what I have seen hasn’t taken the next step elevate engagement and plan around the personality and motivations for long term success.

Third is regulation and litigation.

With any industry as important and potentially devastating as finance, regulations are important.  Regulations are created with the best intentions, however they have also limited the ability of the industry to help.

For example;

– more regulations often means more paperwork.  These costs need to be paid by the clients, or by raising the minimum profit a client needs to bring in to be accepted.

– leverage investing has devastated many investment clients, and regulation has been brought in to protect clients.  As a side effect, other strategies that used the tax benefits of leverage are also impacted by these rules.  Making reducing client risk in these cases often not worth the effort and risk to the advisor.

– When a client gets into a bad situation with leverage or other high risk options, a new advisor often can’t take the client on to help, as having a client that doesn’t fit with the regulations is bad for the advisor as well as their firm.  Leaving those who have been hurt the most with the fewest options to get the help they need.


I believe the solution will be found in aligning the focus and motivation of both parties, client and advisor.  The current model of more designations, education and regulation is not going to solve the problems with the industry.

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