In the world of financial planning, there is no shortage of rules, principles, and general best practice advice designed to guide clients toward sound money management. From savings benchmarks to retirement withdrawal strategies, these guidelines often serve as a starting point for building a financial plan.

However, the reality is that every person’s situation is unique, shaped by their individual circumstances, goals, and behavioral tendencies. A one-size-fits-all approach to financial planning often falls short, as it fails to account for the nuances and complexities that make each person’s journey unique.

Standard advice can provide a helpful framework, but true financial well-being requires tailoring strategies to personal realities. Effective financial planners take the time to delve into their clients’ lives to uncover the motivations, fears, and aspirations that drive financial decisions. By integrating this deeper understanding with data-driven analysis and behavioral coaching, financial professionals can craft personalized strategies that align with each client’s unique needs and circumstances.

Achieving Personalization Through Discovery

To provide clients with a financial plan that is personalized to their needs, planners must learn what their clients are seeking. Many discovery practices can be incorporated into the process of achieving personalization.

1. Narrative-based Planning: Incorporate storytelling and narrative-building into your process. Encourage clients to share their personal stories, values, and aspirations, which can help shape a more personalized and meaningful financial plan that aligns with their unique life journey. It can help clients envision their future self and give them a more realistic picture of what their goals should look like and what they are working towards.
2. Lifestyle-centric Planning: Move away from purely numbers-driven planning and focus on a lifestyle-centric approach. Help clients articulate their desired lifestyle and values, and tailor the financial plan to support and enhance the life they envision for themselves, rather than simply aiming for financial milestones. You will find that clients are much more motivated to act when you make your narrative about the “art” of their life and less about the “science” of how to get there.
3. Holistic Wellness Integration: Consider integrating aspects of holistic wellness, such as mental health, mindfulness, and work-life balance, into the financial planning process. Addressing these non-financial aspects can lead to a more comprehensive and personalized plan that considers the client’s overall well-being. Client’s physical and mental health and wellness are directly correlated to their financial health. While you are not a doctor, ensure you are keeping the goals in these areas in mind as you “prescribe” your advice and guidance.
4. Collaborative Decision-making: Foster a collaborative relationship with clients by involving them in the decision-making process at every step. Encourage open communication, active participation, and co-creation of the financial plan to ensure that it reflects the client’s values, preferences, and aspirations.

Incorporating these approaches into the financial planning process can create more personalized, dynamic, and client-centric plans that truly reflect your clients’ individual needs and desires and create more motivated and satisfied clients.

Adjusting Principles Based on Discovery

No matter what method of discovery you choose in getting to know your clients, that knowledge will inform the guidance you provide and ensure the financial principles applied suit clients’ individual needs. Here are a few examples of how best practices could vary by client.

Rethinking Emergency Fund Rules

The standard financial advice is to maintain an emergency fund with three to six months’ worth of living expenses, but this one-size-fits-all approach fails to account for individual circumstances. Before determining the best emergency fund requirements for your client, talk with them about their job stability, income sources, overall liquidity needs, and what they believe is the right amount.

For those with stable employment and a predictable income, a three-month emergency fund may be sufficient. However, clients with variable income streams or variable expenses should aim for a more robust cash cushion of 12 months or more to weather any dry spells or turbulent times.

Clients with ample liquidity from investments or access to lines of credit may not need to prioritize a traditional emergency fund. Instead, they can rely on alternative means of emergency funding based on their existing assets and borrowing capacity to cover unexpected costs.

By helping your clients tailor their emergency fund to their specific circumstances, they can strike the right balance between having enough cash on hand for peace of mind and avoiding the opportunity cost of keeping too much money in low-yielding savings accounts. A personalized approach ensures they’re neither under-prepared nor over-insured against financial emergencies. They’re financially prepared for most things that come their way, but also feel good about the overall picture of their savings, investments, and expenses.

Aligning Saving Priorities with Life Goals

The conventional wisdom is to maximize contributions to tax-advantaged retirement accounts like 401(k)s and IRAs before considering other investment vehicles. This approach makes sense for those singularly focused on long-term wealth accumulation for retirement. However, clients have shorter-term goals that may take precedence over maxing out retirement accounts in a given year.

Financial planners must use their discovery process to gain a comprehensive understanding of each client’s goals, both short-term and long-term. By mapping out anticipated major expenses like a home purchase, business investment, or child’s education, planners can develop a tailored savings strategy that balances competing priorities.

Using this integrated approach ensures clients can work towards their most pressing financial objectives without sacrificing progress towards long-term wealth accumulation. Comprehensive financial planning is a wonderful way to show clients that they are able to achieve their short-term and long-term goals.

Flexible Retirement Income Strategies

The rule which suggests withdrawing four percent of your retirement portfolio’s value annually to provide income has long been a standard guideline for retirees. However, this approach fails to account for the unique circumstances and cash flow needs of each individual. A more personalized strategy is typically necessary to ensure a comfortable retirement without running out of money too soon.

For retirees with variable expenses, such as those who have expressed a desire to travel extensively in the early years of retirement, a dynamic withdrawal strategy may be more appropriate. Start by assuming a higher withdrawal rate, and gradually reducing it as their travel and discretionary spending begin to decrease.

Conversely, retirees with multiple income sources, such as Social Security, pensions, or rental properties, may not need to adhere strictly to the four percent rule. With a steady stream of income from these sources, they can afford to be more flexible with their portfolio withdrawals, adjusting them based on market conditions and other factors. Use this as an opportunity to explore other ways they can put their money to work. Expanding goals, investing, or other strategies.

To create these personalized withdrawal strategies, financial planners often turn to sophisticated cash flow planning tools and Monte Carlo simulations. These tools allow for the modeling of different withdrawal scenarios under various market conditions, taking into account each client’s unique income sources, spending patterns, and risk tolerance. By stress-testing multiple strategies, you can identify the approach most likely to provide confidence in the plan while minimizing the risk of running out of money.

Personalizing Asset Allocation for Risk Tolerance

The traditional “100 minus your age” rule for asset allocation is an approach that fails to account for individual risk tolerance and life circumstances. However, as we all know, a person’s willingness to take on investment risk is influenced by factors beyond just their age.

For example, a 35-year-old client who experienced the trauma of the 2008 financial crisis may be more risk-averse than their peers. Conversely, a 65-year-old client with a guaranteed pension covering all living expenses may be comfortable taking on more investment risk in pursuit of higher returns.

Use risk profiling tools, in-depth client conversations, and scenario modeling to gain a nuanced understanding of each client’s risk tolerance. By tailoring asset allocation to the client’s true risk profile, rather than relying solely on age, you can craft investment strategies better aligned with your clients’ unique circumstances and psychological makeup.

Balancing Financial Principles and Personalized Advice

Financial planning is about much more than just accumulating wealth. For many clients, their deepest motivations are rooted in personal values that transcend mere dollars and cents. Financial planners who take the time to understand these core values can craft financial strategies that align with their clients’ life philosophies and aspirations, ultimately creating a plan that is personal.

By getting to know what truly matters to your clients, you can create financial plans that resonate on a deeper level. These customized strategies not only support clients’ practical financial needs but also align with their life philosophies, passions, and aspirations. In doing so, financial planning can be transformed from a mere numbers game into a powerful tool for helping clients live their most fulfilling lives.

Discover the power of asking your clients the questions that will lead to a personalized financial plan in our guide, The Art of Asking: A Conversation Guide for Financial Professionals.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor

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