A financial plan is designed to organize and prioritize financial matters for a person or household, in order to achieve the goals set by the person or persons who will live under the financial plan.
It’s obviously a good idea, both for people with difficult financial decisions to make and for those who have a huge and complicated portfolio.
But do financial plans actually work?
Spectrem’s study Defining Financial Planning tried to define the services offered in financial plans, determine how many wealthy investors actually have a set financial plan and how many follow their financial plan down to the letter.
Those same investors were then asked to asses the value of their financial plan.
The good news is that financial plans are generally considered helpful in assisting investors reach their financial plans.
To begin, 74 percent of affluent investors have a financial plan. Some investors (27 percent) set up the financial plan themselves, but most of the others used some form of financial advisor or other financial professional to come up with the specifics of their plan.
Fifty-one percent of investors with a financial plan follow the plan closely, and 46 percent follow it “somewhat”. That’s nearly everybody with a financial plan that uses it in order to meet their financial goals. Advisors can use that information to serve as proof to an uncertain client that investors do use their financial plan to make key decisions.
The investors with a financial plan were then asked to use a 100-point scale to respond to the prompt “My financial plan is helpful in helping me reach my financial goals”. Investors overall rated their financial plan performance at 77.16, which is a very high rating for satisfaction of any service offered by financial advisors.
For some, the rating is even higher. Retired investors place the helpfulness of their financial plan at 78.99, and those investors who are semi-retired, living in that gray area between working and not working, rated their financial plan functionality at 83.11. Those investors are probably determining their path forward in regard to having a working life, and their financial plan is likely a viable guidepost for making that decision.
As investors were segmented by age, there was also a distinct difference in response. The oldest generation, the World War II investors, rated the helpfulness of their financial plan at 82.01, while the Millennials who have created a financial plan rated the helpfulness of that plan at 65.75. it is unknown just how complex a financial plan for Millennials would be, as they are still very focused on portfolio growth while balancing early stages of financial commitment and employment income potential.
©2019 Spectrem Group
Keywords: financial plan, investors, advisors, Spectrem, defining, semi-retired