Principles of Financial Planning

The Evolution of Financial Plans

by Edwin P. Morrow, CLU, ChFC, CFP®, CEP, RFC®

The first financial plans were quite rudimentary. They were prepared with calculators and hand written form completion. Eventually these pages were typed with an electric typewriter. The focus was on survivor and retirement capital needs analysis and the solution was generally to purchase more traditional whole life insurance or investments.

The second generation plans were computer generated on time sharing main frame computers and then on the early personal desktop computers. Schedules became very detailed with hypothetical projections. Great attention was given to income tax sheltering techniques. These plans acquired leather covers and approached 15 pounds. Their size frequently inhibited their implementation. Strong product emphasis was real estate and other limited partnerships.

The third group of plans shifted away from detailed schedules and concentrated on printed graphics. This was encouraged by the availability of color inkjet printers. Much emphasis was made on adequate term life insurance and mutual funds purchased on dollar cost averaging. The focus of these plans shifted to the apparent gratification of a client's goals, but the supporting schedules and calculations were quite limited.

Then fourth generation plans blended desktop computerization with electronic statistics and downloads. The statistical “evidence” was previous mutual fund and stock market performance. The downloads were used to provide excessive detail on a client’s portfolio and historical performance. Focus became retrograde, rather than progressive. Plans started getting larger, but were frequently separated into several volumes or periodic portfolio reports.

The current fifth generation plan moved into true multi-media, multi-sensation information exchange. Color computer graphics are projected visually with a client having the opportunity to manually record critical numbers. A lot of information is condensed for visual display and financial relationships are easily conveyed.

Many persons learn most effectively what they see. Some, what they read. Others what they hear. Nearly all individuals retain information if they have been kinesthetically involved – such as what they manually write. The greatest comprehension and retention takes place with a combination of learning techniques: see, read, hear and write. (Unfortunately, planners have not yet determined how to embody the senses of taste and smell.)

The fifth generation plan consists of graphic representation of critical issues for the client, supported by schedules of data – stored on disks and printed or viewed for professional analysis and review. This detail is available for examination and manipulation by the financial advisor, the client and other professional advisors.

The sixth generation plans are awaiting technological advances in telecommunications and personal computers. These are presently known capabilities that must become cost-efficient for the customer and the financial advisor:

Small video cameras will record and transmit faces while conversation takes place. The computer screen can simultaneously display a report with a face in one corner.

Voice recognition will convert vocal dictation to written output for confirmation, reflection and revision by the client.

Four-way networked voice and computer conversations will provide simultaneous viewing and revision of financial schedules by the client, financial advisor, staff member and another advisor.

Remote printing of performance records, plan reports and legal documents will be an automatic process, with an electronic confirmation receipt.

The sixth generation financial planner will also use advanced practice management tools. The contact management features will link with other Windows programs using the database Registry. This will enable a data change made in one program (such as a phone number) to be altered in the other, thus avoiding duplicate entry of data. This will improve strategic planning and enhance client data management programs for asset information and service.

Remote query and report delivery will become a part of the linked programs. Each client’s computer profile will be stored. Reports can be sent via Internet or direct modem and reports, mail and all current information will then be printed automatically on the client’s local printer. Postal service is avoided. A planner may discuss strategic or investment changes, execute orders and update the user’s status report online and report visually or by printed copy.

In three to five years, fully automated marketing will start with the user designing the profile of the ideal new client. An Internet robot will search for such persons (for example: a dual income attorney, age 28-50, with children, who is in private practice, interested in physical sports and has not already put up a “no planners defense.”) These names will be inserted into marketing software for nurturing with a series of e-mail, letters, articles, booklets, voice messages and seminar invitations that are automatically generated.

While the software and data will remain in a planner’s office on the parent computer, the planner will be able to gain access anywhere: trigger transactions and enter staff instructions and forward client data with confidentiality to other advisors for their input and recommendations, thus operating a virtual firm.The client will even be able to access some of his or her files remotely, with security. Then access will finally become global, and nearly instantaneous.

Records of all client information, responses, and requests, whether written or oral, will be stored digitally for recall, for compliance and liability protection. Interface with other advisors (accountant, attorney, insurance agents) will improve all aspects of service and minimize practitioner time and client costs.

How Clients Will Be Affected

The client will receive increasingly better service in terms of quality, speed and convenience. He or she will attain a much better understanding of risk and reward, current and future status, and will always be able to obtain a prompt response to queries. As result of this professional, computer-aided service, the client will enjoy freedom to perform his or her occupation as well as maximizing personal time. This new technology will deliver increased service with reduced time requirements.

How Planners Will Be Affected

While total fee per client (measured as a percentage of client income or assets) gradually may be reduced (as result of competitive pressure or regulation), the technology will permit the professional to receive higher income per unit of professional time.

These enhancements will provide the professional with increased income, increased time for professional study and improved practitioner interface. The end result will be greater personal freedom.

A professional’s career will eventually be limited only by the period of mental competence and the hours of practice time desired. Clients can be gradually sloughed off to associates and, upon death or final retirement, the service transition would be immediate. This is beneficial to both the client and the professional.

How Staff Members Will Be Affected

Software interfaces will minimize manual entry of data, totally avoiding duplicate input. Remote display and printing will reduce clerical duties. Filing and records will become fully digitized. Because the staff member will participate frequently in joint electronic conversations, more client contact and service will be delegated. However, the reduced physical requirements will enable the service of more clients, thus justifying increased personal compensation.

A staff assistant would migrate into a para-planner and then reach full planner status, gradually assuming the primary client service roles as the original planner phases into retirement.

When individuals or small groups converse their personal pictures will appear on the phone/computer screen. This will be the live picture in many cases, but if a photo is not being transmitted, then a stored photo from the file will appear. In a conference call, which may include family members, other advisors and staff persons, three or more photos will appear on screen with indicators to identify whom is “talking.” This will enhance the sense of personal contact from the current, inferior blind phone call.

We’ve established that many persons absorb information verbally, while others prefer text. However, virtually everyone benefits from graphic representation of concepts. The system of the future will incorporate all media and be almost instantaneous. This sense of personal rapport will enable a financial professional to deliver personal service from a remote site and will help credentialize staff members. Since any report or information can be displayed on screen it will be easy to convey concepts.

Maintaining Relationships

Physical transportation is far less efficient than electronic methods. While physical, face-to-face meetings will be customary at the outset of the client relationship, they will be minimized thereafter by the capacity of electronic meetings. Prospects will be nurtured and excited by this service and clients will have lasting impressions of financial security.

In a world of ever-growing complexity and challenge, clients do not want to become financial planners, any more than they wish to perform their own appendectomies or repair their transmissions.

Clients want a relationship with a financial professional whom they trust, who provides high tech/high touch service and who understands them and their perspective on life. They want this professional to be very well informed, to have relationships with other professionals, to have instant access to information and knowledge. It is important that their financial professional of choice be able to communicate critical issues to them with clarity.

This professional must have access to all the financial services and products which might be needed and be able to connect with these vendors and institutions to obtain service. Financial planning professionals will focus on their client interface, but will require relationships with institutions and other advisors who offer critical services.

These links will be maintained electronically. The advisor/institution relationship will become a co-dependency. The institution will offer services and products requiring economies of scale and financial strength, while the financial planner will offer and support the customer relationship. All parties benefit: the client, planner, staff members and institutions.

The Future Is Coming!

These events will take place. Probably sooner than we might anticipate and in an exciting manner. We are fortunate to be in a profession that will be enhanced by new technology, rather than inhibited by it. That is, of course, for those who enjoy challenges and advance aggressively toward the future.

Edwin P. Morrow, CLU, ChFC, CFP®, CEP, RFC® is Chairman and CEO of Financial Planning Consultants, based in Middletown, Ohio. He is a consultant to financial advisors in the areas of practice management and computerization and the author of seven software programs.

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