Holistic Financial Planning

The best financial advisors help clients answer big questions like, “where am I going?” or “what am I doing?” rather than simply calculating optimal portfolio allocations.

In other words, they take a top-down approach to figuring out “what are your goals and how can we reach them?” rather than a bottom-up approach that tells you “how much can you afford?” With the rise of robo-advisors, this kind of holistic approach is becoming increasingly necessary.

But, what does holistic planning really mean? Suppose that a prospective client goes to two financial advisors and asks them how much they should be saving for retirement. The first advisor plugs the client’s age and income into a financial model that makes assumptions about the other factors and spits out a monthly figure. The second advisor takes the time to discuss the client’s retirement goals to get an idea of how much is needed and then factors in the financial elements to see what’s feasible.

The latter is an example of a holistic approach that focuses on real-life plans and then leverages financial models to make decisions. In addition to getting better inputs for a financial model, the process helps build a closer relationship with the client and truly understand their life and retirement goals. It’s easy to see why clients are likely to prefer this approach over automated systems that rely on averages rather than a client’s individual situation.