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Comprehensive Financial Plans Falling Short

Investors who believe they are getting a comprehensive financial plan from their advisers may not be receiving all the advice that they need, according to a recent study published by Key Financial, a certified financial planning firm in West Chester, Pa. As a result, Key is calling for a uniform code for financial planning.

"We contend that because so many people use the term loosely, and that there is no set definition of comprehensive financial planning,' people are confused as to what the true definition is," wrote Patricia Brennan, a CFP with Key and author of the report. "In order to create a service that people want and need, we have to define it clearly."

When asked whether their financial planner provided them with comprehensive planning, 64% of the 104 respondents to the Key Financial survey said yes, 26% said no, and another 10% were unsure.

"Right now, it's being defined by experience, instead of by objective," Brennan said. The challenge is in devising one uniform definition understood both throughout the industry and among the public. A truly comprehensive plan accounts not only for retirement, education and taxes - but also includes estate planning, education planning, insurance planning, risk management, benefit planning, philanthropic interests and stock option planning.

Most people don't get all that, and it may just be because they don't ask for it.

"It's marketing based," Brennan wrote. "For the most part, people have an understanding about what exactly retirement planning or investment planning is. However, estate planning, risk management, benefit planning and philanthropy are not as universally understood. We believe many people do not think they need to be concerned with those issues because they are traditionally thought of to be issues for the wealthy, not for average, hardworking families."

Everyone can benefit in some way from financial planning, Brennan said, but what little information most people do have is unclear, incomplete or even disingenuous. "There is a disconnect in Financial America,'" Brennan wrote. "My concern is that people say they are doing financial planning, but they're only focusing on a few select issues. If a person does retirement planning, that's OK, but call it that, don't call it financial planning," she said.

The Certified Financial Planner Board of Standards is working hard to bridge that gap. "It's our mission to educate people about financial planning and its value," said Margaret Brock, a spokeswoman for the Denver-based organization. In 2004, the Board of Standards, a not-for-profit agency that controls the testing, the designation and the trademark of Certified Financial Planner spent about $2.2 million on what tax records describe as "educational material on financial planning, including public service announcements and informal packets." Other efforts included visits to colleges, high schools and employers to get its message out. The organization also maintains an online newsletter and membership database.

But even once people develop familiarity with the term "comprehensive financial plan" they have very vague understandings of what such a plans should entail. Brennan's team asked respondents, 73% of whom use a financial planner, to define the term.

Answers ranged from the thorough: "Comprehensive financial planning is an integrated approach to wealth management addressing both immediate and long-term needs and objectives. It includes areas such as risk management, asset and debt management, cash flow, income taxes, investments, insurance, retirement planning, estate planning and all other areas impacting financial resources"

To the nebulous: "All inclusive; in-depth."

To the seemingly panicked: "I don't really have one!"

"We need a better system to communicate the level of service a client is actually receiving so that the client can measure the success of their plan objectively without being subject to interpretation," the report said, adding that a financial planning checklist may help clients better ensure all areas of their financial well being are tended to.

"There are a lot of issues out there. If you're taking a comprehensive approach, a few questions can unlatch a number of strategies that can address an individual's situation," Brennan said. Even when clients think they know what they want, it's not necessarily what they're getting, she said.

Key Financial asked people to rank the aspects of their financial lives about which they were most concerned. Eighty-eight percent of people said retirement planning ranked as their top priority, followed by investment planning (64%), tax planning (38%) and asset management (31%). Education planning ranked sixth (24%), and benefit planning came in at 11th (5%).

When those who had financial planners were asked which areas their financial planner had addressed, 68% said retirement planning, 67% said investment planning, 26% tax planning, 35% asset management and 15% education planning.

"People are buying into' what they are receiving. Even sadder is that their advisers may also be blinded into believing what they are giving is comprehensive when it's not." Brennan wrote. At fault are the media for sending mixed messages about what a financial plan should entail, and large banks and brokerage houses that either have a vested interest in selling specific products or a "boilerplate" financial planning approach, according to Brennan.

Brock, of the CFP Board of Standards, said that any of the organization's 50,377 certificants are capable of providing comprehensive planning, but some choose to concentrate or specialize. "Once someone has received the requirements for certification, we don't regulate what setting they work in," Brock said.

Although no special certification is required to call oneself a financial planner, "We can't regulate what firms call their advisers," Brock said.

Brennan said she didn't have an objection to that, but again stressed that the industry should do a better job of defining itself, while planners should disclose their area of expertise.

"We have to set a standard and an expectation," she said.

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