The importance of goal-based financial planning

We obtain financial advice at different stages in our lives: When we purchase our first home, we seek advice and inquire as to how large of a mortgage we qualify for. What type of mortgage is the best mortgage for us? When we start a family, we look at purchasing life insurance and ask how much we need to protect our loved ones. We may at the same time start thinking about future education costs, and we start saving toward that goal. As we get older, our focus shifts more toward retirement, and we start saving toward it. During these times, we seek financial advice, and we purchase a product to solve a need.

A robo-advisor will provide answers to the questions we ask during these times. A financial planner will ask the questions the client may not have thought of, which may be crucial to what they are trying to achieve. For example, when purchasing a home, it isn’t just about how much we can qualify for. We need to look at whether or not the mortgage will put a strain on our finances. We may qualify for the mortgage, but can we afford it? Is the life insurance we put in place going to cover the needs of the family now as well as in the long term? Is saving toward education costs going to be a priority over saving toward retirement? Do we pay off the mortgage or increase how much we are saving toward retirement?

What type of products should we purchase to meet our retirement goals? Will we have enough to provide for our desired lifestyle? Will we leave an inheritance, and what is the best way to transfer the wealth? What tax implications are we dealing with, and how can they be minimized?

The plan needs to cover managing debt, look at cash flow, review insurance as needs and means change, address tax planning and, most importantly, understand that all these things are linked together. Where financial advice is about selling a product to fill a need, financial planning is about providing a service. Goal-based financial planning is understanding what money means to our clients, how they would like to provide for their loved ones along the highway of life, and at the same time making sure they are prepared for any obstacles that may be coming their way.

Aurora L. Tancock, FLMI, CFP, is an 18-year MDRT member from St. Catharines, Ontario, Canada. Hear more in the April episode of MDRT Presents: