Anyone should be able to build a plan to achieve a financial goal. It shouldn’t be a complicated process or a process that requires a lot of financial know-how.
While this is true, we also know that most people benefit from getting professional advice on their planning. That’s why we believe in having a community for investors and advisors to connect over goals-based plans.
According to a survey by Northwestern Mutual, ninety-two percent of US adults say nothing makes them happier than having their finances in order.
The same survey found that using a financial advisor helps achieve that goal. Of US Adults using a financial advisor, sixty-five percent said they feel financially secure. Yet for those not using a financial advisor, only thirty percent responded the same.
Despite the benefits of professional advice, we think it’s too hard to find. Interviewing potential advisors requires you to repeatedly disclose highly personal information to potential advisors.
To make matters worse, the eventual benefit of disclosing this information is not clear. In other words, how do you actually measure an advisor’s value, and can you get something of value for disclosing private information?
A Better Way to Interview Advisors
There’s a need to lower the frictions around interviewing advisors and to make it crystal-clear exactly what potential benefit an advisor can provide. Here’s how we think it should work.
When you create a financial plan for your own use, you’ve already supplied all the information an advisor needs to demonstrate potential value. You should be able to anonymously share that information with as many advisors as you’d like at no charge.
By sharing that information, advisors can demonstrate how they could help you improve upon your plan. This should be a way to conduct advisor interviews anonymously.
Just like other big purchases in your life, you most likely want to vet a few options and understand what each may bring to the table before committing. And, it should be easy to understand what potential value an advisor can provide.
Yet, when it comes to finding a financial advisor, it isn’t always easy to see all the benefits you might get. There’s nothing out there that easily highlights them. That’s why we developed a points system that highlights the value an advisor may bring to your financial plan.
A Points System for Financial Planning
Before we talk about points, let’s quickly refresh on how to build a goals-based financial plan. If you want a deep dive on this topic, we’ve written more about the process in previous posts.
In a nutshell, building a goals-based plan requires four ingredients – a time horizon, current savings, future savings and investment returns. You build a plan by mixing these four items to your liking while trying to get as close as possible to your goal.
We make it easy to keep track of your progress with points. Here’s how it works. Imagine that your goal is 100 points and every ingredient is worth a certain number of points that add up to help you get to 100.
Every action you take in your plan – saving more, adding time, increasing stocks in your portfolio – contributes points toward your goal of 100.
100 points means your plan is expected to succeed. All of a sudden it’s easy to quantify the impact of the various decisions that you make.
Advisors can also use the points system. When a financial advisor provides potential enhancements to your plan, they can express those enhancements using points. We call these Advisor Points.
Using Points to Understand the Value of a Financial Advisor
Advisor Points are created when advisors apply their expertise – building a portfolio – to your plan. An advisor’s portfolio may help enhance your investment returns beyond what you could do yourself.
That enhancement can be expressed in terms of points gained for your plan. Enhancements are calculated after all fees are considered, so they are comparable to the points you created when adding ingredients (like time and money) to your initial plan.
Advisors send these enhancements to you in a proposal that contains the amount of Advisor Points they’ve created. And here’s the best part. You then get to spend those Advisor Points.
What does “spending” Advisor Points actually mean? Well, let’s say an advisor gained 6 additional points for your plan based on the portfolio they’ve constructed for you. You now have 6 extra points that you can either just add to your plan to get closer to 100, or use to replace existing points and potentially lower the time or cost associated with your initial plan.
For example, let’s say you had an original plan of 95 points. The advisor’s proposal enhanced your plan by 6 Advisor Points, but you only need 5 more points to get to 100. With this proposal, you’re at 101! So, use the extra point to offset one of the other ingredients in your plan.
You may want to subtract a point from your future savings. One less point of future savings leaves you with a total plan score of 100 points and may translate into a $1,000 reduction in the amount you plan to save each year.
Alternatively, you may want to subtract a point from time, which translates into you reaching your goal one year earlier while still leaving you with 100 points total!
All of a sudden, the value that an advisor is bringing to the table is much more meaningful. The portfolio that the advisor built for you could mean that you’re able to save less or wait less time to reach your goal.
If you like what you see, then you can take the next step and schedule a conversation with the advisor to discuss implementing the plan enhancements.
With the Lasso app, until you make that appointment, you still remain anonymous to the advisor, so your information remains in your control. Sound interesting? Click here to sign up for early access.