Personal Financial Planning

These notes seem fairly comprehensive, and I am not planning additional study on this topic in the near future.

In the broadest possible sense, financial planning sets a plan for the budgeting of future income to paying present and future obligations and achieving specific goals.


While it's always been possible to get isolated advice related to specific products (a broker will provide information on mutual funds, an insurance agent will help determine the coverage you need), financial planning has generally been more in the nature of a sales pitch than sound advice - a "financial planner" was merely a multi-product salesman. Even when good advice could be had, it is generally not a comprehensive overview.

Except in the cases of wealthy individuals who retain attorneys and accountants to manage their financial lives, the middle and lower classes have not benefited from organized financial planning, nor have they sought help in doing so. This is beginning to change. With a large segment of the population approaching retirement, there is great concern for retirement planning services, as individuals scramble to improve their resources to be financially secure in retirement and manage a lump sum from a pension or savings plan upon their retirement.

On the other end of the scale, consumer debt has also become a widespread problem, and credit counseling services have arisen in response to this need. Where such services are legitimate, they involve financial planning to manage cash flow and reduce debt.

Simply stated, money is more and more a part of life for many people in all social classes, and anxiety over managing it well (or the consequences of having managed it poorly) are causing individuals to seek advice and assistance.

Moreover, customers are apprehensive of salesmen and brokers and are turning to independent planners, who work for a flat fee rather than a commission, and assist their customers in buying products from an array of firms. While it would seem ill-advised, these independent planners have retained the same professional title.


A personal financial planner is a professional hired to assist individuals with various personal finance issues. The word "planner" is preferred to "advisor," as "Financial Advisor" is particular to the guild of certified financial advisors (CFA), who would prefer exclusive demesne over that specific designation.

The fundamental services provided by a financial planner are organizing the details of a person's financial condition and preparing plans to achieve a desired future state.

Some of the specific services offered are:

Note that these tasks are not exclusive, nor comprehensive, but tend to be the major categories for which customers approach a financial planner for advice.


Sources seem to lead toward the conclusion that the future for financial planning is bright and there's a great deal of opportunity for growth. This may be subjective optimism, but a number of factors are cited:

  1. Personal wealth varies among individuals and over time, but financial planning can be useful to those on either end of the spectrum.
  2. The trend is for the average person to be more heavily involved in investing than in generations past, primarily due to retirement savings plans
  3. As the population ages, more people will be moving into retirement and will seek help managing their fiances
  4. The current crisis in debt management has made people more conscientious of their spending habits, and an increasing number of people are seeking professional assistance in managing personal finances.
  5. Innovation within the industry is providing a wider range of services that will appeal to a wider range of potential clients

Each of these factors seems reasonable, though they seem to indicate that customers have an increasing need for financial planning, though whether they are likely to recognize that need and seek planning services is difficult to gauge.


The planning process is fairly simple:

  1. Assess Current State - Review the client's current finances, both in terms of their income and expenses as well as their current portfolio.
  2. Set Goals - Work with the client to envision a desirable (and attainable) future state. This may include achieving a specific net worth, preparing for specific future expenses, etc.
  3. Develop a Plan - Identify the specific objectives that the client must achieve to transition from their current situation to their desired end-state
  4. Implement the Plan - Define incremental steps to achieve the objectives
  5. Ongoing Review - Monitor the client's progress and adapt the plan as necessary

Industry organizations and professional associations insist that personal finance is a much more complex process, beyond the capabilities of a layman to understand, and that people are better off seeking their help and buying their products. This assertion is in their commercial interest, so it should be taken with some apprehension.

On the other hand, consumer agencies suggest that a person can plan their own finances with a calculator and some notebook paper, but might need to seek advice when it comes to understanding the tools available (investments, insurance, etc.) to help them accomplish the task. In fairness, they may be oversimplifying matters.

A position between these two perspectives is that an individual has significant financial resources to manage, would rather not be bothered with the task, does not trust in their own restraint, or has for whatever reason been unable to do the task successfully on their own, obtaining the assistance of a professional may be desirable.

For what it's worth, there's quite a detailed and complicated "financial planning process" that comes down to the plan provided in the first paragraph - but it goes into a great deal of detail and covers topics that the average person wouldn't even consider.


Financial management is another approach to fundamentally the same problem. This approach is a bit less goal-oriented, in that it seeks to mange finances, in and of themselves, in addition to planning to obtain the resources to accomplish specific goals.

Financial management defines a number of areas of concern, similar to financial planning.

  1. Cash Flow Management - Includes managing a person's budget, their use of credit, with an eye toward improving cash flow and savings
  2. Investment Strategies - Planning to obtain finance (both savings and loans) for major purchases, as well as managing excess cash flow to generate future wealth and/or preserve its value against inflation
  3. Income Tax Planning - Strategies to minimize the impact of taxes, or to mitigate their effects, on both income and investments
  4. Insurance - Obtaining sufficient coverage to mitigate risks
  5. Retirement - Planning to obtain sufficient long-term cash flow to continue financial security into retirement
  6. Estate planning - Planning for the disposition of assets after an individual's death, with an eye toward protecting inheritors

In general, this seems to be a slightly different approach to the same goal: general financial wellness, though I suspect people perceive the need to "be well" less poignantly than the need to solve a specific problem.


Individuals seeking the assistance of a financial planner generally find them in a few different ways:

Most often, financial planning services are offered, free of charge, by corporations that sell financial services products. The problem inherent in this situation should be clear: the advice is generally geared toward selling the company's own product (exacerbated by the fact that the planners are given incentive to do so by earning commissions on referrals)

Another source of assistance are nonprofit organizations that offer debt counseling as a public service. Many such services are commercial operations (getting people to consolidate their debts into a single loan), but some are offered by nonprofits. All the same, motives are questionable (even nonprofits need to raise funds).

The final source is an independent professional who provides advice for a fee, and derives no income from the sale of any company's products to his clients. This is generally considered to be the most likely source of advice that is for the sole benefit of the customer.


As with any trade practice, organizations have arisen for the purpose of certifying professionals in order to lock up the business to newcomers. At present, there are a small handful of organizations wrestling to be the leading guild.

As a result, there is an alphabet soup of endorsements (RFP, PFS, FPS, and so on), none of which mean much of anything.


As yet, there are no legal restrictions particular to this service, though planners who have control of over $30 million in total assets are required to register with the SEC - but this registration is informal (there isn't a test, just a fee and a form).

There is some concern about the legitimacy of financial advice and the liabilities of the planner for providing harmful advice, but as yet, the problem is not so widespread as to require legislative action. Presently, existing laws against fraud, embezzlement, deceptive advertising practices, and the like have provided remedies for criminal and unethical behavior.


The primary ethical concerns for financial planners is a fiduciary duty to their clients: managing their finances in good faith, with a goal toward serving the best interests of their client. Aside of clearly criminal activities such as theft and embezzlement, unscrupulous financial planners have been known to guide their clients toward products that earn kickbacks or commissions, usurping authority over the client's financial resources, and guiding clients toward investments that earn the planner kickbacks or commissions.

A secondary level of concern is over the degree to which even a well-meaning and otherwise honest financial planner can mange the client's financial affairs without exerting undue influences over other aspects of their lives. Since most of the activities of everyday life involve the acquiring and spending of money, a financial planner may be given considerable control.