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- Title
Evaluating Financial Planning Strategies and Quantifying Their Economic Impact.
- Authors
Kitces, Michael E.
- Abstract
Most research on the value of fi nancial advice has focused primarily on how advisors add value around a portfolio. Ultimately, though, fi nancial advice can impact a wide range of areas from income and estate tax planning to insurance planning (where the expected value is typically negative in absolute terms, but an improvement in risk reduction), and more. In some cases, the “value” of fi nancial planning is in the eye of the beholder—based on how the client values his/her own time relative to paying for the advisor. When comparing two fi nancial planning strategies to each other, it’s feasible to compare the outcomes and decide which is best. Trying to assess the value of fi nancial planning advice in the abstract, though, is much harder because of the “compared to what” problem. It’s not always clear exactly how any particular client would have behaved in the absence of the advice (since that future never actually happened), which makes it impossible to measure whether or how the advice actually changed the outcome. In a world where ultimately most fi nancial planning strategies “could” be implemented by a consumer themselves—given suffi cient education, time, and an inclination to get it done—arguably the greatest value a fi nancial planner provides is the behavioral coaching and support to ensure the recommendations are actually implemented. Unfortunately, the fi nancial impact of this is virtually impossible to measure, given the uncertainty of how a prospective client might have behaved in the future without an advisor. Nonetheless, it is essential to recognize that the economic impact of fi nancial planning is not merely the strategy itself, but its implementation, too. This article projects the potential economic impacts of various fi nancial planning strategies.
- Publication
Journal of Personal Finance, 2016, Vol 15, Issue 2, p7
- ISSN
1540-6717
- Publication type
Academic Journal