Financial planning more than investing

When I speak to people about financial planning, they most often want to talk about investing. I understand the fun and seductive nature of seeking higher returns for your money, but the financial planning process is far more important than any one investment or portfolio.

This should include a discussion of your goals and dreams, and fleshing out some goals that you've eliminated from memory because you didn't think they were achievable.

But beyond the life planning part of financial planning, a planner should take a close look at many quantitative issues. At a minimum, these issues should include a look at your cash flow, what you earn and how much you spend. It should also look at your assets and liabilities from many perspectives: what you own, how you own it, what you owe, what your assets are worth and the tax cost or basis for each asset.
The planning process should then include a detailed analysis of the following areas: risk management, investment analysis, tax planning, retirement planning and estate planning. A detailed analysis of your risk management program, for example, should include a review of each policy for insurance and any other plans for risk mitigation.
For a review of your estate plan, the planner should perform a rigorous review of your current plan including all relevant documents and legal agreements for applicability to your situation today and appropriateness given your goals, family situation and the current tax environment.

A financial plan can be done as a one-time engagement based on your current circumstances. It is better, however, due to the barriers that naturally occur in financial markets, tax codes and your personal life to be current at all times with no less than annual reviews with a qualified professional.

Now a newer term, "wealth management" is being bantered about. In my opinion wealth management is the same as financial planning. The problem is that many firms call themselves financial planners or wealth managers, and do not follow a process designed to deliver proactive and holistic financial counseling.
They use the terms as a lure for attention to get themselves in a position to manage your assets or sell you insurance.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

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