The power of a simple financial plan

By January 17, 2017 March 8th, 2018 Case Studies, Financial Planning

It’s tough to make predictions, especially about the future – Yogi Berra

Quite often we think a complex problem requires a complex solution but often that’s not the case. “What should I do with my money now so that I can enjoy a comfortable retirement?” seems like a complex question to answer. There are so many options and making the wrong decision could be quite painful. To add to this, fear often propels people to overengineering a solution.

Many financial advisors like to create complexity because complexity creates dependency i.e. you need the advisor to implement a complex plan – you can’t do it yourself. The common perception is that you can charge more for something that’s seems complex.

Unnecessarily complex financial plans create many problems

  • Complex plans are more difficult to understand and this increases the risk that you’ll be sold inappropriate or unnecessary products or investments,
  • Complex plans are more difficult to implement,
  • Complexity creates (compliance) risk,
  • Complex plans bamboozle investors to hide fees i.e. fees are less transparent,
  • Complexity often creates more fees and costs; and
  • More can go wrong.

However, with simplicity, there’s nowhere to hide. A simple plan is very transparent. A simple plan is low risk and often lowest cost. And because simple plans are easy to understand, they make people feel comfortable and empowered.

When I develop a financial plan for a client, I document it on one page. This process forces me to crystalise the plan into simple, easy-to-understand steps. Complexity is avoided wherever possible – but obviously not at the cost of generating more wealth. Sometimes a level of complexity is necessary and appropriate.

It’s a real challenge to develop a simple solution to any complex problem. But rewarding when it’s done successfully.

My One Page Plans cover six key areas

  1. Summary of your long, medium and short term goals
  2. Summary of the plan
  3. Your investment rules – which are very important as they help you resist making potentially costly emotional (driven by fear and greed) decisions
  4. Summary of your progress to date
  5. Key future considerations or issues that need your attention
  6. 12 to 18 month implementation plan i.e. what you need to do.

Click here for an example.

In summary, keep things as simple as possible. If you truly don’t need a SMSF for example, don’t establish one.

If you need help developing your one page plan, please don’t hesitate to reach out to us.