Holistic financial planning is a balancing act that pivots on the client

When a client comes to Brian Kennedy for financial planning advice, Kennedy wants to know everything—their goals, their dreams—and whether they have wills, a power of attorney and a slew of other documents that might not first appear to be tied to financial security.

“It means taking all of those things and putting them into a funnel and from that funnel I’m analyzing it,” said Kennedy, founder of KCA Wealth Management with offices in Camp Hill, Carlisle and Hershey. “I then identify opportunities that were missed and look for any gaps. And we talk about those and how to fill the gaps so they can become more successful.”

The process is known as “holistic financial planning,” Kennedy said, adding that the concept has been around for years but not all advisers do it to a full extent. During the pandemic, holistic planning became more pronounced as people started to think about their wills, beneficiaries on insurance policies and a power of attorney—the person who will make financial decisions if a client becomes incapacitated for whatever reason.

Those are just several aspects of what the holistic approach can cover. The holistic planning process might include coaching clients on how life-changing events, such as divorce or a job loss, can affect plans, according to a June 2019 article in Investopedia, an online financial website based in New York.

“In addition to getting better inputs for a financial model, the process helps build a closer relationship,” the article states.

Kennedy breaks the process down into three stages: life planning; the financial services aspect; and then implementation.

Life planning can boil down to a series of questions about how someone likes to spend their time and what is important, he said. Questions about travel or volunteer work are part of the equation.

“We can talk about money all day long, but if you don’t have a reason to spend it or do anything with it, what is the sense of it, right?” Kennedy explained. “So, we get the life planning aspect of it first.”

The financial planning aspect involves gathering all the documents and analyzing them. The obvious ones involve investment and savings documents. Estate documents and legal documents add another layer, as well as a look at all the insurances, including life, health, auto and property. He also will ask for tax returns and the sources of all income and expenses, among other things.

Implementation involves advice on the best paths forward and investment strategies to achieve the overall goals. By having looked at the entire picture in a holistic manner, he might see gaps with insurance coverage or estate planning or legal documents, which will lead him to recommend that a client meet with an attorney or CPA to fill holes. One issue he often sees, for example, is that wills often don’t match the beneficiaries in the various insurance and investment documents.

He stressed that he isn’t a lawyer or accountant. But he often finds that his clients, who typically are 50 and older, haven’t talked to an attorney or CPA to connect any dots.

“You need a team of people,” Kennedy said, adding that coordinating those discussions is what helps make the planning holistic. “All of it is a big circle. The problem is that a lot of people don’t have the circle connected.”

A power of attorney, for example, can save trouble if people get sick and need someone to make decisions for them. “If you can’t get to the money in a time of need, what good is it?” he said. “That is the part that some people overlook.”

He charges a one-time fee for the overall plan, largely based on the complexities of the individual situation. Regardless, a lot of time is involved in making sure that all the boxes are checked off. And the fee covers all the meetings, phone calls, emails and “everything and anything we need to do.”

He said he understands when some clients take the plan and buy products themselves or go to other financial advisers to obtain the insurance and investment products that he could provide.

“Some clients want us to do the plan, and they go out and get products on their own or go to other advisers, which is fine,” Kennedy said. “They basically are hiring us because we can find those opportunities and gaps that have been missed or overlooked or not even discussed.”

Brian Trout, assistant professor of accounting and finance at Millersville University, teaches several courses, including one on financial planning. That course touches on numerous topics, including taxes, investment, insurance, budgeting, the basics of buying residential properties, as well as the behavioral component of personal finance.

The behavioral component explores the dynamic that people often don’t act rationally when it comes to finances. His goal with students is to at least get them to understand their biases—risk aversion, for example—so that they can counter predispositions.

“We are human beings, and we don’t act rationally all the time,” he said, adding that a financial planner helps, especially if the adviser is trusted with all the details involved through the holistic approach. “Looking at the details adds value, because it helps with the emotional aspect.”

“The notion of crafting a plan and starting with an end in mind, with all the personalized values, is good. A lot of these things should not be decided in silos,” Trout said. “If you have an adviser who knows what you value and what you want, then they can help you keep your head on straight during difficult times and prevent you from making decisions that you might regret.”

The generation raised during the downturn in the late 2000s is more conservative and skeptical than previous generations, which is affecting how they invest for the future, Trout said.

“Whatever age they were during the Great Recession they watched a lot of things happen with the market and their parents,” he said. “Inevitably, this shapes how we think about money.”

For example, some studies show that younger generations are more interested in travel earlier in life, he said. An adviser who understands those desires is better positioned to help.

“Their values are different, and they are going to want to have that integrated into their plans,” Trout said.  “And that is where holistic financial planning would help make sure they are investing in ways that can help.”