Financial planning and risk management – three key elements

In my experience, you don’t get rich through financial planning in and of itself.

Rather, you need some underlying wealth creation for that – be it savings from employment or business income, executive bonuses, stock options, inheritance and/or a sale of a business, for example.

But as you accrue assets, you need to protect them. You need to manage risks that, if unmitigated, will chip away if not completely dissolve many of those hard-earned assets.

That’s the real power of comprehensive financial planning – it manages risk and protects your assets throughout your career and into retirement. It can also be instrumental in creating and implementing effective estate plans and philanthropic initiatives.

There are three things to keep in mind when thinking about risk management and your assets:

1. Keep costs down: Comprehensive financial planning – an approach that takes a holistic view of your financial situation (including your income, assets, tax exposures, career projection, etc.) – has tangible value for clients and their service providers. But that doesn’t mean the costs should be high and/or invisible.

At T.E. Wealth they are neither, as we fundamentally believe that cost management is risk management. That means our clients are better served over the long run when costs don’t eat up returns, and when those costs are easily understood.

2. Implement with discipline: My previous blog spoke about the need to put plans into action with discipline, as the best-laid plans can run aground without ongoing attention to detail. Trust-based relationships between planners and their clients are vitally important in this regard. As is the knowledge that planning has to be both customized and flexible.

Clients evolve, and their plans have to evolve with them over decades. And as that happens, rigorous and ongoing implementation becomes all the more important. Discipline by the planner, and ongoing discussions between both parties, will help manage risks across the years as the client’s assets grow.

3. Less is more: I often tell my clients that less is more when it comes to the sheer number of assets in any given financial plan. Asset allocation is still important, of course. And I never counsel clients to put all their proverbial eggs into one basket. But in my view, taking a focused approach to investing in a well-balanced portfolio of high-quality assets such as ETFs or pooled funds will better serve my clients over time. This is particularly true when this approach is accompanied the discipline that I just mentioned.

So, if risk management is so important, how do you judge how well your planner is managing risks on your behalf? What are the criteria of risk management success?

I’ll talk about these in my next blog.

Scott McKenzie leads a group of six financial professionals within T. E. Wealth. Together they work with over 300 high net worth private clients providing comprehensive financial planning, tax preparation and investment management services.

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These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.

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