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By Donald Ray Haas, CLU, ChFC, CFP, MSFS

In financial planning, “the more you know, the better.” To have information you do not need is inconsequential, but to lack information you need can be debilitating.

On the first page of the financial plans of all my clients, I list the following: their names, mailing addresses, email addresses, and phone and fax numbers. My early plans did not include this information. My reasoning then was that I do not need to tell my clients their address. However, do not underestimate the importance of validating the accuracy of this information. Spelling a client’s name incorrectly can be insulting and can lead to confusion. Similarly, mailing client communications to the wrong address or calling the wrong phone number repeatedly is a headache.

After handing my clients the first page of the plan, I now start every financial plan presentation with these simple instructions: “Review this information and tell me if anything is spelled incorrectly, or if there are any wrong numbers.” I also do this on each subsequent review, even with long-term clients. Every so often, there is a recent phone number change or even the sale of a vacation home that was not documented in the file. Also, on this first page are the birth dates and Social Security numbers of my clients, as well as information about their children, if applicable.

In addition, at the bottom of this first page under the title, “Assumptions,” I show the inflation rates for the current year, the next 10-year average, and so on. Then, I show the average investment growth rate being used for long-term accumulations, and the average remaining number of years of life expectancy. I quickly state that this average means that half the people who are my client’s age and who belong to the same sex are still alive, so if they pick the right half … With all this validated information on one page, you have a valuable resource for future use in applications and many illustration fundamentals.

You must have the client’s personal data and financial objectives before you develop any financial recommendations.

On the second page, I list their financial objectives obtained from the forms they filled out during our fact-finding interview. I make a weighted average of both spouses’ objectives, and note the top three or four.

Next, I write down the valid reasons for them to proceed with developing a financial plan. These items were also unveiled in the fact-finding interview, including planned purchases, nonbudgeted expenses and large expenses like money spent for a vacation or a new car.

Below this list, I document their risk-taking propensity. The Risk Tolerance Questionnaire I have used for more than 25 years (see Advisor Today’s February 2002 issue) produces a numerical scoring between 0 to 23, with zero representing no risk tolerance at all. I show the evaluation number and then track these risk levels over many years so that my clients will have a historical snapshot of how things have changed. This leads to further discussion of what happened and why, or what circumstances might be repeated.

Unusual case
Here is an unusual case. When a client and I started to build his financial plan, he scored a 17, which means he is an aggressive investor. Six months later, I had him complete the same questionnaire, and he scored a 7. There is no way someone can change that quickly. I asked him, “What happened? You scored a 17 six months ago, and this time, you scored a 7.” My client replied, “Don, I celebrated my 65th birthday.”

This client was well-educated and well-informed and had learned that when you reach 65, you should become more conservative with your investments. So, he responded to the risk-taking questionnaire in the way he thought he was supposed to at age 65. I learned from this experience that my questionnaire is fallible and the results can be manipulated. However, the lack of perfection does not invalidate the use of this questionnaire. Its usage and retrospective analysis for over two decades have provided a verifiable accurate understanding of each client’s attitude about risk tolerance.

At the bottom of the second page, I list a weighted average of both spouses’ responses to their major concerns. This information is gleaned from the Risk Tolerance Survey, also known as the Financial Attitude Questionnaire.

Trained staff can prepare the first two pages of any financial plan. This valuable information arrives on my desk with no time commitment on my part. Once I verify all the information, the first part of the plan is finished. Then it is imperative to have all the client’s personal data, assumptions, financial objectives and attitude toward risk before developing any financial recommendations.

Next month, I will address how to develop itemized investments and net worth statements.

Donald Ray Haas, CLU, ChFC, CFP, MSFS, of Southfield, Mich., has been an insurance agent and financial consultant for 45 years. You can reach him at 248-213-0101 or at Donaldhaas@aol.com.

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