Did you know Americans with financial plans are 2.5 times more likely to save enough for retirement? Even so, only 36% of Americans have a written financial plan in place.
While financial planning has many benefits, not all financial plans are made equal. The most effective financial plans are regularly updated to reflect investors’ needs, goals, and priorities, as well as changing tax regulations and market conditions.
Below, we’ll explain what a living financial plan is and how it works. We’ll also review nine compelling benefits of living financial plans and how you can start creating them with the right support.
What is a Living Financial Plan?
Financial planning is the process of assessing a client’s current financial situation, identifying their goals and priorities, and crafting a comprehensive strategy to reach them. An effective financial plan should consider a client’s short-term needs and long-term objectives.
The key components of financial planning include:
- Goal setting – Every client’s goals and circumstances are unique. Thus, skilled financial planners must employ tailored strategies to help clients achieve their immediate financial needs and long-term aspirations.
- Budgeting – Financial advisors should carefully review their clients’ financial situations before creating a budget. After understanding their income, expenses, and cash flow, advisors can optimize how clients allocate their funds to cover ongoing expenses, save for their goals, and manage their debt.
- Investing – Investing is a reliable way for clients to grow their wealth over time. Financial planners can craft customized investment strategies that align with their clients’ risk tolerance, time horizon, and financial objectives.
- Risk management – Life is unpredictable, and even the best-laid plans can go awry. That’s why contingency plans are so important. Advisors can help clients prepare for potential risks, from job loss to disability, by purchasing relevant insurance policies and establishing emergency funds.
- Tax planning – On average, American workers lose 30% of their gross income to taxes. Higher-income earners often lose more due to their elevated tax brackets and capital gains. Financial planners can explore methods for minimizing clients’ tax liabilities using tax-efficient investment strategies, tax-advantaged accounts, and deductions.
- Estate planning – In 2024, an increasing number of Americans will leave inheritances to their loved ones after they pass away. Financial advisors can help facilitate a seamless and cost-effective wealth transfer through well-structured estate plans, utilizing tools such as wills, trusts, and beneficiary designations. Failing to account for estate and other taxes can significantly reduce the amount of money available to pass on after taxes.
- Cash flow management – Clients need to ensure they have sufficient liquidity to manage emergencies and unexpected financial challenges. Financial advisors can help clients monitor their income, expenses, and savings to ensure sufficient liquidity at all times.
- Retirement planning – Saving for retirement is essential for securing a comfortable and financially stable future. Financial advisors can help clients determine how much they should contribute to their retirement accounts each month, as well as when and how to strategically withdraw these funds to maximize their financial security.
- Education planning – As of 2024, only 44% of parents with a child in college felt prepared to pay their child’s first tuition bill. Parents can start saving for their child’s education in advance to avoid this predicament using tax-advantaged vehicles, such as 529 plans, custodial accounts, and Coverdell education savings accounts (ESAs).
- Debt management – With credit card interest rates averaging nearly 23%, excessive debt can quickly derail consumers’ long-term financial goals. Financial advisors can help clients prioritize high-interest debt, explore debt consolidation options, and implement payment plans to pay off debt efficiently, freeing up their resources for saving and investing.
As you can see, a well-crafted financial plan can help clients achieve their financial goals and secure a stable financial future. However, similar to a starter home, clients’ first financial plan may only serve them for a few years. As their goals, life circumstances, and economic realities change, so must their financial plans.
That’s where a living financial plan comes into play. Advisors regularly review and modify these financial plans to make sure they reflect their clients’ changing needs and priorities. As a result, these plans offer more flexibility and long-term value than their static counterparts.
9 Benefits of a Living Financial Plan
Now that you understand the core components of a living financial plan, let’s dive deeper into the benefits it can provide for you and your clients:
#1 Bringing Clients’ Financial Dreams to Fruition
Financial advisors often hear clients express ambitious goals, such as retiring early or owning a vacation home. Without a clear plan, these goals may seem out of reach. However, with the right strategy and execution, these dreams can become reality.
A living financial plan helps clients transform their financial dreams into actionable steps. Rather than hoping for a comfortable retirement, they can create a concrete strategy to grow their wealth, minimize taxes, and ensure enough liquidity for unexpected situations.
Financial advisors are pivotal in translating these long-term visions into sustainable financial plans. More importantly, they have the expertise to revise these plans as needed to ensure clients stay on track with their goals.
#2 Clarity
A written financial plan helps clients understand their financial situation and what steps they need to take to achieve their goals. This clarity can motivate them to make smarter financial decisions.
A living financial plan goes one step further by offering continuous, proactive guidance as clients’ lives evolve. For example, consider a client who is newly engaged. With marriage on the horizon, they want to start saving up for a home and start a family. Their financial advisor can help them update their financial plan to:
- Reflect these new priorities.
- Modify their saving and investment strategies.
- Factor in any financial contributions from their spouse-to-be.
- Prepare for a future 529 college savings plan.
- Increase their life insurance coverage to protect their growing family.
Updating this financial plan can help this client proceed with clarity and confidence as they pursue their next chapter, increasing their chances of success. Better yet, their financial advisors’ timely support can boost client satisfaction.
#3 Client Accountability
A living financial plan is a powerful tool for improving clients’ accountability. By checking in with their financial advisor regularly, clients get the chance to:
- Review their goals.
- Track their progress.
- Remember key deadlines.
- Celebrate milestones.
Without this ongoing support, clients may be less likely to maintain motivation and more likely to make decisions that derail their financial objectives.
#4 Comfortable Cash Flow
A living financial plan can address clients’ ever-evolving cash flow and liquidity needs. Sufficient cash flow allows clients to cover their living expenses, invest for the future, and manage unexpected emergencies without going into debt.
For example, a client planning a home renovation in the coming year can work with their financial planner to calculate a monthly savings goal, explore low-interest financing options, and evaluate which investments to liquidate if necessary. This proactive approach ensures they have the cash required for the renovation while safeguarding their long-term financial goals.
#5 Support During Life’s Major Milestones
From death to divorce, some life events can be incredibly challenging for clients. Even happy milestones, such as having children or getting married, can be emotionally overwhelming. During these times, finances are often the last thing on clients’ minds.
Fortunately, a financial planner can help clients stay on track by adjusting their financial plans in real-time. For example, a client who recently lost both of their parents may rely on their financial planner to take care of the following tasks as they process their grief:
- Help them navigate the inheritance process
- Understand the tax implications of their parents’ estate
- Advise them on whether they should keep, sell, or rent out their parents’ property
- Update their own estate plan to reflect their new assets
With an experienced financial planner managing these details, clients can focus on adjusting to their new life circumstances, whether challenging or celebratory.
#6 Long-Term Financial Security
A living financial plan helps with short-term goals and can enhance clients’ long-term financial security. Life is unpredictable, and clients often face setbacks, such as job loss, market downturns, or unexpected expenses. A living plan provides the flexibility to adjust to these challenges and make informed decisions as circumstances change.
For example, during a market downturn, a financial advisor can assess their clients’ portfolios and adjust them to align with their long-term risk tolerance, reducing their clients’ temptation to panic sell during volatile periods.
#7 Superior Investment Strategies
Investment strategies are a vital component of a client’s financial plan. These strategies should consider the client’s broader financial plan, including their current goals, risk tolerance, and cash flow requirements.
For example, if a client wants to purchase a vacation home in five years, their investment strategy may need to prioritize moderate growth with lower-risk assets, such as bonds or dividend-paying stocks. In contrast, if a client’s goal is to retire in 25 years, their strategy might focus on higher-risk, higher-return investments that have more significant growth potential over the long term.
Financial planners who want to adapt their investment strategies efficiently can employ a Turnkey Asset Management Platform (TAMP) like Alden COVE. These platforms facilitate:
- Streamlined portfolio management – TAMPs automatically monitor, adjust, and rebalance clients’ portfolios in real time to suit their evolving needs and goals.
- Access to diversified investment options – TAMPs can give financial advisors access to a diverse range of asset classes and strategies, enabling them to build customized, diversified portfolios.
- Compliance and reporting support – TAMPs can ensure clients’ portfolios satisfy all relevant regulatory standards and automate reporting via convenient client portals.
- Administrative efficiency – Some TAMPs can also provide time-saving administrative support. For example, Alden COVE allows you to consolidate your billing, reporting, and accounting using a single platform.
Learn More: What is a TAMP and Should You Use One?
#8 Increased Tax Efficiency
Even the most profitable investment strategies may incur unnecessary tax liabilities without effective tax planning. Since tax laws change frequently, financial advisors must continuously update their clients’ financial plans to ensure they take advantage of the latest regulations.
For example, if new tax laws raise retirement account contribution limits, advisors can adjust their clients’ living financial plans to maximize these opportunities. In contrast, clients with static financial plans may miss out on valuable tax-saving strategies and pay more taxes than is necessary.
#9 Enhanced Estate Planning
Estate plans ensure clients’ financial wishes are carried out after they pass away or become incapacitated. Clients often want to update their estate plan after the following types of events:
- Marriage or divorce
- The birth or adoption of a child
- The death of a spouse, family member, or beneficiary
- Changes in their family structure or financial circumstances
- Health issues, such as a serious diagnosis or disability
- Significant shifts in tax laws or estate planning regulations
- Relocation to another state with different estate planning laws
A living financial plan can ensure that beneficiary and legal guardianship designations, trusts, and wills reflect a client’s current circumstances and intentions.
Best Practices for Producing Living Financial Plans
As you can see, living financial plans involve many moving parts. Crafting these complex plans, client meetings, market research, and lead generation, can be overwhelming if you don’t have the proper support.
There are many ways to outsource your administrative tasks and investment management, from TAMP technology to investment committees. Strategic outsourcing can free up your schedule for building client relationships and strategic planning.
To learn more about this approach, check out our article, “The Role of the Modern Financial Advisor: How Technology is Shaping Their Success.”
Alden Investment Group: Craft Living Financial Plans With Confidence
In summary, a financial plan should never be seen as a static document—it should be treated as a living, evolving strategy that adapts to your clients’ inevitable changes. In turn, your clients can stay on track through every stage of life, from marriage and homeownership to career changes and retirement planning.
Living financial plans offer just as many benefits to financial advisors as to clients. Enhancing client accountability, success, and satisfaction can help financial advisors boost their retention rate and acquire more referrals.
If you want to offer comprehensive living financial plans, Alden Investment Group can help. Financial advisors who join our Registered Investment Advisor (RIA) gain access to a wealth of resources, including our Alden COVE TAMP technology, seasoned investment committee, and referrals.
Want to learn more about the benefits of joining our RIA? Reach out to Alden Investment Group today.
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https://savology.com/13-financial-statistics-you-need-to-know
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https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-policy/taxing-wages-united-states.pdf
Money. More Americans Are Leaving Inheritances — and It’s Not Just Wealthy People.
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