The best financial advice is centered on helping clients identify and achieve their financial life goals. So what is it that prevents clients from achieving their goals in the first place? The answer can be summed up in one word: risk.
Your interpretation of risk depends on your business model. If you are an investment advisor, risk is simply investment volatility as measured by standard deviation or beta. If, on the other hand, you are a comprehensive wealth advisor, risk is anything that can cause a client's actual outcome to diverge from their desired outcome.
What this means for the true financial planner is that planning is all about risk mitigation. In a nutshell, the entire purpose of planning is to consider an array of negative contingencies and build a plan that can withstand each of them. The whole enterprise is ultimately about identifying potential problems and creatively determining ways to address them.
It's all centered around a simple question: What if?
Some of the contingencies are macro:
* What if legislation passes that changes the tax rates / increases regulations / alters health care laws?
* What if the inflation rate rises?
* What if the stock market has a major correction?
* What if interest rates rise?
Other contingencies are at the individual client level:
* What if your spending rate is unsustainable?
* What if a family member needs support?
* What if a spouse begins to experience diminished capacity?
* What if you live longer than planned?
* What if one spouse dies early?
* What if you lack sufficient liquidity to meet your spending needs?
There are more examples that are specific to certain professions or stage of life.
For instance, many professionals at or nearing retirement need to know what happens if their employer has financial problems? How would this affect... the airline pilot's pension or the executive's deferred compensation?
Here's the point: The best advice is about three things:
1) Considering a wide range of realistic possibilities (these are the problems lurking beneath the surface)
2) Diagnosing the implications of those possibilities
3) Coming up with a plan to hedge against that risk (which can mean avoiding it, insuring against it, or minimizing its impact)
Of course, sometimes the 'what if' actually comes to pass and then the question shifts to 'what now'. During times of intense challenges like the market downturn of 08-09, the 'what if' discussions can help clients prepare mentally ahead of time while the 'what now' mentality will help them shift from a reactive tendency to a proactive, intentional strategy.
A plan that accomplishes these things provides perhaps the greatest benefit to a client: peace of mind. It is achieved when you insulate them against problems that no one else is even thinking about. That is the essence of great advice.