FDM - Best Method for Comparing Financial Plans - Open source and Free.
FDM stands for Facilitating Decision Making. This is by far the best method encountered so far to compare financial plans, in both bigger picture and granular levels. It is open source for all and free for everyone to use. This proves that what is best, is unique to each individual as well as quantifiable based on that nuanced individuality! It is the solution given that we are living in a world with multiple considerations, competing priorities and budgetary resource constraints. This is to strike a balance and make an informed choice!
The Adviser Representative who can take you through this process will demonstrate the craft, the customization and personalized advisory service that takes effort; and puts you as the client, at the centre of focus most truly.
2 persons with different nuanced weightings over same relevant factors, debating over the same product as adversaries? Both can be equally valid in their own individuality. In Clifton’s Strengths Finder, my strengths are focus, analytics, intellection, learning and individualisation. I searched what individualisation means in Clifton’s Strengthsfinder. It dawned on me how the design driven process resonated with me when I understood its principles. I do not have the strength of woo (Clifton’s Strengthfinder strength for salespersons) so that is why I tell people that I can give good advice but I can’t sell.
Give it some thought. What are the meaningfully relevant considerations for you? How would you rank those factors? Are some factors equal in weighting? Or some factors have higher priorities? Are there factors that are competing priorities?
I can run through this process with you. But I need to know that you are for real. Hence, at minimum, open a POEMs account (It is free) with me. Yes emotional bank account principles at work.
FIRST THINGS FIRST
There are 6 steps to the Financial Planning Process. It can serve as a checklist if your advisor representative is following the financial planning process. If you DIY (Do-It-Yourself) you can dispense with step 1.
There are personal financial ratios to compute and analyze alongside your financial statements of net worth and cash flow. These are to thoroughly understand your current financial position in a quantitative manner.
The purpose behind the purpose of FDM is also to address an actionable gap in fulfilling Step 4 of the Financial Planning Process. Hence the process within the process. The process to compare financial plans and proposals.
A lot of thought went into it, to ensure that even compliance jobs are safeguarded should this go mainstream.
The White Paper is downloadable in the button below.
HOW DOES IT WORK
It is important to first establish what is meaningfully relevant to you before anything else. Common important factors for some include high liquidity and the ability to withdraw cash without significant financial penalties.
The next step will be assigning weights to those relevant factors. And you have to be honest with yourself, to confine the sum of those weights to 100%. These factors form the basis to compare financial plans.
This is to ensure you understand trade offs and take ownership for making those decisions to do so.
COMPARE FINANCIAL PLANS - AN APPLIED CASE?
Yes there is.
You will see that in the applied scenario, the relevant factors and weights have been deliberately left out. This is for the user to input their own to establish what is ‘their’ best move forward. In this case, the scenario is to compare financial plans pertaining to regular savings plans.
Be open to blending solutions because things need not be an either-or scenario, provided budget allows. The combinations can be infinite. Other than 50-50 between A and B, maybe 30-30-40 between A, B and C captures the ideal features sought.
And you will notice that since the write up is dated, it serves to prove that there is no best of all time, only the best at that point in time.
And of course, who is to say that one’s nuanced meaningfully relevant factors does not change with time?
DIY is possible. What about a Fee-for-service?
Financial planning follows a process and each stage of the process has actionable steps to be expected. It is reasonable to be expecting a fee for work done. There are various fee based models with their merits but I will not be running a comparison. Rather, I would propose how FDM offers a new fee based model for consideration.
Fee for work done.
Work is done when information is collated, assembled and analysed. Constructing the financial statements of networth and cashflows along with computed financial ratios, can be done in DIY (Do-it-youself) fashion or if you decide to pay a professional to do it for you, a fee is only natural. The gathering of financial objectives, needs and priorities are also to be done at this stage. Work done at this stage of the financial planning process is clear. Respective work done can be itemized even.
If banks can tier their client base, respective fixed fees can be established similarly. Surely, some will have more financial products accumulated in their lifetimes to be compiled for assessing existing arrangements. More work to be done deserves more fees.
Scalable with amount of work to be done.
Moving to developing and presenting the recommendations to the clients, this is where FDM demonstrates work is done to earn fees. The number of boxes worked on, reveals the extent of consideration put into identifying and evaluating strategies for the financial planning solution. Additional boxes of consideration can be bought with additional fees.
Fee for work done is very simple and basic to understand. FDM provides the solution of itemizing work done during the stage where the financial planning solution is being carried out. FDM provides that supporting rationale for a course of actions to take, based on the nuanced weighing of considerations put forth by the client. FDM elevates the practitioner professionalism and brings better alignment of interests with the client. FDM can be a part of the fee based advisory model.
DIY to avoid fees. Otherwise, you know how to reach me.