How to compare financial plans side by side: the FDM method
List what matters, weigh it honestly, score each option. A method for choosing between plans that keeps you in charge of the trade-offs.
How do you compare two financial plans?
FDM stands for Facilitating Decision Making. It is the method I developed to compare financial plans, at both the big-picture and the granular level. It is open for everyone to use.
What it shows is that the right plan is personal to each individual, and that this individuality can still be quantified. We live with multiple considerations, competing priorities and limited budgets. FDM is a way to strike a balance and make an informed choice.
Two people with different weightings over the same factors can argue about the same product as adversaries, and both can be right for themselves.
First things first
There are six steps to the financial planning process. They also work as a checklist for whether your representative is following it:
- Agree the engagement and how you will work together.
- Gather your information, objectives and priorities.
- Analyse your current position.
- Develop and present proposals.
- Put the agreed plan in place.
- Monitor and review.
If you do it yourself, you can skip step one. Step three includes your statements of net worth and cash flow, and a handful of personal financial ratios, so you understand where you stand in numbers.
The purpose behind FDM is to fill a gap in step four. It is the process within the process: a way to compare plans and proposals that you can see and check.
How it works
Start by establishing what is meaningfully relevant to you, before anything else. For some people a key factor is liquidity: being able to take cash out without heavy penalties. For others it is cost, flexibility, coverage, or something else entirely.
Next, give each factor a weight. Be honest with yourself, and keep the weights to a total of 100%. These weighted factors become the basis for comparing plans.
Then score each option against each factor, say from 0 to 10, and add up the weighted scores.
| What matters | Weight | Plan A | Plan B |
|---|---|---|---|
| Access to cash | 35% | 8 | 4 |
| Total cost | 30% | 6 | 7 |
| Flexibility | 20% | 7 | 5 |
| Coverage | 15% | 5 | 9 |
| Weighted score | 100% | 6.75 | 5.85 |
Illustration with made-up figures. With weights of 25%, 20%, 15% and 40% instead, Plan B scores 6.75 and Plan A 6.25.
This makes you see the trade-offs, and take ownership of the decision to accept them.
Be open to blending
Things need not be either-or, provided the budget allows. Retirement money is a good example: an SRS contribution, a CPF top-up or neither can be weighed the same way. The combinations are endless. Instead of 50-50 between A and B, perhaps 30-30-40 between A, B and C captures the features you are looking for.
When I applied FDM to regular premium investment plans in an earlier write-up, I deliberately left out the factors and weights, so readers could put in their own. The write-up is dated, and that proves a point: there is no right answer for all time, just the right answer at a point in time. And who is to say your own factors will not change with time?
Fee for work done
FDM also makes the work in financial planning visible. Gathering information, building your statements and analysing your position is work that can be itemised. Developing proposals is where FDM shows the work: the number of options and factors considered reveals how much thought went in. That is why I think FDM suits a fee-for-work-done model, and why it can lift professionalism and alignment of interest in the industry.
You can do all of this yourself. Give it some thought: what are the meaningfully relevant considerations for you? How would you rank them? Are some equal? Do some compete? If AI is helping you read the product documents, keep the weighting for yourself. And if you would rather someone took you through it, you know how to reach me.
Questions
How do I compare two insurance plans?
Start from what matters to you, not from the brochure: list factors such as cost, access to cash, flexibility and coverage, weight them, then score each plan. The plan that scores higher on your weights is the closer fit for you, even if someone else would choose differently. An insurance review applies the same method to the cover you already hold.
Can I use FDM on my own?
Yes. It is open for anyone to use; a spreadsheet is enough.
First published on isaacfang.com on 27 August 2021, building on Isaac's FDM white paper of October 2019. Lightly edited for this site.