A comprehensive fact-find remains fundamental to good financial planning. We need to understand what a client owns, what they owe, what they earn and spend, how their existing arrangements are structured, their tax position, family circumstances and the other information necessary to provide appropriate advice. The Capital Purpose Matrix is not intended to replace this process, nor is it an alternative method of gathering information.
Its purpose is different. It provides another way of looking at the information we have gathered, and importantly, a way of doing so that can involve the client more directly in the planning process.
Most fact-finds necessarily organise financial information according to what something is. We record pensions as pensions, investments as investments, cash as cash and property as property. That is entirely logical, but it also reflects the way the financial services industry categorises wealth rather than necessarily the way a client thinks about it.
The Capital Purpose Matrix changes the lens. Instead of initially asking what the capital is, we consider what the client believes it is for.
That apparently simple distinction can materially change the conversation.
Two clients could have almost identical balance sheets but quite different financial planning requirements. One might regard a particular investment portfolio as an essential part of their long-term security and have no desire to part with it. Another might already think of a similar portfolio as money that will eventually pass to their children. Someone else might have accumulated considerably more than they expect to need but remain reluctant to commit the excess to any particular purpose.
The financial facts might be similar. The meaning attached to them is not.
The Capital Purpose Matrix allows adviser and client to work through those distinctions together. Capital might be required to support the client's lifestyle, provide security against uncertainty, meet future expenditure, help family members, create future choices, fund philanthropic ambitions or eventually pass as a legacy. Some capital may have no clearly defined purpose at all.
Perhaps more importantly, the exercise can identify situations where the same capital is implicitly being expected to fulfil several purposes. Money may simultaneously represent security, potential lifetime spending and a future inheritance for the children. All three aspirations may be perfectly reasonable, but they cannot necessarily be considered independently of one another.
That is where the matrix becomes a planning conversation rather than simply another way of displaying financial information.
Making the client part of the analysis
There is a risk in financial planning that fact-finding becomes something we do to the client. We ask the questions, collect the data, obtain the statements and then take much of that information away to analyse it.
There are good reasons for this, particularly where detailed technical analysis is required, but it can create a separation between the client's life and the subsequent planning work.
The Capital Purpose Matrix is intended to be more interactive.
Adviser and client can look at the financial position together and discuss the purpose attached to different parts of their wealth. The value is not simply in putting an asset into the correct part of a matrix. There may not even be a single correct answer. The value is in the conversation required to decide where it belongs.
This creates different questions:
What do you expect this capital ultimately to provide for you?
How much needs to remain available to preserve your sense of financial security?
If you want to help your family, do you imagine doing so during your lifetime or through your estate?
Is there capital you have accumulated without yet deciding what you want it to achieve?
Are there several objectives currently dependent upon the same money?
Has something that was originally accumulated for one purpose gradually acquired another?
These questions do not replace the fact-find. They help us interpret it.
A client-facing output
For me, an important part of Map 4 is that the result should not disappear into the adviser's file.
The client should have a version of their Capital Purpose Matrix that they can understand and recognise as a representation of their own position. It should connect the financial resources identified through the fact-find with the reasons those resources exist and the things the client would like them to accomplish.
That creates an output which has relevance beyond the initial planning exercise.
The technical structure of the client's affairs will still sit underneath it. Pensions remain pensions, trusts remain trusts and investment portfolios still need to be managed appropriately. Taxation, ownership, accessibility, risk and the suitability of particular structures remain essential considerations.
But the client-facing conversation does not always need to begin there.
It can begin with purpose.
Bringing it back every year
This may ultimately be one of the more useful aspects of the Capital Purpose Matrix.
Financial planning is not a one-off exercise, so there is little reason for our understanding of the purpose of a client's capital to be treated as though it were fixed.
At a future review, the previous matrix can be put back in front of the client:
“This is how we understood the purpose of your capital when we last looked at this. Is it still right?”
That is a relatively straightforward question, but it opens a much broader conversation.
A client's financial position may have changed. More interestingly, their thinking may have changed even where the numbers have not. Children become independent or encounter difficulties. Grandchildren arrive. Retirement becomes real rather than theoretical. Health changes. Parents need support. Clients discover that they are spending considerably less than anticipated, or considerably more. An inheritance, business sale or other change in circumstances can alter what they regard as sufficient for themselves.
Over time, their attitude towards giving, spending, security and legacy may also evolve.
The Capital Purpose Matrix therefore becomes something that can be revisited rather than completed. The adviser and client can see not only where the capital sits today, but whether its intended purpose has changed and what that change means for the wider financial plan.
It also provides continuity. Instead of each annual review becoming a series of individual updates to pensions, investments, cashflow and tax planning, there is a consistent framework through which those individual discussions can be related back to what the client's wealth is intended to achieve.
The matrix does not provide the answers. Nor should it.
It does not determine whether an investment is suitable, whether capital should be gifted, how an estate should be structured or how much money a client can safely spend. Those questions still require analysis, judgement and, where appropriate, specialist advice.
What it can do is help ensure that before we start answering those questions, adviser and client have spent enough time considering what the capital is actually there to do.
The fact-find gives us the financial facts. The Capital Purpose Matrix gives us another way of making sense of them, with the client involved in that process and with an output that can continue the conversation from one year to the next.
That is the role I see for Map 4.