One of the more difficult parts of financial planning is recognising that a good plan should not begin with limitations. It should begin by understanding what the client genuinely wants their money to make possible.
That sounds straightforward, but in practice many clients have never really thought about it. They may have spent decades working, raising a family, paying a mortgage and accumulating wealth, with retirement sitting somewhere in the distance as an idea rather than a life they have properly imagined. When eventually asked what they want that life to look like, it is hardly surprising that the first answers tend to be fairly conventional: travel more, help the family, spend more time socialising, perhaps retire a little earlier.
There is nothing wrong with those answers, but they are not yet sufficiently developed to form the basis of a financial plan. “Travel more” could mean a couple of additional European holidays each year or several months travelling around Asia. “Helping the family” could mean occasional gifts, funding education, providing house deposits or making substantial lifetime transfers. Even something as apparently ordinary as “socialising more” could represent a significant change in expenditure once we understand what the client actually has in mind.
The adviser therefore needs to challenge these answers, but not because they may be unaffordable. At this stage, affordability is the wrong challenge. The more interesting question is whether the aspiration is genuinely the client’s own.
If somebody tells me they want to travel, I want to understand why. Where do they want to go? What sort of trips do they imagine taking? Perhaps they love Asian food and culture and have always wanted to spend meaningful time travelling through the region. Perhaps there are particular places they have talked about visiting for twenty years. Or perhaps, after a little exploration, it becomes apparent that travelling is simply something they think retired people are supposed to do.
Those distinctions matter because eventually we are going to attach numbers to these aspirations. If we have not properly understood them, we risk creating a sophisticated cash-flow model from remarkably unsophisticated assumptions.
And the distortion can work in both directions. We might significantly underestimate the cost of the life somebody actually wants, leaving the model looking more comfortable than reality is likely to be. Equally, we could overestimate an aspiration that turns out not to matter very much at all, potentially leading somebody to believe they need to work longer, accumulate more or spend less than is really necessary.
A financial model can therefore be mathematically accurate and still give the wrong answer. The calculations may be impeccable, but if the assumptions do not reflect the life the client actually wants to live, the precision is largely meaningless.
There is also nothing wrong with a client saying, “I don’t know yet.”
In fact, that may be a more useful answer than accepting a collection of generic aspirations simply because they give us something to enter into the model. We are asking people to contemplate what they might want from twenty or thirty years of life. It is unreasonable to assume that they will have worked all of that out before walking into a financial planning meeting.
Most people probably spend more time planning a two-week summer holiday than they do planning their retirement. We will discuss where we are going, where we will stay, what we want to see, where we might eat and how much we are prepared to spend. Yet when contemplating several decades after work, the planning can amount to little more than “we’d like to travel and spend more time with the family”.
If the honest answer is “I don’t know yet”, I would rather accept it. The client can take the cash-flow model away, sit down with their spouse or partner and begin the conversation properly. What do we actually want to do? Where do we want to go? Who do we want to spend our time with? Who do we want to help? What would a good ordinary week look like once work no longer structures our lives? What might all of this realistically cost?
Only once we have some meaningful answers should we begin allowing financial reality to influence the conversation.
That is an important sequencing point. If we introduce constraints too early, clients may unconsciously reduce their ambitions before we have even discovered them. The role of the adviser at the outset is not to decide whether somebody’s dreams are sensible. It is to help make those dreams sufficiently personal and specific that we can understand what they mean financially.
Cash-flow modelling then gives us the opportunity to see whether those aspirations and the resources available to fund them fit together.
Sometimes they will. Often they will not.
That is not a failure of the plan. It is where some of the most valuable financial planning conversations begin.
A couple may want to retire at 57, travel extensively while they are healthy, help their children buy homes, move house themselves and ultimately leave a substantial inheritance. There may be nothing unreasonable about any individual aspiration, but collectively the resources may not stretch far enough to achieve all of them while preserving the level of financial security the clients also want.
The temptation is to start removing things from the list. A better approach is to use the model to explore the choices available. Those might include:
Working for another year or two.
Spending more in the active years of retirement and deliberately less later.
Changing the frequency or scale of some expenditure.
Helping children differently or at a different time.
Retiring earlier but accepting that less may eventually pass to the next generation.
Continuing to work for longer because achieving all the other aspirations matters more than the earliest possible retirement date.
These are trade-offs rather than limitations, and there is an important difference between the two. A limitation closes down possibility. A trade-off asks the client to decide what matters more.
This is also why reducing financial planning to a distinction between “needs” and “wants” can be unhelpful. Technically, helping a child buy their first home may be a want. So is retiring at 60 rather than 67. So is taking the whole family away for a significant holiday. Yet one of those things may be the reason the client has accumulated wealth in the first place.
The adviser cannot determine that hierarchy for them. What we can do is make the consequences of their different choices visible.
For some clients, this conversation will lead towards greater restraint. They may decide that doing everything they initially imagined would place too much pressure on their resources, and that some aspirations matter significantly more than others. For other clients, the conversation may lead in precisely the opposite direction. They may discover that they have far more flexibility than they realised and have been unnecessarily limiting their lives through fear of spending capital or an assumption that wealth must continually be preserved.
In that situation, the relevant trade-off might not be between two forms of expenditure at all. It might be between accumulating more money and having more time.
That is why Map 2 should not be about telling people what they cannot do. Nor should its purpose be to reduce a client’s aspirations until they fit neatly into a cash-flow model. The model is there to illuminate the consequences of different choices, not make those choices for them.
The starting point remains the life the client actually wants. Once that has been explored properly, we can bring in the resources available, model the possibilities and begin making choices where choices are necessary.
Very few of us can have everything. Almost all of us have constraints somewhere, whether those constraints are money, time, health, family responsibilities or simply competing priorities.
Good financial planning does not make those constraints disappear. It helps clients understand what they are prepared to trade in order to achieve what matters most.
And sometimes the result of that conversation is not discovering what the client cannot have. It is showing them just how much they can.