Product-Based Versus Goal-Based Financial Planning: How Both Strategies Can Help Meet Your End Goal

The best financial advisors take the time to understand their clients' unique needs and goals. They practice a holistic approach, which entails creating a customized plan that achieves both short- and long-term goals, while still addressing all the areas of financial life, including saving, investing, retirement planning and insurance.

Effective advisors also keep careful eyes on the market and other economic factors to ensure that they are able to make adjustments to their clients’ plans as needed. Furthermore, when it comes to your financial future, the right advisors will understand the importance of creating a goal-based plan that is adaptable to the many unexpected changes that occur in life.

It is essential to do the proper due diligence that goes along with selecting an advisor. Advisors’ approaches to financial planning may vary, and it’s important to find a strategy that works best for you. Whether your advisor is goal-based, product-based or both, it is key to create a plan that keeps your ultimate best interests in mind.

Goal-Based Financial Planning

In the age of the robo-advisor, it's a little too easy to forget that financial planning involves more than just numbers. There is no one-size-fits-all, cookie-cutter formula for success. The very definition of financial security and success differs from person to person. To some, it's financial security and peace of mind; while to others, it's being able to send their kids to the universities of their dreams. Goal-based financial planning takes the whole picture into account.

Great advisors help their clients define goals and then accomplish them. They use a top-down approach that helps clients achieve these goals, rather than a bottom-up approach that simply determines how much they can afford.

For example, a comprehensive financial planner does not rely on standard formulas that make unwarranted assumptions to calculate how much a household should save for retirement. Instead, they discuss retirement goals, then consider the financial elements in determining strategy and feasibility.

Product-Based Financial Planning

Creating a long-term plan isn’t as simple as creating a map and following the route. Life happens and obstacles interfere. A successful plan keeps this in mind and allows room for change.

Product-based financial planning is one way advisors may choose to approach a long-term plan. Financial planning is a complex service, but very beneficial for clients looking to conceptualize a plan. Product-based planners provide the tools needed to illustrate financial planning strategies and to assist clients in adjusting their spending and saving habits as necessary.

When working with a planner that selects products for a healthy financial future, it is better to work with one who acts as a fiduciary. This will ensure that the advisor selects products based on an assessment of their clients’ personal situation. Product-based planners should keep long-term goals in mind in order to gather products that will properly complement each other and successfully lead clients to their end goal.

Why It’s Important To Plan With The End In Mind

Financial planning doesn't exist in a vacuum. No one's life turns out exactly as they imagined it would. It's the unpredictability of life that makes goal-based financial planning so important. Trusted financial advisors extol the virtues of budgeting, creating a savings plan, reducing debt and investing for the long term. These measures ensure that when things change, it is possible to adapt finances accordingly.

The best advisors will learn about their clients’ end goals and needs, and build plans to achieve them. The steady players who work in their clients' best interests are the ones who can help them gain financial security, work to achieve their goals and enjoy peace of mind.

(Matthew Schechner is the President of Essential Advisory Services, a judgment-free financial planning firm located in Long Island, New York.)