There are Only Three Kinds of Financial Plans

There is an awful lot of debate on social media regarding financial advice among licensed professionals (and licensed amateurs). So many have their own 'hard line' rules regarding advice they believe to not be in the client's best interest.

The problem I see is that they don't offer a lot of context as to how and when they implement their favorite advice (or product / solutions). In Robert Kiyosaki's book "Guide to Investing" (the 3rd in a series of his bestselling books), he outlines three areas of financial values. Frankly, I think they're categories of financial planning:

1. Safe & Secure

2. Comfortable

3. Rich.

Let me start with the last one: The plan to be rich. No planner makes anyone rich. How do we get rich? Through business and real estate. Yes, you can invent something. That's a business, particularly to sell it. You can say you're in rental real estate. That's a business, even if the IRS lets you classify rental income as 'passive'. Planning can help you keep and preserve your business from one generation to the next, but we don't create businesses for you.

What is advice for being comfortable? There are many ways to plan in this area. There is often discretionary income that can be funnelled to preferred investments or other strategies to build a higher net worth (again, not 'rich', but growing in comfort).

What is advice for planning to be safe & secure? This is covering your bases in health insurance, term life insurance protection, disability coverage, ensuring you are eligible for government plans (Social Security requires 40 working quarters of income), building savings, having debt under control, etc.

The great debates:

Where things can get confusing (and abuses can happen), is when advice for being comfortable is being shown (sold?) to people who should be planning to be safe & secure. I love cash value life insurance. I love what it can do! However, it's generally not appropriate for two kinds of people:

1. Those who don't quite 'get it'. Nothing worse than trying to force a sale to someone who doesn't understand something. It's detestable and abusive.
   

2. Those who are not in a higher income and asset level. If we're going with a 'tax play', they need to have enough of a tax problem where it will be beneficial. To me, one should have a minimum of about $125,000 annual income and/or retirement assets of over $500,000. If it's less... then cash value life insurance can do more harm than good. These limits are primarily for Californians as this is a higher income (and higher income tax) state, but the principle is sound.

   Just like in prescribing medicine, too little for someone's situation won't do enough. Too much... and it could cause serious harm, (including death). It's the same with life insurance and financial planning. Too little won't do much. Too much for a given situation, and it hinders everything else... and it always 'depends'.

Online Debates:

Much of these online debates occur when professionals debate a product and/or strategy without the proper context.

I am often a critic of Primerica as a sales culture. They were founded on the notion of "buy term and invest the difference... (with us)." They are often replacement artists replacing cash value policies believing that term is 100% always in the best interest.

I'm actually glad to know that it's often more nuanced than that. I have a few Primerica agents in my Facebook group. When they talk about policies they've replaced, I ask a few questions, such as how old the policy was, cash values, and death benefit. When I do the math, it often appears that these policies were not set up well from the beginning and needed to be replaced, particularly for the client's given circumstances.

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While they seem to be on a replacement crusade, we find common ground when I advocate that often cash value life insurance is mis-sold or over-sold because they're selling a contract that's best for the 'comfortable' planning level to people who should be planning in the 'safe and secure' planning level.

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Without categorizing the quality of advice, and to whom it is given that's when confusion and the flame wars kick in.

The price of being a specialist:

It also implies that the specialist knows when they have a quality person for their services and when they don't. So many outside of a specialist perspective believe that "when all you have is a hammer, everything looks like a nail." This removes the possibility of ethical conduct and that not every situation is appropriate for that specialist. Granted, sales and client abuse makes far more news than the ethical consultant, so it's easy to see how one can believe that specialists may 'over-sell'.

The specialist must know and exercise prudent judgment on who is an ideal candidate for what they do. There are legal consequences when they don't.

Not every licensed professional has the same understandings

It's an interesting phenomenon when I can look at someone's letters after their name and at least know what kind of education they've been exposed to... and yet we come to different conclusions.

The most consistent seems to be those who have earned CFP marks. CFP offers wonderful education... but often towards a given business model. (Yes, all financial advice is a business model.) Most CFP holders have a limited understanding of cash value life insurance uses. However, even as a CLU graduate myself, I have found CLU to be lacking in some of this as well. This is why when I get into some online discussions, I know that just because someone has letters after their name (just as I do), doesn't mean they are experts. In fact, I use the term 'expert' very specifically. Expert really should be a term for those who could be expert witnesses in court in their subject matter. For attorneys, they cannot call themselves an expert unless they are board certified by taking an examination at that level. To call yourself an expert without that step is illegal. And no, CFP, ChFC, CLU, and others... do not make you an expert. I'll never call myself an expert. Other people DO consider me an expert, and I consider myself very well-versed, but I'm not an expert. I'm always learning. So if you're reading an exchange between financial professionals and wondering where they're coming from, check out the letters after their name and apply the 3 kinds of financial plans to how they're talking... and you might see how both may be correct, but they are often talking past each other because they aren't categorizing their advice.