6 Pillars of Comprehensive Planning- Amplius Wealth Advisors (2024)

A Detailed Guide From Amplius Wealth Advisors

In the wealth management industry, the phrase ‘comprehensive financial plan’ gets thrown around quite a bit.

But what does ‘comprehensive financial planning’ mean? What are the components of a plan?

Unfortunately, there is no industry-consensus standardized structure. Every firm or advisor may have a different definition, approach, or philosophy, but almost certainly, many wealth management firms do not cover, advise, or execute all the components we believe to be integral.

At Amplius Wealth Advisors, we follow this rigorous framework.

This is the process I follow with clients on a daily basis and introduce in virtually every new conversation with a prospective client. A comprehensive financial plan includes accurate details, and executable strategy for the following:

1. Cash Flow Planning (Retirement, Education, Income, Savings, etc.)
2. Asset Allocation Framework & Investment Strategy
3. Risk Management & Insurance Strategy
4. Tax Planning & Strategy
5. Estate Planning & Strategy
6. Behavioral Analysis

Every single sub-category of financial planning can be tucked neatly within any of those six categories. By the way, this is not a novel framework, but instead derived from the tenets set by the Certified Financial Planner Board of Standards, Inc., the official governing body of the Certified Financial Planner (CFP®) designation.

Allow me to go into greater detail for each of the components.

1. Cash Flow Planning:

This category deserves a more impressive name. Not only is it the most fundamental building block, in my opinion, but it also encompasses the most ‘sub-categories.’ A well-defined cash flow plan includes planning around all the following major areas:

• Retirement planning
• Education or college planning
• Income planning
• Expense & savings analysis
• Executive compensation & equity award planning and decision-making
• Business succession planning and liquidity events
• Social Security and Medicare decision-making
• Major expenses (new home, new car, renovations, travel, luxury)
• Liquidity solutions, loan analysis (mortgages, etc.)
• Philanthropic initiatives (the quantitative side)
• Gifting to family members
• “What-If” scenarios

Many of these categories could be standalone components of a financial plan. I lump them into cash flow planning because most of them are addressed by thoroughly preparing a cash flow analysis and examining the various components.

Traditional financial goals that follow the doctrine of, “How much money will I need, and when, for my [fill-in-the-blank] needs or goals?” fall under cash flow planning.

For these reasons, cash flow planning should be the first step in building a financial plan. This sets the table to inform all parties around what can be amended, changed, reduced, saved, etc. It informs the most basic questions around emergency savings targets, to more complex questions around how and when to exercise Incentive Stock Options, or how much to consider for a Roth conversion in specific years, for example. It informs all parties of the short and long-term ramifications of financial decisions made now and in the future.

It also informs the next four categories of a financial plan – what types of investments should be used and how portfolios should be designed to accommodate the plan, what types of risks are present (life risk, disability risk, income risk, health risk, liability risk, etc.), what type of tax planning strategies can be implemented to further optimize cash flow and outcomes, and finally the estate and legacy plan for how assets should be handled at death or incapacity.

Unfortunately, cash flow planning is often where financial planning stops for most people and most wealth management firms. This is a mistake.

2. Asset Allocation Framework & Investment Strategy

This is the category most people think of when considering what wealth management firms provide. Often, it is also the most ‘exciting’ category to discuss for most people. In my humble opinion, both of those notions are wrong.

Your asset allocation framework is an analysis that reveals how your entire net worth is distributed – how much is ‘allocated’ to real estate, stocks, bonds, commodities, CDs, cash, private investments, business interests, etc.

Based upon your cash flow planning and goals, your asset allocation targets, and investment strategy, should directly reflect what your plan requires. How much liquidity is needed, what is the time horizon for various needs, and how should different accounts be structured to optimize the tax-efficiency efficiency of your investments? These are all questions that should be addressed by fundamental cash flow planning, all of which makes the investment equation simpler than it might otherwise seem.

At Amplius, we believe the ‘1A’ most important investment decision one can make is to make sure their asset allocation is right for their plan. That is, how much of their net worth (or what percentage) should be allocated to the various investment types (AKA asset classes) described above.

After that, the ‘1B’ most important rule of successful investing comes down to behavioral discipline – that is, sticking with your investment strategy through ups, downs, good times and bad, to allow for the strategy to work its long-term magic.

Here’s an easy way to remember: the 1A rule stands for ‘Asset Allocation,’ while the 1B stands for ‘Behavior.’

I’ll discuss this idea more in the ‘behavioral analysis’ section, however, this is where ‘art’ and ‘science’ converge in financial planning. Your asset allocation targets and investment strategy can be ‘scientifically’ or quantitatively calculated based on risk-optimized returns, however, in tandem with rule 1B, if that investment strategy becomes one that you cannot stick with or are likely to bail on at the most important moments, then the framework won’t work.

In a simplified example – if your plan mathematically allows for you to target 80% of your portfolio in stocks, but you are likely to have a visceral, ill reaction to reviewing your statement when stocks inevitably (and temporarily) get hammered -30% in a bear market, and you will not be able to stomach that situation, then the asset allocation framework needs to be dialed back and take that fact into consideration.

3. Risk Management & Insurance Strategy

This piece all comes down to risks to your plan. Think of it very simply: what could possibly happen that might derail the plans we’ve constructed so far?

I am not talking about financial market or economic risk, but instead, things like:

• What happens if I die prematurely? Morbid, but needs addressing.
• What happens if I am disabled long-term? What happens to my income?
• What happens if I am sued or have legal issues?
• What happens if my property is damaged, destroyed, or stolen?
• What happens if I have medical costs that are uncovered by my insurer?
• What happens to my health coverage in retirement? What does Medicare cover and not cover?
• What happens if I retire early and need access to certain benefits?

All these questions should be addressed as part of an adequate risk-management strategy. As part of the due diligence process, employer benefits should be reviewed and considered, alongside personal policies.

Unfortunately, this is the most common area for people to get sold products they may not necessarily need. This is why consulting with a fiduciary, independent wealth management firm is paramount to constructing an appropriate plan that reflects your best interests. That way, you can feel confident that the recommended strategy is not influenced by competing interests.

Most of these risks can be analyzed as a derivative function of the initial cash flow plan, again highlighting the importance of that first step. The cost of ‘products’ can also be considered by overlaying against the original cash flow plan to compare the effects of risk management decisions on short and long-term goals.

Once armed with the right facts, it’s easier to consider which risks might be worth ‘self-insuring’ against and which risks really could cause major disasters and/or cause sleepless nights and should be appropriately addressed with insurance products.

4. Tax Planning & Strategy

Again, here is where wealth management firms often fall short. Unfortunately, most CPAs and tax advisors (no offense to my CPA friends and the tax advisors out there who do excellent work for their clients) also often fall short, in my humble opinion and experience.

In defense of most CPAs, it is not their job to consider what your cash flow plan looks like, how your portfolio is allocated, what equity or executive compensation complications you have, and how all those pieces foray into your tax strategy. But it is your financial advisor’s job. Your advisor should understand all those components and be knowledgeable enough to tie tax planning into those items.

Tax planning is obviously quite different from one individual to another and covers an enormously broad range of topics but generally speaking, a good tax strategy should cover things like:

• An annual review of your tax returns to understand your income sources, how they are taxed, your savings and planning opportunities, your deductions, and what can be optimized.
• How your employer or self-employed benefits will influence your tax bill both now and in the future.
• The various types of self-employment entities and their pros and cons, for those who are self-employed.
• Optimizing retirement account savings by reviewing various retirement account types, contribution types, back door Roth contributions, Roth conversions, etc.
• Understanding deductions that are available to you, itemizing versus standard deductions, etc.
• Reviewing philanthropic goals and how to optimize their tax efficiency.
• Capital gains and losses and how best to plan for them both now and in the future.

We try to do all the above and more for our clients. We want to be fully aware of their tax situation, review their important documents and returns where appropriate, and in many cases build out an all-encompassing tax projection for the current and/or future years, and bring all of that back to the fundamental cash flow plan to see how various tax decisions will impact their short and long-term goals originally planned for.

5. Estate Planning & Strategy

Your estate plan, in an oversimplified explanation, is a collection of legal documents that carry out of your wishes at your death or in the event of incapacitation. Again, morbid stuff, but paramount to address for your loved ones.

It is because of this emotional burden and the legal process it takes to setup an adequate estate plan, that many people either fail get started, or in some cases, do have a plan, however, it is only partially executed and/or they and the important people they appoint, have little to no understanding of how it works.

Many people assume their estate plan is just their ‘Will.’ However, the basic documents that should be included in almost all estate plans are as follows:

• Final Will & Testament
• Living Will/Healthcare Proxy/Healthcare Power of Attorney (all sometimes used interchangeably)
• Durable Power of Attorney

In many cases, there is also a trust document for the outright creation of a revocable or irrevocable trust, OR there is trust language included in the FW&T for a ‘testamentary’ trust for a variety of reasons.

Estate plans are broad and complex but at their core and most basic, should answer the following fundamental questions:

• How are my assets and property handled and transferred at my death?
• Who are the beneficiaries (human or non-human) of my assets and property?
• Who are the people that will carry out the execution of my estate, and act as trustees and fiduciaries where applicable?
• Who will take care of my minor children, if applicable?
• How will my minor children be financially planned for, if applicable?
• Who will make important financial decisions for me, if I am incapacitated?
• Who will make important healthcare decisions for me, if I am incapacitated?

Once executed, estate planning documents should be summarized and reviewed for comprehension, and then reviewed again every few years to account for accuracy around goals, changes to life or circ*mstances, changes to tax laws, etc.

On the more ‘qualitative’ side of estate planning, things like legacy planning, family governance, and philanthropic goals, amongst other things should be discussed and planned for, which often necessitates including additional family members beyond the person for whom the estate is being structured.

6. Behavioral Analysis

Most of what has been discussed above is very technical. Going back to the ‘science’ and ‘art’ example I used when describing investment strategy, most of the above has to do with the ‘science.’

However, maybe the most important piece of someone’s financial plan is the qualitative side: how they feel about certain things, what preconceived notions or biases may be present, what keeps them awake at night, how likely are they to stay accountable to the plan, how likely are they to execute on what has been written down, what human tendencies have potential to disrupt the success of the plan?

This is where, in my humble opinion, a skilled financial planner or advisor is critical. As humans, we all have a very difficult time recognizing our biases, weaknesses, and shortcomings. An emotionally intelligent advisor picks up on them throughout this entire process and the tenure of a client-advisor relationship.

Psychology has an enormous impact on the likelihood of success of someone’s financial plan. Behavioral analysis is an ongoing piece of a financial plan that needs to occur for all parties to recognize and course correct when necessary.

I say all the time to clients and prospective clients: while lots of people have similar demographics, interests, lifestyles, levels of wealth, goals, and needs, every person has their own unique ‘financial personality.’

It is constructed, like many things, subconsciously throughout their life – how they grew up with money, how their family members treated money, how they have experienced loss or a family member going through life emergencies, financial hardships, how they feel about different investments or asset classes, their perception of debt, their opinion of the tax system, etc.

Some of these financial personality traits are wonderfully positive: a saver’s mindset, for instance, or a healthy understanding of leverage and the use of debt, or a stoic approach to the whacky behavior of financial markets, or why the tax system works the way it does (though I have yet to find someone in that last camp!).

Some, however, are less positive: anxiety when investment values change rapidly, a tendency to spend more when income increases, believing one investment type is foolproof and better than any other, an emotional connection to their employer and its stock price, etc.

Luckily, many of these perceptions or biases can be handled in one of two ways: (1) through coaching and educating to gain an understanding of a topic that may be misunderstood, or (2) the plan can be amended to accommodate for certain bias and still produce successful outcomes.

I’ll give a few simple and common examples:

• Trouble saving or a tendency to increase spending as income increases (AKA lifestyle creep). Solution: set up automatic, reoccurring systematic savings that are out of sight and out of mind, increase them each year, and structure accounts to allow for a ‘guilt-free’ spending bucket, and a ‘do-not-touch’ bucket.
• Avoidance of any and all debt for example, wanting to pay off a sub-3% long-term primary mortgage: explain and showcase the short and long-term effects it would have on cash flow and the plan. If still causing anxiety, amend the plan to allow for additional payments to principal, and extra cash flow to be directed to debt, without sacrificing necessary savings and other priorities.

As you can see, a comprehensive financial plan is just that: comprehensive. There are many, many more financial subcategories and topics not touched on here, but this framework encompasses all of them.

Please reach out to us with any questions or thoughts or to review your own financial plan.

This is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product or services. The content is provided solely for your personal use and shall not be deemed to provide access to any particular transaction or investment opportunity. Amplius Wealth Advisors, LLC does not intend the information to be investment advice, and the information should not be relied upon to make an investment decision. Any third-party information contained herein was prepared by sources deemed to be reliable but is not guaranteed.