Expert Tips on Overcoming Financial Planning Barriers

barrierSpot & Overcome Financial Planning Barriers

The Society of Actuaries sponsored a study of financial planning for the Financial Literacy Group titled Barriers to Financial Advice for non-affluent Consumers. It was a pretty extensive white paper, and an article I wrote was quoted in this study. Obviously, they were looking for qualified authorities in this matter :). Financial planning remains inaccessible to many American consumers, and not having these services available to them makes it more difficult for some people to accumulate wealth and to preserve it in the face of adversity.

The study concluded that there are three main types of barriers to financial planning that people face:

  1. Individual-Level Barriers
  2. Social-Level Barriers
  3. Institutional-Level  Barriers

Individual-Level Barriers

  1. Lack of knowledge: Many non-affluent people, either because of lack of experience or knowledge, don’t really know what financial planning is; therefore they don’t know enough about it to seek it out. If people don’t know how something can help them, then it is impossible for them to be able to obtain the service.
  2. No understanding of the planning process: Some non-affluent people may have some understanding about financial planning, but they really don’t understand how the financial planning process works. I experience this all the time when I provide financial coaching to people. I start off talking about goals and collecting information, but they lack context of the 7-step process. Without this context, they have no idea where I am trying to lead them, and they become frustrated. Once I explain the process and why it works, then it makes sense: goal setting, data collection, data analysis, financial plan construction, plan delivery, implementation, and regular review and updates.
  3. No trust in advisers: Lastly, some non-affluent consumers find it difficult to trust financial advisers. One reason the research discussed was the perceived conflict of interest some planners might have, who also offer commission-based products. I’m not saying that this is a reason for not trusting advisers, but I’m just reporting what the study brought up.

Social-Level Barriers

  1. Friends and family opinion are more valued than experts: The research indicated that many non-affluent consumers put more weight on and rely more on financial advice given by friends and family that are not financial professionals. These individuals usually have limited knowledge of financial matters, yet they trust them and follow their advice more than that of professionals.
  2. Advisers aren’t connected to the non-affluent: Financial professionals often don’t have the necessary social and community connections with those in the non-affluent marketplace; therefore, they don’t have access to those markets.
  3. Advisers don’t understand non-affluent people: Professional financial advisers are usually more affluent and have a social disconnect with the non-affluent marketplace, including people who are immigrants.

Institutional-Level Barriers

  1. Financial firms target only the wealthy: Most financial advising firms focus on the affluent consumers because they are more profitable. It would require a long-term costly commitment to design products and services, and to set up and run distribution to non-affluent consumers. Furthermore, the pay-off is unknown. Financial firms either don’t have the funds or don’t want the risk to cultivate and develop this market. It’s sad that they don’t invest in helping seed the market to help non-affluent people become affluent, and to create future markets for themselves.
  2. Products and services misused on the non-affluent: The products marketed to  the non-affluent consumers are usually front loaded, both to recover costs and to pay and motivate financial advisers. This sets up an inherent conflict of interest to sell more products and services to maximize profits, which is often to the disadvantage of consumers.
  3. Non-affluent people’s distrust: The Great Recession has tainted the non-affluent public’s view and trust in financial institutions. The lack of trust and confidence makes it all the more difficult to provide financial products and services to the non-affluent marketplace.

Solutions for Overcoming the Barriers to Financial Planning

  1. Public education: One of the keys things to affect change is to educate the public about financial planning and the related products and services. Some commercial financial institutions and professional associations contribute time and money to educate the public, but few people are touched by these services. Some educational programs offer adult education, and a few teach personal finances in primary and secondary public school systems. Some colleges and universities teach it, but most college students graduate with little knowledge in this area, but with massive loans. Increased expense and attention in these programs would pay off for society at large.
  2. Private education: A few million people have taken commercial personal finance classes in community centers and churches. Dave Ramsey’s 9-week personal finance class, financial peace university, is probably the most popular and successful. Dave has built a small educational empire; his company, The Lampo Group, produces several classes, both for self-study and for classroom settings for various age groups, needs and markets. These classes, as well as his books and radio programs, provide people with knowledge, resources, motivation and emotional understanding.
  3. Self-education: This type of education comes in many forms these days. Some people use the resources just described, while many others read financial books and blogs and watch TV programs by financial personalities like Suze Orman and Jim Cramer (Mad Money). One of my favorite websites has newsletters and books written by Mary Hunt. Her Debt Proof Living organization provides extensive helpful information for people to become financially healthy and to stay on track throughout their entire lives. Mary cares about her audience, and many of them have library shelves filled with the nearly 20 books she has authored. It would be helpful to anyone interested in finances to read her resources.
  4. Financial technology: The second to last solution is to use do-it-yourself financial planning software. It used to be that only professional advisers had access to this software, but today anyone can use it. Doing it yourself helps people understand the 7 step process described earlier. Inputting all financial information into an online application helps people become organized with most of their financial affairs, and helps them keep their finances in order. Not only is goal-centered planning vital to keeping people focused on reaching their goals, but also the process itself is entirely educational. I’m an experiential learner, meaning that I learn by doing. Many other people are too, and running your own financial plan expands your knowledge along the way. Before the Internet, this was not a possibility. With the advent of eFinPLAN and other financial online consumer focused companies, it is accessible and available to anyone at low-cost.
  5. Personal financial coaching: Finally, some people just need the help of someone to coach them about the various issues that affect them. The basics of finances are really simple, but the application isn’t. There are relational, behavioral, and a whole host of other human factors people need help with, and hourly financial coaches help a lot of people today. David Jacobson of Coach-Connection has a nationwide network of financial coaches, as well as classes offered in the workplace.

What are the main financial services websites for people doing some of their own personal finances?

If you do an internet search for personal finances apps, you will find dozens of them, to help you manage a whole host of items. For essential personal finances, the come in three basic varieties: 1. Budgeting one’s to help you track and limit expenses, 2. investment sites to do investment planning, and 3. comprehensive financial planning. Below is a short list of examples.

Caution: They will even use these categories interchangeably on their website, even though some don’t do what the key-word searches in Google bring up. For example, if you search online financial planning, you’ll see Mint.com listed, even though they don’t do financial planning.

Budgeting Sites: There are dozens of these out there, but here are a couple of the best ones

  • Mint.com provides free online budgeting on all devices, linked to your bank account, however they sell your information, and market products to you, sometimes based upon the financial data they are collecting about you.
  • YNAB.com provides a low-cost ($60) start-up fee, that never re-occurs, downloads bank data and their application is fantastic and very well-known. YNAB stands for you need a budget, and works on all devices too.

Investing Websites

  • Wealthfront  and Betterment are cool online investing companies that help people invest in indexes, with very low fees, asset allocation, re-balancing and tax efficiency: all automated. The fees quoted online is .25% (Wealthfront) and .35% to .15% (Betterment) which is very good.

Financial Planning

  • eFinPLAN (this website) provides full online comprehensive financial plans for $99 per year, then $79 thereafter. Coaching is provided on a 1/2 hour basis @ $50, for a wide range of needs, from helping you to complete your profile, understanding your plan, to whatever financial area you have questions about. eFinPLAN is the low-cost leader and provides the most extensive plan online today.

In summary. Education and coaching are key, as well as removing the barriers to financial planning. The tools are available for virtually everyone today. You can easily budget, invest and do financial planning help to remove many of the barriers that once prevented people from getting the help they need, all from the comfort and convenience from your home.

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