Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
Personal finance is wide and varied. At different stages of your life, you could seek help from an array of different professionals for an array of different financial matters…someone to help you pay down your debt…someone to help you select insurance products…someone to guide you on investing…someone to help you plan your retirement…someone to help you plan your estate…and more. While that approach leaves you in the driver’s seat, you end up lacking a comprehensive professional eye, someone making sure all the pieces fit well together. An advisor taking a holistic approach financial planning can design an overarching plan that combines all of the elements of your financial life in service of your long-term goals.
Many advisors who provide a holistic approach conceptualize the lifelong personal-finance journey as a pyramid. It’s a model inspired by the famous Hierarchy of Needs conceived by psychologist Abraham Maslow. In Maslow’s hierarchy, an individual cannot achieve psychological fulfillment without first satisfying basic physiological needs such as food and shelter. Physiological needs are thus the lowest and widest layer of Maslow’s pyramid. The second layer is safety and security. Then comes love and belonging, followed by self-esteem. The tip of the pyramid is self-actualization (which entails acceptance, purpose and meaning).
Holistic financial planning is similarly pyramidal. There’s some variety in the way different advisors structure their pyramids (more or fewer layers, different labels, etc.), but they all follow a roughly similar logic. A client’s bottom layer is generally concerned with basic money management. Earning an income, paying your bills on time, managing debt, and stabilizing cash flows are all necessary before it makes sense to start worrying about more advanced financial matters. Once the bottom layer of the pyramid is secured, the client moves on to the second layer, which has to do with establishing a safety net. That means setting up an emergency fund, putting other money away in savings, and insuring yourself, your family and your assets. Next comes the wealth-accumulation layer, in which you build out an investment and retirement portfolio. Above wealth accumulation comes wealth preservation, essentially what happens when you are living off your investments post-retirement. Finally, the tip of the financial pyramid is your legacy, the echo of your lifelong work on the people you leave behind. It includes the division of your assets via estate planning as well as the charitable impact you wish to have on the world. And, if you own a business, it includes your succession planning.
Note that these layers are not rigidly sequential (nor, by the way, is Maslow’s hierarchy). In other words, it’s entirely possible for a young person starting out their career to set up a 401(k) before they have a solid handle on their cash flow. Instead, the model serves as a general framing device both for advisors and for clients.
There are two main advantages of the pyramid model when it comes to holistic financial planning. The first is that it is difficult to do a good job advising someone on something higher up the pyramid, such as investment decisions, if you’re unfamiliar with their situation vis à vis the more basic levels, such as cash flow or savings. As a client taking a piecemeal approach—going to different advisors for different financial needs—you could certainly try to explain your full financial picture to everyone you work with. But it’s unrealistic for them all to have a deep understanding of your situation, which means that the advice they give you in one layer of the pyramid could have a detrimental effect on your situation in another layer.
The second advantage of the pyramid is that it allows for progressive, logical, and far-seeing advisory. A holistic advisor will help you establish a comprehensive financial plan that ensures that the bottom layers of your pyramid are shored up rather than neglected, and that the pieces placed at the top of the pyramid are sitting on a firm foundation.
As the above makes clear, if you hire a holistic advisor, the idea is not that you’re entering into a casual, short-term engagement. Instead, you’re embarking on a years-long journey with a guide, someone with whom you’ll be sharing everything from your spending habits to your favorite charitable causes to your wildest dreams of travel, lifestyle and consumption. The more you share with your advisor, the more they’ll be able to guide you toward the kind of life you want through holistic financial planning that supports it.
“Holistic advisor” is not a job title or professional designation. Instead, it describes an approach to financial planning that could belong to professionals of many titles. However, to zero in on an advisor who embraces holistic financial planning, try searching for someone with “planner” in their title. Also be on the lookout for “comprehensive” and “holistic,” if not in advisors’ titles than in their descriptions of their offerings, such as on their websites.
Once you have some advisors under consideration, set up meetings with them in which you can ask them questions about how they work. If holistic advisory is of utmost importance to you, then ask a lot about it. What does “holistic” mean to this advisor? Do they always consider the big picture when providing financial advice? Which services are they capable of providing? How often do they recommend that their clients seek expertise elsewhere? How long is their longest client relationship to date? What is their approach to personal finance? Do they adhere to a framework similar to the financial pyramid? How much time do they spend with their clients? How often would you be meeting with your advisor?
The answers to those questions will be important, but so will the general vibe you get from the person. After all, if you’re embarking on a long journey together, you want to have good chemistry with your traveling partner. Make sure it’s a good personality match, and that the advisor speaks a language you understand.
Just because you’re working with a holistic advisor, don’t expect that they’ll be able to handle every specialized financial need that comes along. Sometimes there will be products or services that are outside of their expertise, and you’d do well to seek outside help. That’s fine. Remember that “holistic” merely describes the approach that your advisor takes to considering the work. While “one-stop-shopping” can be an element of that, it isn’t essential or in some cases even preferable in holistic financial planning.
