Wealth management combines various financial services to consult and address the needs of affluent individuals.
A holistic approach to financial planning means not aiming for one goal—such as purchasing a property, for example—but addressing a collection of other needs and objectives.
In simple terms, holistic financial planning considers the big picture of an individual’s finances while including both short and long-term goals.
In this article, we will discuss why a holistic approach is important in financial management.
What is Holistic Financial Planning?
Or rather, what isn’t holistic financial planning?
To understand holistic financial planning, it can be helpful to understand what it isn’t. Holistic financial planning does not:
- Focus only on investments
- Disregard larger tax planning strategy
- Sell insurance or annuities without understanding the full scope of a client’s needs
- Consider a financial plan limited to only one perspective
Now that we have discussed what a holistic financial plan is not, let’s take a closer look at what it is.
What Does a Holistic Financial Plan Include?
A holistic approach looks at an individual’s lifestyle, goals, values, and priorities to create a financial plan that works for them. Financial planners can coordinate these needs and the lifestyle of their clients in order to create a strategy.
A holistic financial plan may include:
- Investments (portfolio, brokerage accounts, ETFs, mutual funds, etc.)
- Retirement planning (finances and lifestyle)
- Estate planning
- College planning
- Budgeting and saving
- Retirement accounts (401k, 403b, IRA)
- Insurance needs (home, auto, life, long-term care, liability, etc.)
- Tax planning
- Tax preparation
How Does Holistic Financial Planning Differ from Traditional Planning and Investing?
Many individuals tackle financial planning by focusing only on numbers. For instance, target rates of return, insurance premiums, the cost of a renovation on a home, and a nest egg for retirement.
While these numbers are important, they can be limiting to an individual who is developing a financial plan.
Benefits of Holistic Financial Planning
1. Holistic Planning Provides Flexibility
A holistic financial plan offers clients the flexibility to change course as their lives and goals evolve. These plans should be continuously evaluated and updated based on these changes.
2. A Holistic Financial Plan Can Align With the Client’s Values
While traditional financial planning considers the best outcomes for a client’s portfolio, holistic financial planning can consider other aspects which may be important to clients, such as values.
A financial plan that aligns with a client’s values may take the form of investing in companies with similar missions and values while still aiming for their financial goals.
3. Holistic Planning Can Help Clients Prepare for Unexpected Life Events
A holistic financial planning approach not only helps individuals prepare for expected life events but also unexpected ones.
Some examples of major life events where advisors can help include:
- Sudden job loss
- Unexpected inheritance
- Critical illness, and/or
- Loss of a family member or loved one
4. Holistic Planning Prioritizes Tax Efficiency
Taxes should be an important consideration when developing any efficient financial plan. A holistic approach to financial planning can optimize tax efficiency by considering short and long-term goals.
This is especially important in retirement and estate planning. For instance, this can include strategies such as:
- Tax-loss harvesting at year-end to offset capital gains, managing distributions from your taxable retirement accounts
- Transferring assets to a trust
- Making financial gifts to younger generations or a charity
- Life insurance may also be used for estate planning purposes
5. Holistic Financial Planning Considers Retirement
Retirement planning is one of the most significant goals that clients will come to financial planners with. Holistic financial planning can help clients build a comprehensive plan for retirement that considers the entirety of the client’s financial situation.
For instance, a holistic financial plan can help to develop a portfolio that allows a client to maintain their lifestyle without actively earning income. Additionally, a holistic plan can include passive income sources that will be a fit for the client during their retirement.