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Financial Products Do Not Equal Financial Planning

Despite what you may see or hear in a TV or magazine add, financial products do not equal financial planning. It can be easy to confuse financial products with financial planning. While nearly all of us will need to purchase some financial products in order to put our financial plans into place, the purchase of a financial product on it’s own does not equal financial planning.

The Powerful Pull Of Products

It’s the weekend and you’re relaxing in your favorite easy chair, watching some TV, scrolling through your Facebook feed, or reading your favorite newspaper or magazine. You flip the page or change the channel and up comes an ad for a new financial product. It could be an ad for a mutual fund, life insurance, a major national brokerage firm, or maybe a bank. The ad has images of smiling, happy people who have apparently just solved all of their financial worries by buying a product or meeting with a sharp looking advisor. Sometimes there’s audio or text in the ad saying something like “let us help you secure your financial future with (insert product x here)”. While the ad shows people supposedly satisfied because the product solved their problems, don’t be fooled into thinking that they have done any financial planning. It’s just a product, not a plan.

Financial Products Are Part Of, But Not, The Plan

Financial products by themselves aren’t bad. Far from it. Just about everyone will need a financial product(s) over the course of their lives. It could be a mutual fund, a life or disability insurance policy, an annuity or any other number of money-related products. But, just because we purchase or invest in one or more of these products it doesn’t mean that we have a proper financial plan.

There are many excellent financial produces, from any number of solid companies. We are very fortunate to have such great choice when it comes to picking the best product for our situation. The place for these products is in the later phases of the financial planning process, not at the beginning. In other words, financial products help fill the needs that are discovered by going through a proper financial planning process.

Plan First, Product Second

As I wrote about last week, a true financial plan should be built around the person, not products. The financial plan needs to reflect the person’s unique values, goals, dreams and behaviors. Identifying these unique attributes and helping the person realize, acknowledge, and take advantage of them takes a process that is completely devoid of any one financial product.

A true financial planning process will naturally lead to what (if any) financial products might be needed. So, if we operate under that assumption, you can see how it can be difficult for someone to get a true financial plan if they are approaching the planning process under the assumption that a particular product is the solution. That’s why it can be very hard for someone who is representing 1 particular financial product to deliver a true financial plan. The product can tend to influence the plan. This may be completely unintentional but it’s only human nature. To reduce the chance of this happening, the financial plan should take place outside the sphere of any one product.

If a financial plan is built without the “influence” of a particular product, the plan will have a much greater chance of truly reflecting the person instead of a product.

How To Avoid Product Planning

The lure of financial product advertising can be overwhelming. To combat the tendency to use a product as a plan there are several things you can do:

  • Separate any financial products you’re thinking of purchasing from any financial planning. Don’t let a product drive the financial planning process. Any products should come AFTER you’ve created your financial plan
  • Don’t fall for the lure of a financial product advertisement. While the product might be good, it may not be appropriate for your situation. Take the time to know your particular situation before you make a product decision.
  • AND FINALLY, make sure you work with a fiduciary financial planner. A fiduciary is legally obligated to act in your best interests at all times, not in the interest of a financial products company. Ask any advisor you are thinking of working with if they are a fiduciary. If they answer “no” or evade the question, consider choosing another advisor.

Individual financial products can be a perfect match for you and your financial plan. But, in order to make the best financial product choice, you need to make sure that you don’t confuse financial products with financial planning. Work with a fiduciary financial planner, make sure you have a true financial plan in place before you purchase any financial products and don’t fall for the slick financial product ads.

Contact And Connect

If you have any questions about your own situation, or would like an independent second opinion on anything in your financial life, you can set a time for a no obligation call to discuss things further. If my services might be a match for your needs I’ll let you know. If not, I’ll let you know that as well.

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