Review of PFS’s “A Guide to Personal Financial Planning”: Assessing the Essentials of Modern Financial Planning

In the ever-evolving landscape of financial planning, it’s crucial to move beyond the traditional focus on financial capital alone. A comprehensive approach must integrate human capital strategies and personal values assessments, recognising the broader context of an individual’s life. Let’s explore whether the PFS guide effectively incorporates these critical components.

Does the Guide Include Personal Values Assessments?

The PFS guide – Power: A Guide to Personal Financial Planning, Autumn 2024 – emphasises client-centric outcomes, such as clarity, connection, choice, control, and confidence. However, while the framework attempts to place clients at the heart of the planning process, it falls short in explicitly incorporating structured personal values assessments.

1. Focus on Clarity and Goal Setting: The document highlights the importance of achieving clarity for clients. It suggests using frameworks like SMART or PACT to establish clear, measurable objectives. However, this approach centres primarily on financial goals rather than aligning these goals with the client’s core values. There is limited mention of deeper life coaching methodologies, such as those inspired by George Kinder’s three questions, which help clients identify what truly matters in their lives.
2. Absence of a Structured Values Discovery Process: While the guide references the importance of aligning financial decisions with personal goals, it lacks a structured process for uncovering personal values. A robust financial plan must start with an exploration of values, providing a foundation for all subsequent financial decisions. Without this, there is a risk of creating plans that are financially sound but disconnected from what the client genuinely values and desires.

Human Capital Strategies: Room for Enhancement

The document provides an insightful take on the human side of financial planning, focusing on the importance of human skills such as communication, empathy, and coaching. However, it does not fully embrace the potential of human capital development as part of a holistic financial strategy.

1. Technical vs. Human Capital: The guide emphasises traditional financial metrics like investment returns, cash flow modelling, and asset allocation. While these are essential, they address only the financial capital aspect of planning. The text lacks a comprehensive discussion on developing human capital—the skills, experiences, and career planning that contribute to an individual’s long-term earning potential and fulfilment.
2. Limited Focus on Lifelong Learning and Career Planning: In today’s dynamic economic environment, enhancing one’s human capital is as critical as managing financial assets. Strategies such as career development, skills enhancement, or sabbaticals for personal growth are absent. Integrating these into financial planning conversations would provide clients with a more resilient and adaptive plan, especially in light of unexpected life transitions.

The CFA Institute defines total wealth as:

Total Wealth = Financial Capital + Human Capital – Lifetime Liabilities

This formula is discussed in depth in the CFA Institute Research Foundation’s 2024 study?Lifetime Financial Advice: A Personalized Optimal Multilevel Approach , co-authored by Thomas M. Idzorek, CFA, and Paul D. Kaplan, CFA, with a foreword by Roger G. Ibbotson . It highlights a critical yet often neglected aspect of wealth management—human capital, the value of your future earnings, skills, and personal growth.

Emphasising a Holistic Approach

While the PFS guide is client-focused and outcome-driven, it would benefit from expanding its scope to include holistic, life-centred planning elements. This means going beyond the five consumer outcomes of clarity, connection, choice, control, and confidence, to incorporate:

• Values Discovery: Implementing a structured process to uncover clients’ core values, such as through guided introspective exercises or life-coaching questions.
• Human Capital Development: Introducing strategies that recognise and develop the client’s skills, experiences, and personal growth, which are key drivers of lifetime wealth and fulfilment.

Conclusion: Moving Towards Truly Holistic Financial Planning

The PFS guide provides a solid foundation for traditional financial planning, focusing on consumer outcomes and the development of human skills. However, it misses the opportunity to deepen the planning process through personal values assessments and human capital strategies. By integrating these elements, financial planners can offer a more meaningful, life-aligned service, helping clients not just achieve financial success, but live fulfilled and purpose-driven lives.

If you’re a financial planner looking to elevate your practice, consider incorporating these holistic elements into your process. At the Academy of Life Planning, we emphasise a whole-person approach, focusing not only on financial capital but also on the development of human capital and alignment with personal values. This transformative methodology helps clients navigate life with confidence, clarity, and a sense of purpose.

Q&A: Embracing a Holistic Financial Planning Approach

Q: What’s missing in traditional financial planning processes?

A: Traditional financial planning often focuses solely on managing assets and achieving financial returns. While this is important, it overlooks two crucial elements: your personal values and human capital. Without understanding what truly matters to you and without strategies to develop your skills and career potential, even the best financial plan can feel empty. A holistic approach, like the one we advocate at the Academy of Life Planning, ensures that your financial plan reflects your life goals and helps you grow beyond just your investments.

Q: Why should personal values be a part of financial planning?

A: Your personal values are the compass that guides your life decisions, including how you manage money. If your financial plan doesn’t reflect your core values, you might find yourself working towards goals that don’t truly fulfil you. By taking time to explore and clarify what matters most to you—whether it’s family, adventure, security, or giving back—you create a financial plan that aligns with your life’s purpose. This alignment brings peace of mind and a sense of satisfaction far beyond what numbers alone can provide.

Q: What do you mean by human capital, and why is it important?

A: Human capital refers to your skills, experiences, knowledge, and overall well-being. It’s what enables you to earn, grow, and adapt throughout your life. Unlike financial capital, which can fluctuate with market changes, human capital is a dynamic asset you can develop at any stage of life. Strategies like lifelong learning, career development, and personal growth can significantly boost your lifetime wealth and happiness. Including human capital in your financial planning means you’re not just safeguarding your money—you’re investing in yourself.

Q: How does the Academy of Life Planning approach differ from traditional financial planning?

A: At the Academy of Life Planning, we go beyond just the numbers. Our approach integrates financial capital management with human capital development and an exploration of your personal values. This whole-person perspective ensures that your financial plan is not only practical but also meaningful, supporting your broader life goals. We believe that true financial success is about living a life of purpose, where your money serves your aspirations, not the other way around.

Q: How can I start aligning my financial plan with my personal values?

A: The first step is self-reflection. Ask yourself questions like: “What do I truly value in life?” and “If I had all the money I needed, how would I spend my time?” Tools like guided introspective exercises or conversations with a holistic financial planner can help uncover these values. From there, you can align your financial decisions with these priorities, ensuring that every choice you make supports a life you love.

Q: What if I’ve never thought about my financial plan this way before? Is it too late to start?

A: It’s never too late to take a holistic approach to your financial planning. Whether you’re at the start of your career, preparing for retirement, or somewhere in between, there’s always an opportunity to realign your plan with your values and human capital. It might feel like a shift from traditional advice, but once you experience the benefits of this comprehensive approach, you’ll see how empowering it can be.

Q: How does focusing on human capital help me during unexpected life changes?

A: Life is full of surprises—good and bad. When you invest in your human capital, you build resilience. Developing new skills, enhancing your career, or prioritising your well-being gives you the flexibility to adapt when circumstances change. Whether it’s a career shift, a health issue, or a major life transition, having a robust human capital strategy helps you navigate these changes with confidence and ease.

Q: Can a financial plan without product recommendations really work?

A: Absolutely! At the Academy, we focus on creating life-centred financial plans that prioritise your needs and goals first. We don’t start with products; we start with you—your life, your values, and your aspirations. By understanding what you want to achieve, we design a tailored plan that guides your financial decisions, whether or not specific products are involved. This approach helps ensure that every recommendation is genuinely in your best interest.