A financial plan is only as good as the questions being asked when creating it. But beyond the platitude of needing to ask “good” questions, what does this really mean? After all, does anyone think the questions they ask are not good ones? What ARE the questions a financial advisor should ask you to create the best plan?
The way to be less subjective and more deliberate is to consider the different types of questions utilized in the planning process. I suggest using what could be called “Planning in 3D” since it involves the following three categories: data gathering, discovery, and diagnosis. Each of these serve a unique and distinct purpose.
Data Gathering Questions
This is the most straight-forward type of inquiry. Data gathering is quantitative in nature and involves fact finding with respect to assets, liabilities, inflows, outflows, etc.
Financial planning requires figuring out where you are today as compared to where you want to be. And just like you can’t give directions to someone if you don’t know where they are coming from, advisors can’t do proper planning without knowing all about your current financial situation. Effective data gathering is what provides the “GPS coordinates” needed to truly understand the location of a your current position in order to guide you to where you need to be.
Discovery questions are often conflated with data gathering, but they are different. If data-gathering questions are about “what you have,” discovery questions are about “what you believe.” Whereas data gathering questions might focus on the timing and spending needs in retirement, discovery questions are about understanding what a meaningful and successful retirement looks like. The goal is to discern what’s most important to you in terms of relationships, work, health, etc.
A classic representation of comprehensive planning is a puzzle where all of the pieces need to fit together. All financial decisions are interrelated and contingent on one another. But all too often, something is missing from this analogy.
Often, we’ll ask clients to imagine a puzzle with a thousand pieces laid out on a table in front of them. Then we ask them, “What’s the single most important piece of the puzzle?” Rarely does anyone ever get it right, but when we tell them it’s the picture on the top of the box, it intuitively makes sense to them.
Everyone knows you need to first understand the scene you are trying to piece together in order to build a puzzle. Likewise, before going about trying to put all the pieces together to build a financial plan, we first need to have a really clear vision of what their ideal future looks like. True discovery paints this metaphorical picture on the top of the box.
Diagnostic questions are concerned with identifying a particular problem. These are the types of questions you should be able to answer, but often cannot.
Successful diagnostic questioning helps provide assurance that your advisor is helping to insulate you against problems no one else is even thinking about. However, it is difficult to do this well unless an advisor has some specialization. That’s due to that fact that it requires a familiarity with common problems or opportunities that might arise for that particular person.
By way of example, let’s assume we are meeting with a business owner. Data gathering may involve asking whether (s)he has a buy-sell agreement or key person insurance, whereas diagnostic questions seek to understand the implications of those things. For example: “What happens to the business if you’re no longer around to run it?”
Here’s another example. For purposes of data gathering, you might ask, “What is your business worth?” A related diagnostic question is, “What does it need to be worth in order to reach your goals?”
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Bringing Wealth Planning to Life
Hopefully, you can see how each of these types of questions serves a unique purpose. Data gathering questions ensure that we have the proper information to do analysis and make recommendations. Diagnostic questions bring intentionality to planning by ensuring that clients are aware of the consequences of various aspects of their financial situation and decisions they have made thus far. Discovery questions infuse a plan with meaning by facilitating conversations about what’s most important to the client and then anchoring the plan according to those values. This 3D approach to planning is what will really bring a plan to life.