Study shows planning's value

Call me a skeptic, but I like to see studies repeated and proven before I take them at face value. I find I am especially careful when the results of a study prove something that is in any way self-serving.

In this case, I am talking about the proof that financial planning helps people more quickly achieve the goals they have set for themselves compared to people who purchase investment products without the benefit of a comprehensive financial plan, and that a financial plan makes people feel more confident and less stressed.

Those are big claims, but a recent study proving these things has just been repeated for a third year, with the same impressive results.

I don't want to say I told you so, but...

The research in question is the Value of Financial Planning longitudinal study, conducted by the Strategic Counsel. This was commissioned by the Financial Planning Standards Council (FPSC), starting in 2009. The study tries to measure whether or not comprehensive financial planning (CP) is more effective and valuable than limited or ad hoc planning (LP), and more valuable and effective than no planning (NP).

With three years of history, a study sample of over 8,000 respondents and an analysis that eliminates net worth as an influencing variable, the study should have a lot of validity.

Here's what the study says:

-- 81 per cent of people practising CP report they are on track with their finances, compared to 73 per cent (LP) and just 44 per cent with no written financial plan;

-- Among people who list retirement as an important goal, 50 per cent (CP) feel on track, versus 39 per cent (LP) and 22 per cent (NP).

Comparing CP to NP:

-- 50 per cent are able to deal with financial emergencies versus 28 per cent;

-- 65 per cent are able to deal with tough economic times, versus 36 per cent;

-- 74 per cent are able to take an annual vacation, versus only 44 per cent;

-- 65 per cent said they would have enough money for splurges, versus 31 per cent;

-- 61 per cent of CPers said they would have the money to live the life they want, versus only 31 per cent.

And remember, the study designers adjusted for net worth, so that factor was eliminated as determining people's ability to handle these items. People at all asset levels reported much higher success with comprehensive financial plans than investment purchases with no overall plan.

The terms were defined as:

CP: Having a comprehensive or integrated financial plan, where the main adviser has provided financial planning for major life goals and events, or at least three of the planning components of household budgeting, tax, retirement, estate planning, investing, debt or risk management.

LP: Those with limited planning, where the main adviser has provided advice or services related to one or two elements of the planning components.

NP: This group had not used any of the financial planning services through an adviser. They may have purchased investments through an adviser.

So, how do you use this information to improve your situation?

Consider engaging an adviser who has a CFPR certification or RFPR designation, and tell them you want them to take a financial-planning approach with you.

You can go to www.fpsc.ca for more information on this study, and to find a certified financial planner in your area, and go to www.iafp.ca to search for registered financial planners.

The first step is to sit down with yourself and get specific about the goals and lifestyle you most want to achieve. If peace of mind is worth more to you than prestige and lateral things, that can likely be achieved, with a written financial plan.

David Christianson, BA, CFP, R.F.P., TEP, is a financial planner in Winnipeg, and author of Managing the Bull.

CLARIFICATION on TFSA column from last week -- I used the term "lifetime" to label the total amount that everyone is entitled to have contributed to their TFSAs to date. That amount is now $25,500, since 2013 marks the fifth year of TFSA existence. The limit was $5,000 per year for the first four years, and $5,500 for 2013.

Some people thought I had put a maximum limit on future contributions when I used the term "lifetime." That is not the case, so sorry about the confusion.

"Stay warm, and Go Jets Go!" All is forgiven.

-- Christianson

Republished from the Winnipeg Free Press print edition January 25, 2013 B6