What To Know About Values-Based Financial Planning
What Is Values-Based Financial Planning?
Financial planning is an essential part of the financial road map, helping to build and maintain a stable financial future. However, traditional or goals-based financial planning approaches often disregard the role of personal values when making financial decisions.
Inversely, values-based financial planning considers your own unique values, beliefs, and goals—in addition to your financial situation—to create a customized and sustainable plan.
The idea is: when your client's financial plan is aligned with their life’s purpose and goals, they will be more likely to stick to the plan and, in turn, achieve their financial goals.
Whether you’re a Registered Investment Advisor (RIA), Certified Financial Planner (CFP), or have yet to get your certification, value-based financial planning is an alternative approach that you might want to add to your (current or future) financial services.
This article will explore what values-based financial planning is, how to start planning with this approach, and how to incorporate it into your overall financial strategy.
What’s Involved In Values-Based Financial Planning?
Values-based financial planning is an approach that not only considers an individual’s financial goals, but also incorporates their personal values, beliefs, and goals into the decision-making process. This approach recognizes that people may have different priorities when it comes to their values—something that other wealth management strategies, like goals-based financial planning, may not align with.
Although the goal is still growing your clients’ wealth, having financial strategies that align with what your client believes in turns your financial plan from just a tool into a reflection of things they care about. Ideally, this means that they’d be more comfortable with your recommendations and suggestions and can improve client relationships while building trust and retention on the business side.
Values-based financial life planning is a process, not a one-time event. It is adaptable and can change over time as your client’s personal values and financial goals evolve as they go through different life stages.
Designing Your Values-Based Financial Plan
A values-based financial plan is a collaborative effort by the client and the financial professional.
To ensure that the financial plan is aligned with your client’s core values and goals, make sure you discuss the key considerations with the client when designing their plan, such as:
Their personal values and how they want to live their lives
Current financial situation, including income, expenses, assets, and liabilities
Investment strategies and options that align with their values and goals
Long-term financial goals
Their risk tolerance for investments
The implications of taxes and estate planning on their finances
The role of insurance in protecting them and their loved ones
Additionally, you’d like to stay on top of your client’s progress by regularly reviewing the client’s plans and values. On top of tracking progress, doing regular check-ins ensures that the plan you drafted is still aligned with the client's personal finance goals.
Investing With Values-Based Financial Planning
In values-based financial planning, clients make investment decisions that are aligned with their personal values and beliefs. This can include investing in companies that align with specific causes or societal issues that the client feels strongly about—such as companies that prioritize environmental sustainability or promote social responsibility for a certain issue.
Values-based investing also includes avoiding companies that don’t align with the client's values, such as those that have a history of environmental violations or discrimination. It's a way for clients to align their money with their values and goals while making a positive difference in the world.
However, it's important for the client to find a balance. Ideally, you’d have an investment plan that aligns with their values while also providing returns that meet their financial goals. This can be achieved through research, active management and evaluation of the companies, and open communication with their advisor.
There are many types of investment plans that can support different values.
Environmental, Social, and Governance (ESG) Investing: Investing in companies that have strong environmental, social, and governance practices.
Socially Responsible Investing (SRI): Investing in companies that have a positive impact on society and the environment, while avoiding those who are involved in controversial industries.
Impact Investing: Investing to generate a financial return while also creating measurable, positive social and environmental change.
Faith-Based Investing: Aligning financial values with faith by investing in companies that share the same faith-based values.
Community Investing: Investing to generate financial returns while also supporting local economic development and poverty reduction in underprivileged communities.
Caused-Based Investing: Aligning the client’s investment portfolio with causes they care about.
Ethical Investing: Avoiding investments in companies that engage in activities that the investor finds morally or ethically objectionable.
It's worth noting that some of these investments may come with higher risks and are not suitable for all investors. As a financial advisor, it’s your job to identify which opportunities align with your client’s values and goals while fitting their risk profile.
There are various solutions that can help with that. For example, using Riskalyze and Asset-Map in tandem can help you assess risks more thoroughly and allow clients to take part in the risk and advice conversation.
Get Help With Your Values-Based Financial Planning With Asset-Map
Unlike goals-based financial planning, values-based financial planning incorporates the client’s personal values, core beliefs, and goals into the financial plan. These factors influence the decision-making process. Value-based financial planning recognizes that traditional financial planning strategies may not align with how different people’s prioritization is in life.
To incorporate a values-based approach in your financial planning and advisory services, you have to understand and identify what your clients’ values are, then help them articulate what it means in financial terms. Once your client is comfortable with the big picture of the plan, the next big part of this approach is helping clients make investment decisions that are aligned with their personal values and beliefs—while keeping their financial goals in mind.
It’s worth noting that values-based financial planning is an ongoing process, not a one-time event. The client’s values and financial goals may change over time, so it’s important to regularly check in to make sure the plan still aligns with your client’s values.