Master of Your Own Financial Destiny?
26 September 2007 Carolyn Gowen
It would be a rare CEO who didn't have a regularly updated business plan for the organisation they are running. But how many CEOs have a written financial plan for their personal affairs?
Typically, CEOs tend to concentrate their efforts on making a success of the business they are running and in many instances make the assumption that if they do their job well, they will be rewarded accordingly and things will just 'fall into place'. That's not a good basis for planning your personal financial future.
As CEO of your personal financial future you should understand, better than anyone else possibly could, exactly what your personal financial goals are and when you want to achieve them. However, sometimes articulating and prioritising these goals can be difficult for busy executives.
WHERE ARE YOU GOING?
CEOs often get caught up in the hamster wheel of earning big financial rewards but not feeling particularly wealthy. Earning £500,000 per annum is no use if your lifestyle is costing £550,000. Equally, amassing millions of pounds is of little value if you are doing a job you hate, or it is affecting your relationships or health.
There's an old saying 'If you don't know where you're going, you'll end up somewhere else'.
As yourself a few questions:
- What would you do with your life if you didn't do your current job, money was no problem and you had more time available?
- What is it that's important about money to you and why?
- Do you know if you are financially independent already (the time when you do not need to earn money to support your desired lifestyle and paid work is optional), or when you could be?
- Do you put all those envelopes, paperwork and emails relating to your finances to one side to deal with later?
- If you had only a week to live what would you regret about your life?
- Do you really understand your pension scheme?
- Do you forget to exercise stock options and as a consequence have amassed a hugely concentrated position in your current or former employer's stock?
- Do you spend more time booking your holidays than planning your personal finances?
- Does your spouse know where all the paperwork is relating to your family wealth and who to contact in the event of your disability or death?
- Have you amassed a jumble of policies, plans, holdings and old pension schemes which are generating paper faster than you can read them?
A PERSONAL CFO
A successful CEO tends to be a delegator by nature, otherwise nothing would ever get done in their organisation. Dealing with the detail of how to achieve the company's goals is usually given to a chief financial officer (CFO), so in the same way it can help to appoint a personal CFO to help you to achieve your personal financial and lifestyle goals as set out in your personal financial plan.
Ideally the CFO of your financial plan should be responsible for the following:
- Conducting a comprehensive initial assessment of your current financial situation and future aspirations and goals
- Performing a quantitative analysis that enables you to determine your required rate of return to achieve your goals and how this compares with your risk capacity
- Providing appropriate and sufficient financial education so that you can make informed and wise decisions
- Designing the strategies that will optimise and diversify your portfolio in order to achieve your goals
- Assisting you with implementing these strategies
- Dealing with the routine day to day administration of your financial affairs with which you have neither the time nor the inclination to deal, leaving you free to get on with running your organisation knowing your financial affairs are in safe hands
- Closely monitoring the asset allocation and periodically measuring the performance of the portfolio to ensure that it remains true to your long-term goals and risk capacity
- Meeting with you on a regular basis to report on your portfolio's performance, make any adjustments as needed and answer your questions
Through this close contact, your personal CFO will be able to keep you on track to reap the rewards that a scientific, disciplined and long-term approach can deliver.
THE RIGHT PLANNER
The role of CFO should be filled by a competent, experienced and professionally qualified financial planner. The task of finding the right planner can be onerous given the huge number of financial services firms competing for your attention. Below are some pointers on how to choose the right financial planner for you:
The right skill set: financial planners servicing high net worth individuals are a clear-cut group and the best will have a distinct skill set that planners dealing with clients of more modest means simply won't have. The planner experienced in dealing with high net worth individuals will provide a comprehensive service which will incorporate not just financial planning and investment management but tax planning and estate planning as well.
Your planner will not necessarily provide the advice in these areas but will bring in other professionals and specialists as required and will oversee the advice in the context of your financial plan.
A small number of clients: a vast number of financial planners work on the 'can fog a mirror' approach to determine whether or not they will take someone on as a client. Financial planners specialising in the high net worth market recognise that the service required by their clients is highly tailored and that in order to be able to dedicate the time needed to provide the best possible service to their clients, the number of clients for whom they can act must be limited.
People like us: it makes sense to choose a financial planner who already has a number of clients in a similar professional position to your own, as they will be able to demonstrate an understanding of your specialised role as a CEO and will be familiar with the kinds of challenges that you face.
Appropriate qualifications: there are many financial services qualifications which prove a planner's ability to remember large chunks of technical information and regurgitate them in an examination but only one which demonstrates a planner's ability to apply that knowledge in a comprehensive way to help a client to achieve their objectives.
The certified financial planner (CFP®) licence is an internationally recognised qualification which demonstrates a planner's ability to provide comprehensive financial planning.
As CEO of your financial future, to create your financial plan will involve an investment of your time in the process but it will be time well spent. You may well look forward to 20 or 30 years of life after being a CEO, and by giving some serious thought today to where you want to be and planning for when that day arrives could help to make them the happiest years of your life.