Importance of Structure in Financial Planning
When it comes to financial planning, I have found that a systematic approach is needed to make important decisions, focus on what matters most, and evaluate options. In previous posts I introduced the guiding principles of wealth management:
- Make your balance sheet, cash flow, and portfolio your friend
- Compare your finances to standards of excellence
- Stress-test your financial plan
- Know what is holding you back and spurring you forward
- Be specific and proactive to make permanent changes
To achieve the desired consistency, I find that people need a well-designed structure. I strive to provide this structure in my role as a financial advisor.
The Value of Structure
The value and utility of structure are all around us. I do not mean just the physical realm—buildings and roads, the electrical grid, computers and the Internet, etc. I also mean the relationships and organizations that form our personal networks. A company is a structure, as is a team, a school, a family, a church, and a community. And when structures of any size and type have all the right people and pieces working together, they provide an environment that allows us to thrive.
Given how much we rely on forms of structure elsewhere in our lives, one would think most investors would readily grasp this idea and apply it vigorously. Strangely enough, most investors or advisors I meet have not taken this step on their own.
As I’ve said before, the people I advise are very successful. They all have portfolios in the seven- and eight-figure range. I have found that clients who live in this space are much better at accumulating wealth than they are at managing it. When it comes to wealth accumulation, they have a business or professional structure that facilitates success. But when they approach financial planning, they lack structure and the great benefits it brings.
Applying these concepts to financial planning
A quality structure has these characteristics:
1. Enhanced clarity and awareness. Structure provides order, order provides clarity, and clarity provides awareness and focus. The right structure reveals what’s in the right place and what’s missing. It highlights interdependencies among different parts of the whole, and it makes it easy to track the consequences of every action.
2. A sense of direction. The clarity that structure provides tells you where intervention is needed. Threats and opportunities stand out clearly, making it much easier to set priorities and make decisions.
3. Confidence. Ambiguity leads to anxiety, but seeing where you want to be and how to get there builds confidence. Understanding your strengths positions you to exploit them; understanding your weaknesses positions you to address them. Both result in increased confidence.
4. Consistency and control. A structure that consists of Essential 15% elements equips you to influence results at the highest level of leverage. Operating at this level enables consistency and control.
5. Superior results. Clarity, confidence, and control add up to great performance and results. You may not outperform the S&P 500 by a factor of 30, as Charles Koch has done with his MBM structure, but you’re almost sure to exceed the results of typical investors who lack a structure.
6. Automated success. The right structure makes it easy to succeed. You do not need effort and muscle to make it work. Success becomes routine, because it prompts you to act instead of you prompting it.
How would you like to have a wealth management structure that delivers these six advantages to you? Do you think your financial planning and investment results would improve and your wealth would grow if you had this structure in place?
The opposite of structure is not disorder; it is paralysis. Investors who lack a wealth structure may be paralyzed by uncertainty or by an abundance of opportunities. They find it hard to move forward because it is unclear in which direction “forward” lies. The right structure dispels confusion. It spurs action by showing precisely where action is needed and what benefits will result.
Joseph J. Janiczek is the founder and CEO of Janiczek Wealth Management, one of Denver’s top financial advisory firms*, serving clients across the country. This article is adapted from his book, Investing from a Position of Strength.