Chapter 11: Policy-Based Financial Planning: Decision Rules for a Changing World

Financial planning policies are compact decision rules that can act as a touchstone to both clients and their advisors and allow for rapid decision making in the face of a changing environment. Good policies represent the distillation of client goals and values, as well as the relevant financial planning best practices, in a form that can both anchor the client to a consistent course of action and save the advisor from the necessity of crunching the numbers every time a question arises. Financial planning policies can be thought of as a form of choice architecture designed to neutralize and/or leverage behavioral biases in favor of financial planning best practices. Evidence suggests that in the process of developing policies, involving the client to such a large degree is associated with higher levels of client trust and relationship commitment. Further, trust and commitment are associated with qualities predictive of a successful financial planning engagement, including higher client satisfaction and retention as well as a greater propensity to reveal personal and financial information and implement planning recommendations.