But what exactly does he mean, and how does he justify this bold statement?
First, let’s separate the work of financial planning into two different elements–let’s call the first quantitative analysis and the second qualitative analysis.
Quantitative analysis is the more tangible, numerical and objective. It’s where planners tell clients what they need to do and, perhaps, how to do it. For example:
- “Your asset allocation should be 65% in stocks and 35% in bonds.”
- “You need $1.5 million of 20-year term life insurance.”
- “Have your will updated and consider utilizing a pooled family trust.”
The qualitative work of financial planning is the intangible, non-numerical pursuit of uncovering a client’s more subjective values and goals, and, hopefully, attaching recommendations like those above to the client’s motivational core–their why.
If quantitative work is of the mind, qualitative is of the heart.
Qualitative planning often has been dubbed “financial life planning”–or simply “life planning.” It is defined in Michael Kay’s book, The Business of Life, as the process of: