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Alliance of Comprehensive Planners (ACP) Core Concepts

By: Bert Whitehead, JD, MBA, Founder of the Alliance of Comprehensive Planners

www.acplanners.org

Most of the concepts used today in Personal Financial Planning were developed within the financial industry primarily to sell financial products to consumers. The concepts were drawn from investment research and analysis primarily using large financial institutions. The evolution of principles which were designed for real people began in the early 1970’s. Real people differ from financial institutions in three primary ways:  real people live in houses; real people pay taxes; and real people die. These three realities render much of traditional investment and financial theory (which works well in an institutional environment) inadequate when applied to personal financial planning issues.

Endogenous/Exogenous

Identifies financial issues which are within the control of individuals (such as savings and spending) versus those not in the control of individuals and therefore speculative (e.g. interest rates and stock market performance). This distinguishes good financial habits from speculative market timing.

Money Personality

This utilizes the fear vs. greed dichotomy which are the basic emotions attributable to investor motivation to take financial risk, so clients can identify the impact of their personal investment style.

Risk Analysis

This concept differentiates ‘risk tolerance’ widely used to measure the amount of pain an individual can presumably endure without changing course, and ‘risk analysis’ which analyses the amount of risk which is appropriate in an individual’s specific situation. Risk analysis is designed for advisors to open the conversation to discuss how much investment risk is appropriate for a client in the context of other risks and responsibilities in an individual’s current situation.

Goal Setting

Integrates realistic objectives, timetables, and means with the outcome anchored with visualization exercise.

Financial Lifecycle

Benchmarks personal financial progress with appropriate earning and wealth ratios which are common to specific age ranges and investment portfolio development.

Functional Asset Allocation

Provides a framework for establishing an investment method incorporating a balanced approach using interest earning investments (to provide ongoing liquidity), leveraged real estate investments for personal use (as well as possible investments), and functional diversification of equities to provide long-term growth.

Asset Location Strategy

Incorporating the optimum tax treatment for each asset class to minimize income tax exposure within an individual’s investment portfolio, focusing on best use of tax deferred accounts, real estate leverage and unique tax advantages to reduce current taxes and future capital gains, as well as structuring equity investments to maximize qualified dividends and capital gains and shield highest expected returns with Roth IRA’s.

 

 

 

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