Holistic Financial Planning is Essential

by | Oct 11, 2023

Holistic financial planning, using all available resources, is essential. 

A butterfly flaps its wings

Holistic financial planning is a concept akin to the ‘ a butterfly flaps its wings…’ phrase. This is the basis of chaos theory, using ‘the butterfly effect’ to describe how simple events can combine and set in motion a chain of events with far-reaching and unpredictable consequences. Like, the flap of a butterfly’s wings in San Francisco could eventually cause a tsunami in the Far East.

The whole is greater than the sum of its parts

Similar parallels can be made in the world of financial planning and this is the basis of “Holistic Financial Planning”. Let’s consider the definition of “holistics”- or holistic theory. The theory states that the parts of any whole cannot exist and cannot be understood except in their relation to the whole; “holism holds that the whole is greater than the sum of its parts”. In other words, a financial plan that does not take into account all of a client’s needs could have unforeseen and unfortunate consequences.

Common consequences

The number of situations where a lack of care/knowledge can impact on other areas of financial planning are too numerous to mention. Some common examples that I have come across are:

  • Selling a life policy without using a trust and causing an increase in the potential Inheritance Tax of the client’s estate. 
  • The cashing in of a share portfolio of someone who is retired and triggering significant Capital Gains Tax (CGT). Upon death the remaining funds are subjected to Inheritance Tax – the CGT would not have been payable on death had the portfolio not been encashed. 
  • Selling a personalised bond to a returning UK expat and creating a chargeable gain of 15% pa, even if the policy makes no money.
  • Transferring a pension offshore to obtain a greater lump sum when, in fact, the existing pension had ‘scheme specific lump sum protection’.
  • Establishing a trust for a life tenant and using a non-income producing asset from which capital withdrawals are made and leaving the trustees at risk from action by the remaindermen. 
  • Not understanding the most tax effective way of making encashment from investment bonds that trigger a chargeable event that cannot be undone. 
Expert…at what?

It only takes a cursory look at some financial websites to see advisers claiming to be “fully qualified” or “experts”. How can one person be fully qualified to deal with all things financial? Are there really people out there with the expertise to provide full holistic financial advice? At what point should the financial planner put up his/her hand and say, “I will need to refer to a specialist in order to provide you with the best solution”? 

Several years ago there was a court case in the UK, Mehjoo v Harben Barker, that demonstrates the issues of a limitation of expertise and the obligations that come with that limitation. In summing up, the judge stated that the defendants had a contractual duty to advise the claimant that non-dom status carried with it potentially significant tax advantages. He likened this duty to refer a client to a tax specialist to that of a GP’s duty to refer a patient, in that if a professional knows there might be possible types of treatment known only to specialists, then that triggers a duty to advise.  

Synergies succeed

When this was reported on an accountancy journal’s website one commentator stated that there is nothing wrong with being out of your depth as nobody can be au fait with every aspect of finance. He then went on to point out that there is something very wrong with failing to recognise when one is out of one’s depth and cheerfully providing advice that is inadequate – particularly when the consequence is that the client suffers as a result.  

Involving other parties in a problem does not just relate to financial planning, as the example of the GP used by the judge illustrates. The efficiencies of synergy have been recognised in business for many years. In his book, Corporate Strategy (1965), Igor Ansoff defined synergy as “2+2=5”. He said that the whole is greater than the mere sum of the parts. 

The same principles apply to the components of the expert. In other words, the assimilation of specialists in various fields can provide a better solution than that achieved by working independently.  

Assembling teams

In many cases the “expert” may include a financial adviser, a lawyer, an accountant, an actuary, a visa consultant, and an independent fund manager. Clearly, giving clients access to such advice also gives the adviser opportunities to forge new professional relationships that will not only benefit the clients but also the IFA business itself. 

Some of the professional institutes, involved in training and setting professional exams, understand the importance of a holistic approach to financial planning. The Institute of Financial Planning requires students to complete a holistic case study if they wish to progress to becoming a Certified Financial Planner. The Chartered Insurance Institute make it a requirement to complete a similar paper, AF5 ( or its predecessor H25 Holistic Financial Planning), for those students that want to progress to Associate/Chartered level. While such exams give a grounding for a holistic approach to financial planning, there will always be occasions when their clients will need to be referred for specialist advice. 

Surely the secret to holistic financial planning is “to know what you don’t know”.  No one wants to be the solitary sunbather on a foreign beach, while the locals run for the higher ground as they are the only ones that can read the tsunami warnings. 

 See also:

Reasons to Use a Financial Planner

 Aisa International

Aisa International, s.r.o. is a wealth management firm with an award-winning team providing investment advice, financial planning, and asset management for U.S., U.K., and E.U. expatriate citizens residing abroad. Aisa International holds all current regulatory licenses, including the FCA license in the UK and the Investment License in the European Union. Therefore, Aisa International is uniquely qualified to provide personal financial advice for U.K. pensioners living outside of the U.K. Aisa International serves its global clients where they reside through its OpesFidelio network of highly-qualified advisors. For more information, please visit www.asiainternational.cz  

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The views expressed in this article are not to be construed as personal advice. Therefore, you should contact a qualified, and ideally, regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. Consequently, if you do not, then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Importantly, where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

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Post written by:

Chris Lean

In the UK he worked with accountants as an independent financial adviser, qualified as a Chartered Financial Planner and became an examiner for the Chartered Insurance Institute. He also qualified as a European Financial Planner and specializes in investment and pension advice to clients.

Aisa International is the only financial advice service company specialising in advice for expats that is regulated as a Securities Trader in the Czech Republic, USA, and UK.