Contextual Reporting in Tracking Financial Planning Goals
Jay G. Sanders
reporting refers to presenting results in a relevant framework,
such as actual results versus budget goals. Contextual relevancy
improves the quality of information, thereby improving decision
making. Personal financial planning requires making many decisions,
the most important being the setting of goals. Tracking progress
is the foundation for continuous personal financial planning
and the most important contributor to achieving goals. Conventional
brokerage statements and off-the-shelf personal financial
software won’t do the job.
planning process has four components:
Understanding the client’s goals;
Analyzing the client’s cash flows;
Identifying the necessary actions to meet goals within
the limits of cash flows; and
goals requires knowing what the client values and wishes
to accomplish, which can include maintaining a particular
lifestyle, having adequate funds for retirement, and paying
for college. In the planning process, goals are reduced
to cash flows. Cash flow analysis involves the quantification
and planning for cash coming in and going out, including
tax attributes, inflation, and probability. It also includes
investment planning, income tax planning, estate planning,
transfer tax planning, and risk management (insurance).
After comparing client goals to the cash flow analysis,
action can be taken to meet the goals. Finally, there is
goal tracking, the methodology employed to stay on target.
tracking takes place after the first three steps have been
executed. Tracking is the premier activity required to achieve
goals, and it should facilitate the continuous refinement
of the process. Reports should be designed to provoke client
interest and dialogue. Tracking tells us when goals need
to be amended, expanded, or retired.
example, John Smith, 35, is an unmarried male with a life
expectancy of 89. His current savings are $110,000, and
he thinks he can save $10,000 per annum until retirement.
John believes inflation will be 3% per year, and he expects
an investment return rate of 6% preretirement and 5% postretirement.
John doesn’t want to consider any benefits from Social
Security. Finally, he wants to retire at age 65 and believes
he’ll be able to live on $80,000 per annum in today’s
crunching results in the following calculations:
Future value of $80,000 at John’s retirement age
will be $194,181.
Expected savings value at retirement will be $1,412,366.
Present value of dollars needed in retirement (adjusted
for inflation) will be $3,768,883.
Additional savings required to meet shortfall will be
$29,681 per year, or $2,336 per month.
these findings can lead to positive dialogue about the key
variables affecting the result. John decides to take no
action, but asks for a mechanism to report back to him annually.
His planner establishes a simple amortization schedule and
places it in John’s file.
1 shows John’s contextually based goal report
three years later. The contextual report contains significant
and relevant information that the brokerage statement (Exhibit
2) does not. Primarily, it keeps the individual’s
goals front and center. It tracks actual savings versus
planned savings, current value versus planned value, total
returns versus planned returns, and total returns versus
a benchmark customized by investment style. It reports over
the entire goal period rather than annually, as the brokerage
statement does. All reported items are kept in context with
the original goals. The contextual report fosters a conversation
with the client; the brokerage statement does not.
contextual reporting falls under the definition of assurance
services. The driving concept behind assurance services
is that people use high-quality information to make decisions.
Goal reporting is an area where planners can apply assurance
services concepts in the financial planning field.
G. Sanders, CPA, CFP, CSA, is the founder of Maturity
Planning, New York, N.Y.