The Basics of Planning Theory
The purpose of financial planning is to facilitate financial goal formation, taking into account attitudes and behavior, and use of individual and household level financial data to explain and predict current and future behavior to help clients reach their goals.
Five sub-fields comprise the discipline of financial planning:
- Quants: Develop mathematical and empirical models to help clients allocate and manage household resources efficiently and effectively.
- Behaviorists: Make possible the positive transformation of client attitudes and behaviors over time.
- Wealth Managers: Use tax, estate, and investment tools to maximize a client’s financial position over time and across generations.
- Specialists: Provide detailed solutions to complex issues that require expert knowledge of one or a few financial planning domains (cash flow/net worth planning, taxation, insurance, retirement, investing, estate planning, or another topic).
- Generalists: Provide comprehensive advice and guidance on multiple financial planning domain topics.
Financial planning is a unique discipline within the academy. While the five sub-fields that comprise financial planning may be informed by other disciplines (e.g., economics, psychology, accounting), the broader concept of financial planning is distinctive in its purpose.
Behaviorists, wealth managers, specialists, and generalists work with clients using evidence-based models. An evidence-based model is an approach in which recommendations are based on published work that has been subject to clinical or expert review showing the technique to be more effective that other recommendation development approaches. Quants tend to focus their work in helping other financial planners make better decisions and recommendations.
Faculty and students working in the Lab are using this framework to conceptualize one or multiple “theoretical frameworks” for financial planning. If you have thoughts about the theoretical basis of financial planning, please send us a note.