I often get asked about the differences between Credit Counseling, Financial Coaching and Financial Planning. This is an excellent question simply because there is some overlap.
In a nutshell, credit counseling tends to be a reactive stance people take when they realize their financial situation is bad. Credit counseling typically deals with debt, working with creditors, designing payment plans, negotiation of interest rates. Better credit counseling organizations will also address the core issue and address lifestyle issues and the decision making process. In our services, there are times when we will suggest that a client engage credit counseling agencies (and show them how to engage these services at no additional charge). Typically credit counseling agencies will only accept clients they think can avoid filing bankruptcy after applying a mathematical formula. Most credit counseling organizations will accept clients money and make payments for them. (Note accepting client money and managing it is a regulated practice). Typical costs are $50 a month for a 60 month commitment. $3,000 total investment.
Financial planning tend to me a more proactive position. Financial planning by definition is a comprehensive service that involves, real estate, small business planning, cash flow planning, insurance, investing, estate planning, and tax planning. Note: while cash flow planning and debt is technically part of financial planning, very few financial planning professionals have expertise here, simply because they focus on clients with money. They key here is comprehensive service and working with all of these other financial service professionals to generate a single plan of action for the client. You can think of a Certified Financial Planner as the quarterback of a team of financial service professionals (CPA, CFP, Attorney, insurance agents, etc.) Typical financial planning clients have money to work with and money to pay for professional services. Because planners work with investments, insurance policies, legal documents like wills, estates and trusts, they are regulated by the products they sell. Some people work on commission of product sales, some an hourly rate, a percentage of assets under management, etc. (Generally speaking, clients invest $500 to several thousands of dollars in not-so-obvious commissions to engage in these services. Focus on the transactions, and you will see how an adviser is paid. Financial planning is largely about the transactions – buys and sells of products.) Some people in financial planning are pushing into areas of “behavioral finance” where they study the psychology of investing.
Financial coaching has core roots in life coaching with a financial emphasis. Coaching involves finding out where a client wants to be and helping them achieve those goals. The coach and client agree on anticipated outcomes of the coaching engagement. (Note the overlap with credit counseling and financial planning – we’re all trying to help the client achieve their goals). Since 80% of personal finance is behavior and decision orientated, a coach has a lot of room to work and seek improvements without getting into specific products. Because there is not a commission payable on behaviors and decision making changes, most financial planning professionals avoid the behavioral issues area and focus on the transactions that generate commission: selling wills, estate plans, mortgages, loans, debt consolidation, insurance and investments. Coaching focuses more about the decision making process and client education than it does the transactions. Coaches seek clients that are “coachable” – meaning the client is willing to learn and make behavior changes to get the results they want. Coaches may develop expertise in various areas and make seek professional certifications in other areas. A total client investment at my practice starts at $299 and goes up from there. Its a much lower cost than either of the other commercially available options.
What solution is right? Well, there is a lot of overlap in the services provided IF the service provider does their job well. A credit counselor who doesn’t focus on lifestyle issues really is not serving the clients best interest. One has to ask, how did you get here? Usually (but not exclusively) people end up there from poor decision making. A financial planner who fails to offer cash flow planning and basic budgeting assistance fails to cover the fundamentals of financial planning: income management. A coach who dogmatically insists clients can address all of their problems with simple behavior modification fails to serve clients as well. Some times creditors simply refuse to work with clients. Some times bankruptcy is a solution and a biblical, ethical, and socially accepted practice of our society for people that are simply in too deep to fight their way out.
I blend elements of all three areas with a heavy emphasis on mindset, decision making and client education. I lead clients to address the core problems (the ones that credit counselors and financial planning products cannot address). Generally speaking, I sell very few products but see them as viable tools to help clients achieve their financial goals. I cannot possibly offer execution expertise in all areas of financial services; however, I have adopted a practice of financial planners in coaching: coordinate the clients needs with professional service providers who can serve these niche areas.
Ultimately the client needs to ask: Who can best help me solve these issues on a permanent basis? Who has the network and resources available to help me reach my goals? What is my total investment down each of these paths? Which path offers the best return on investment?
After spending years in corporate environment creating project proposals, I developed skills to create 1 page executive summaries. Executives have to make a hundreds of decisions each and every day. Executives are not experts in all subject matters. They are paid to make decisions. If you want to get any type of project up and running in corporate America, you better get good at summarizing data and presenting it to a decision maker.
