Wisdom in planning

I recently had the great honor of leading a delegation of 44 planners and 15 guests on a trip to China from May 26 through June 4 on behalf of the Financial Planning Association, of which I am a past president.

Despite the tremendous differences in the economic and political systems, similarities between the environment for financial planning in the U.S. and that in China were plentiful. Chief among them were the behavioral aspects of working with clients. It seems everywhere I have traveled, people want high returns and low risk. This is certainly true in China and is a great concern of Chinese planners because they see clients taking excessive risks. Like in the U.S., many clients chase after areas where returns have been hot lately. Chinese clients most often express interest in real estate and gold, though a recent government mandate of a minimum 40 percent down payment seems to have cooled some of the fervor for real estate.

As for investment in the stock market, unfortunately, active trading is all the rage. Chinese planners are working hard to educate their clients about the risks and costs of high trading levels. Despite the many examples, including what happened to Americans who found the ease of trading and the constant flow of information intoxicating, Chinese citizens don’t seem to view heavy trading as hazardous to their wealth.

There is, of course, phenomenal opportunity and upside potential with China, but there are many macroeconomic and political issues that should give one pause before heavily overweighting exposure to China in a portfolio. The government restricts and controls foreign investment and substantially limits the rights of foreign shareholders. Inflation is running over 5 percent, which is enough to cause many manufacturers to look elsewhere for the cheap labor that has fueled much of China’s economic growth. The wealth that has been created is highly concentrated. Overall, China has passed Japan as the world’s second-largest economy, but on the basis of per-capita GDP, China is still quite poor. According to the IMF’s 2010 data, at roughly $4,382, China sits at 94th in the world, trailing the likes of Algeria and Iran, and is about one-tenth that of Japan.

As a practicing financial planner, I can’t help but focus on issues at the client level. The excessive risk-taking by the typical Chinese client should be of great concern. It would be a shame for this first generation of affluent Chinese to work so hard for so long only to see the fruits of their labor disappear like a puff of smoke from something so utterly preventable.

The strongest takeaway I have from the visit was reinforcement of something I already believed: Real financial planning, as the core process for making financial decisions, is the best way to help clients achieve their goals. Period. End of story. Properly coordinating and integrating all of a client’s financial affairs in a manner consistent with an enforced fiduciary duty is literally worth a fortune to clients. There is wisdom inherent in the planning process. No one that wanted a nice house would build one without an excellent plan that included a coordination of laborers using good materials, for instance. The need for planning is so intuitive, it exists even in a market such as China that is in its infancy.

Dan Moisand, CFP, is principal at Moisand Fitzgerald Tamayo, LLC in Maitland. Visit www.moisandfitzgerald.com