Financial Fragmentation Series – Part 1: Is Your Planning Affected by Financial Fragmentation?

June 28, 2021

Taking care of loved ones during your lifetime as well as providing for them when you’re gone
Creating the opportunity for a comfortable, worry-free retirement
Providing for education for younger generations
Satisfying charitable interests

The term financial fragmentation suggests a lack of coordination among your various financial arrangements. Financial fragmentation occurs when financial strategies are not properly coordinated with one another and are not properly integrated with your goals and objectives. For example, how do your taxes impact your investment choices? How does your insurance impact your retirement plan? How does what you spend and save today affect your financial future? The term also applies in describing outdated planning and the disorganized or inefficient structure of many peoples’ financial circumstances.

It is important that your current goals and objectives dictate your financial and estate planning strategies. To avoid unexpected or unfortunate consequences from this lack of coordination, you should review your situation periodically to make sure your planning will result in your desired results. To begin our three part “Financial Fragmentation” blog series, we will discuss why financial fragmentation occurs and what a good plan for avoiding financial fragmentation entails. Read on!

Why Does Financial Fragmentation Occur?

Time hurries on –

As life progresses, change happens. Sometimes that change can be dramatic (like the birth of a child), and sometimes it can be so subtle that you barely notice it happening (like a child growing up). As we become caught up in the busyness of day to day life, it is easy to forget that often your long range financial planning was designed to satisfy the needs of a different time in your life. As time passes and circumstances change, it is important to review your financial plans to see if they need to be fine-tuned to address your current situation.

For example, it is not unusual to find that divorced individuals continue to name their former spouses as primary beneficiaries on life insurance policies and/or IRA accounts. Generally, this would not be considered a desired outcome.

Procrastination –

Often times, people will recognize a needed change then get busy with everyday life and either forget about planning or decide, like Scarlet O’Hara in “Gone with the Wind,” that they will think about that tomorrow.

Tunnel vision by the consumer –

Tunnel vision may describe the nature of people’s relationships with their advisors. When a consumer decides that he or she needs a service, he or she ordinarily engages a professional who can provide that service. An attorney is employed for estate planning, an insurance agent for insurance, an accountant for tax advice, and so forth. The consumer asks for and receives a targeted service but has failed to recognize the value of coordinating the various pieces of advice between his or her other advisors to ensure a cohesive plan.

Tunnel vision by an advisor –

Many advisors are happy to give their clients exactly what they’ve requested. This is just fine, but it may mean that only a part of their client’s circumstances is being considered. For example, an insurance agent only needs to know about some of the client’s needs in order to provide insurance coverage. Other advisors may be more interested in selling a product than providing comprehensive advice. Once the client’s request has been fulfilled, the job is done and the client’s overall financial picture hasn’t been taken into account.

Stale planning –

Strategies that were put in place many years ago may not be desirable in your current circumstances. Unless you realize this and take steps to change your strategies, you may be receiving unintended results. Many of our financial decisions and arrangements have very broad and long-lasting implications, and it is important to gut check those arrangements regularly to make sure they are in line with your long-term plans. To illustrate, we often find that clients’ older wills, while still valid, were executed before their respective children became adults and could effectively serve as executors or trustees of the will. In these cases, a simple codicil can remove the previously appointed executors or trustees and substitute their children if desired.


What are your plans?

We all have plans. They are either created by design or by default. We all want to be prepared to deal with the certainties and uncertainties of life. Among these many plans are:

  • Taking care of loved ones during your lifetime as well as providing for them when you’re gone
  • Creating the opportunity for a comfortable, worry-free retirement
  • Providing for education for younger generations
  • Satisfying charitable interests

Among the various financial arrangements one might choose, there are a multitude of optionswhich can intersect and complicate various areas of our financial lives. Perhaps the best analogy is a puzzle. You want the various pieces of your financial puzzle to fit together as seamlessly as possible. The most important of these puzzle pieces follow:

  • Your current financial position and cash flows – Understand and organize your present circumstances so that all options can be thoughtfully considered.
  • Tax planning – Keep from paying more than you must and organize things in the most tax-efficient way.
  • Investment policy – Make investment decisions that coordinate with your personal goals and your other plans.
  • Retirement planning – Make sure your financial resources outlive you without worry.
  • Estate planning – Provide peace of mind that your family will be well taken care of when you’re gone.
  • Philanthropic planning – Make sure to provide for causes or institutions that are important to you in the most efficient way.
  • Risk management – Make sure that your insurance coverage satisfies your needs. This includes life, disability, property and medical coverage among others.

Whatever your plans, you need a great deal of understanding to organize and manage them. You should make sure that your plans change as your circumstances change. If you would like to discuss how financial fragmentation may be affecting your unique financial situation, please feel free to reach out to a member of the Horizon Wealth Advisors team today. We are here as a resource to help you better understand your overall financial circumstances. In the second part of our Financial Fragmentation series, we discuss in-depth the most important financial matters to consider as you make your plans. To read part two, click here.


Larry Maddox, CFP®, CPA

Larry founded Horizon Advisors, LLC in Houston, Texas in 1999 with fellow business partner Joe Thomson. He collaborates with our wealth management team and other external advisors to provide comprehensive wealth management services.