Comprehensive Planners vs Spot Checkers
Here and Now
Get good grades, go to college or trade school, and then land a high-paying job. That is what we tell and teach our youth. Have you gone through the same cycle? How has it worked out? If you are like me, you have encountered many twists and turns along the way.
As I stop now and look back, I realize the disservice I have done my children through what I have told them. Here in this moment, I see that the finish line has been a life filled with the promise of a later, greater life at retirement. This thinking had led to a personal longtime mantra of “working towards the later, greater version of yourself.” Am I not great now? If not, what is stopping me from pulling that greatness forward to now, this moment?
How do we define the extent of this greatness? Culturally, we do it by comparing incomes or net worth (in other words, to share an old favorite saying, “He who dies with the most toys wins,” a saying often heard during my childhood and adolescent years). After completing thousands of financial plans, I see the reality of this saying. Here is the updated version: He who dies with the most toys usually has much debt, and sometimes leaves his family with an empty bag.
Fearing that they would leave family members with an empty bag while heading towards the finish line of retirement, generations before us completed anecdotal planning—what I like to refer to as Spot-Checking. Am I saving enough for retirement? Yes, buy this mutual fund, the returns will help. Are you sure? Ok, save more and protect your family. Buy this permanent life insurance. Have more stuff? Here, buy another policy.
After you buy the product, you fall into an advisor black hole, a place where you surface only after the book of business has been cycled through. Consider the following for a moment. When did you last hear from your insurance agent? At your policy renewal? If not then, when? How about the last time a significant event took place in your life? Did you hear from your investment manager? Has your estate lawyer checked in to inquire about life changes?
Chances are you spoke to one of these professionals when a major event was taking place in your life for which you needed their expertise. Often, we do not seek this “expert” counsel until the event has already passed, limiting the effectiveness of the help. It would be similar to watching your house burn halfway down, then deciding to call the fire department.
This planning has been going on for decades, with our parents, grandparents and continuing with most of us today. The experts come in to address the singular issue or give peripheral solutions. The client does not know what he does not know. On down the road, we go to the next event.
Change is in the Air
The recent ruling stemming from the Department of Labor and requiring advisors to act as a fiduciary will change the way financial “advisors” work with client’s retirement assets. The client (and not the product, sales agent or company) will be placed at the center of the relationship.
New companies are popping up, like the XY Planning Network, where advisors commit to putting the client first. The Garrett Planning Network is another example. The people working in these circles care about your financial picture and do not want to come in for a spot-checking exercise. As proof of intent, review how your advisor gets paid. Is it commission based? Could she win a trip for selling large volumes of product (often the case with annuities)?
Review the last time you had a major financial event. Did it go the way you planned? What would you change? Could you have prepared ahead of time? If so, what would the preparation entail?
Addressing these questions is only a small portion of the ways in which a comprehensive advisor helps. Instead of calling after the house has burned halfway to the ground, work with a comprehensive planner and install a sprinkler system in your financial house. It will not stop a fire from happening, but it will keep the house from burning down.
Here is an example of this in my life.
Recently, I started working with a client who lost her mother. (Her dad passed away a few years ago.) Overwhelmed, she did not know where to turn. We took care of her immediate needs by consolidating accounts, going through policies, and working with her CPA to file the estate tax returns. The client was happy with the progress we had made in a short time. However, she was still overwhelmed by the money, so I turned the conversation to her future.
It took time, but she was eventually able to paint a picture of a desired future, honoring the values of her parents by paying for her children’s college and paying attention to the way she spends money. We accomplished this progress by starting not with products but with what she values and why those values are important. We even paused to see if her calendar and checkbook currently matched those values.
I went back and started crunching the numbers. As I went through her data, a loan on a 401k was found. We discussed why the loan had been taken out and how we develop behavior biases with our finances. Since the conversation, she decided to take action by looking for ways to pay off the loan and increase her retirement savings with a recent pay raise.
As the early wrap-up of the plan implementation took place, I found unclaimed property in her name. She put these funds towards the loan, saving her taxes and tax penalties if her employment ended. Plus, she did not have to take cash flow from her current spending. She has fortified her plan by building momentum along the way. She is confident and living a life based on her values.
Spot checkers who come in only to sell a product or help make an isolated investment change or portfolio tweak usually do not go the extra mile to check the unclaimed property, walk through the process of paying down a 401k loan, or having debt conversations about matching a calendar and assets to personal values. This is how a comprehensive planner helps. This is how financial wisdom is built. The best part will be seen as her children learn from Mom’s money wisdom.
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