Category Archives: General Financial Planning

Financial Planning for the Middle Class

It’s no secret that financial advisors prefer to work with wealthy people. Speaking from experience, managing a $2,000,000 account only takes a little more time and energy than managing a $500,000 account, yet the $2,000,000 account generates nearly 4x more revenue for the advisor. An advisor who fills their practice with smaller accounts will deal with more headaches while receiving lower compensation. I’m pointing this out to illustrate why advisors don’t spend as much time going after the middle class. That doesn’t mean middle class people don’t need good financial advice! They very much do.

Fortunately, many advisors (at least in the independent channel) are willing to work with people that aren’t multi millionaires. In many ways they need more help because planning their eventual retirements, how they might pay for kid’s education costs, etc, is much more of a careful balancing act. So don’t be shy about getting some good financial advice. We all know navigating everything from investments to taxes to estate planning and life insurance requires a huge amount of knowledge which many people don’t have.

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How Financial Planning Has Changed for Same-Sex Couples

When the Supreme Court affirmed the legality of same-sex marriage in June, its ruling profoundly altered the financial planning landscape for gay and lesbian couples – resulting in some “night and day” differences. Yet in looking at the financial “before and after,” same-sex spouses and their advisors must also consider the “when and where” – because the Supreme Court ruling only applies to the 13 states that allow same-sex marriage (and the District of Columbia). Gay and lesbian spouses are still waiting to see if financial benefits will be granted in all 50 states.* Here is how the landscape has changed for married gay and lesbian couples in states recognizing same-sex marriage.

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Creating Personal Financial Statements

My clients know that one of the first steps in my financial planning process is creating personal financial statements – specifically a net worth statement. I think that knowing and accepting your current financial situation is a necessary step in the path to making it better. The easiest way to view your current financial situation is to lay out your assets, liabilities and current net worth on a sheet of paper or screen and save it. If you do this every few months, it will reveal patterns about what is going right and what is going wrong in your financial life. I can’t tell you how much people enjoy this exercise and how few people have thought to do this on their own. Occasionally people think they are rich because they live in a 1.5M home, but then they reveal a 1.2M mortgage and 200K in student loans. When the net worth statement is barely positive, it reflects a very different reality.

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The Financial Planning Process

Many people want to develop a relationship with a financial planner but don’t really know what that relationship entails. It will likely vary a bit from advisor to advisor but here is a general idea of how it works. I learned this process in the first module of the Certified Financial Planner program several years back and, for the most part, I’m still using it. The only differences would include that the process has become more electronic and also a bit more ‘holistic’ in the past few years, something I’ve written about on this blog.

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Holistic Retirement Planning

I had a client in yesterday who asked me how much money he would need to retire comfortably. It’s probably one of the more common questions which people ask their financial advisor and each of us has a different way of handling the process. For years my answer has revolved around quantifying goals and having a savings/investment plan to reach those goals. Depending on the success of the client over time to meet their savings goals, combined with any help offered by the market, we continuously amend the retirement goals and go from there. I’ve always been half comfortable with this system. The upside is that it encourages people to save and invest, and that can never hurt. The downside is that retirement is a very subjective goal and it’s very difficult to define its price decades in advance. So I’ve decided to change my approach to something which strikes me as a better solution for most people.

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Wealth Transfer Rules Expiring December 31st

Clients and advisors alike are wondering what will happen to the favorable tax rates that are set to expire at the end of this year. One consideration within this broader discussion involves the expected changes to wealth transfer rules. If Congress doesn’t act in the next few months, transfer tax rates will revert back to 55% and the lifetime exclusion for an individual will move from $5.12M down to $1M for individuals and $10.24 down to $2M for couples. That poses a big potential estate planning blunder just down the road, one which can be avoided with some basic planning.

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FINRA’s 2012 Product ‘Watch List’

On January 31st, FINRA put out a publication intending to highlight new and continuing areas of significance to their regulatory program. As an advisor, I can see why some of these areas may be of concern to regulators as opportunities to either overuse or misuse these products does exist. I also found it interesting that this list includes many of the most popular investment products currently being offered by advisors. The reason for their popularity, at least how I see it, is that these products offer non-correlation to the markets, income protection, speculative potential, or some combination of those elements offered in some kind of complex shell. I applaud FINRA for putting out this kind of publication. In my experience, many investors haven’t taken the proper time to read up on regulatory warnings about financial products so that they understand where the risks of misuse may be. Advisors, broker-dealers, etc, should read these sorts of notes and hopefully will think twice about suitability and appropriateness before recommending something which may be misunderstood by a client, causing a problem down the road.

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Financial Planning: What’s Your Process?

I’ve been in the business for a while at this point. I’ve heard many stories from financial advisors about how they lead initial consultations and what the different methods are which they use to extract vital information from clients. The problem we often face as advisors is that clients offer us a decent amount of ‘hard’ information such as income and expenses but we have a more difficult time getting through to the ‘soft’ information such as a true tolerance for risk, attitudes about money and spending, attitudes about charity and legacy planning, etc. At the end of the day, it’s a relationship that involves trust; the more an advisor understands about the client’s truest feelings, the more they can think through ideas and come up with the best possible solutions for handling one’s financial life. So what’s the solution?

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Retirement 2.0

The latest trend in retirement is, well, not retiring at all. Retirement itself is no longer the goal. The goal seems to be adapting to a lower key phase of life and making sure each individual or family is prepared to deal with the personal and financial issues which apply to them. Despite the dozens of articles I’ve read which aim to teach advisors about what the ‘new retirement’ looks like, the more telling sign for me is listening to what my clients are saying. Frankly, they don’t even like saying the word retirement because it makes them feel old, unable, disconnected, etc.

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Couples & Money: Reconciling Differences

There was a good piece in this month’s edition of Financial Advisor magazine written by Roy Diliberto about couples and how they deal with money. It’s no secret that an inability to discuss and understand attitudes about money causes many relationships to ultimately fall apart. The reason has nothing to do with the inherent property of money which is simply an object which helps us obtain things and acts as an exchange agent for goods and services. The more important focus is on one’s personal relationship with money, often dating back to their childhoods. Think about yourself for a minute—how was money introduced to you as a child and how have those attitudes and feelings shaped your relationship with money today? The classic example would be depression era parents who watched much of their savings disappear in the 1930’s. That sort of experience lasts a lifetime and more than likely impacts the way future generations are raised. If you grew up watching your Dad stash cash under the mattress and perhaps make you feel guilty about spending, you may pass some of those qualities down to your kids. However, if you grew up in a financially comfortable surrounding you may have been taught not to focus or discuss money, rather to focus on personal enrichment and building strong relationships with your peers. Perhaps money then becomes more of an afterthought for you and not on the forefront of your mind. Neither attitude is right or wrong: just different. The problems arise when these childhood experiences aren’t properly disclosed or discussed with those who matter.

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