Make Your Race to Retirement A Gold Medal Performance

photo-1461567933755-6c82be2197da“Hup!”, “Hup!”, “Hup!”

When I was a kid “Coach Jackson” of the Bellevue Swim Club used to shout this mantra from the side of the pool as we swam our races. Hearing this chant was a reminder to hang in there, and draw on the skills and lessons we got from our training.

One of Coach Jackson’s great lessons was that the 3rd lap is always the hardest.

It didn’t matter if you were swimming a 100-yard race (which requires swimming 4 lengths of the pool) or something much longer.  That third lap was always the most difficult.

Tell me, Mike. Why Should I Hire a Financial Advisor?

photo-1428895009712-de9e58a18409Recently I met with a prospective client who was referred to me by another client that I have known for many years. These days most of my new clients come to me this way – by referral.

While most referrals are happy to hire me based on the good word of a friend or family member, I occasionally run into a referral that asks deep and probing questions like the one above.

I love questions like this because they make me think. Truthfully, I also dread them for the same reason. Thinking can be such hard work.

According to the Bureau of Labor Statistics there are 249,400 of us who answer to the call of “personal financial advisor”. Over 74,000 hold the CERTIFIED FINANCIAL PLANNER™ designation, more than 2,100 in Minnesota alone. So the question of why you should hire one of is entirely appropriate.

With the Department of Labor’s recent regulation requiring all advisors who work with IRA and retirement assets to put their clients interest first, the question of why should you should consider hiring a financial advisor is also especially timely.

Every financial advisor has their own way of doing things, of course. Some focus primarily on investment management or product sales. Others provide comprehensive financial planning services. Many offer a combination these services.

Below is a short list of what a good advisor can do for you.

Comprehensive financial planning and wealth management. Planning for long-term goals like college and retirement, doing the right thing with your retirement plan at work, managing your short and long-term tax bill, and making smart choices with insurance, investments and how you spend your money – personal finance can get complicated in a hurry. It’s no wonder that a recent study by Northwestern Mutual found that 58% of Americans believe their financial plans are lacking and over 1/3 have no plan at all.

A comprehensive financial plan helps you determine how much money you need to meet your various financial goals and outlines the specific steps you need to complete to achieve them. Want to send your kids to college? Retire at 62? Avoid estate taxes and probate issues when you die? All of the above? Your financial plan creates the foundation from which you and your advisor can begin to outline the steps needed to reach these and other goals.

Specific recommendations. A plan without recommendations offers little value. It’s like your doctor telling you your sick, but not offering any treatment. A comprehensive financial plan includes specific recommendations regarding retirement, estate planning, tax planning and other specific needs based on the client – strategies for maximizing social security benefits and paying less for college, for example.

Some recommendations such as establishing a tax deductible IRA or retirement plan for your small business may provide significant value right off the bat. Others will prove their value in the future – proper beneficiary designations on retirement accounts or ideas to minimize estate taxes and avoid probate issues, to name a couple.

Regular monitor and review. To work effectively a good financial plan needs to be monitored and reviewed regularly. Just when you get it all figured out something changes. Tax laws, personal circumstances, the economy, the markets … you name it.

Twenty years ago a financial plan was a big, expensive book that sat on a shelf. Today, technology makes it possible for financial plans to be updated daily with current account values, expense tracking, and other tools to help monitor progress towards your goals. As your needs or circumstances change, your financial plan changes as well. Your financial plan can even be pulled up on your smartphone, just in case you were wondering how you stack up to the millionaire next door.

Asset Allocation.  Financial planners also add value by constructing investment portfolios designed to meet a family’s long-term goals without taking more risk than necessary.  How much should you invest in stocks? What types of stock and bond investments make sense for your goals and risk tolerance? How and when should you rebalance or replace investments? What other threats to your financial security should you be prepared for?

The best advisors work hard to allocate investment portfolios in a way that makes the most sense for their clients’ goals and time horizon, and also for the level of market volatility they can tolerate. They help ensure clients invest the right portion of their savings into the market for the right reasons and stay invested even through the tough times. Proper asset allocation gives clients a better chance to reach their goals without risking more in the stock market than necessary.

Taxes.   Unless a financial advisor is also a tax preparer, most don’t prepare personal income tax returns. However, many do add significant value by helping clients be as tax efficient with their investments and in their personal lives as possible. That may involve managing investments for greater tax efficiency, making the best use of tax-deductible IRA or work place retirement plans, utilizing various Roth IRA strategies, or helping clients set up a retirement plan for their small business.

Other tax strategies minimize estate taxes and/or taxes on investment gains, dividends and charitable contributions. For many clients, tax planning may be one the biggest opportunities for your advisor to add value.

Manage overall investment fees. Next to taxes, investment fees and expenses are probably the biggest drag on most investors’ long-term returns.  According to Morningstar, the average mutual fund charges about 1.25% to own their fund. Known as the “expense ratio”, this number is disclosed in the mutual fund prospectus and can often be found in public information available online. However, there are also trading and transaction costs that are not disclosed in the prospectus or easily found online. These trading costs can add another 1.4% or more to the cost of owning a mutual fund. Advisors who do their homework can often add value by putting together investment portfolios with below average fees and expenses.

You are not hiring an advisor. You are hiring a team. Most financial advisors in the industry are solo-operators and work in very small offices. Many, however, work with a team and collaborate with other professionals to help them add even more value to their clients. A team-based approach adds value even when the advisor is not available or doesn’t have the expertise to meet a client’s specialized needs.

In my case, I have a staff of two, plus a virtual assistant who manages my event planning and helps with some of my marketing needs. Together we are able to meet our clients’ service needs more effectively than if I were a single advisor. In addition, Focus Financial has a whole team of people that provide support and services to help me help my clients.

Someday you will be gone. You may know as much or more about investments and personal finance as your advisor, but what happens when you are gone? A lifetime of savings can be cut down in a hurry by others who are well meaning, but ill informed as to the best way to handle your estate when you are no longer able to do so.

No one knows how much time we have and when our spouse or loved ones will have to step in and pick up where we left off. Many of my clients were referred to me because they suddenly found themselves in the position being responsible for the family finances. Not everyone is comfortable in this role. It’s a huge benefit when they can work with an advisor that they already know, like and trust, and who has experience with them, their family and what their goals, and concerns are.

Peace of mind. Clients frequently tell me the biggest value they find when working with a financial advisor is the peace of mind in knowing that someone they trust is looking over their finances and partnering with them on the important decisions they need to make in their financial lives. I often take that for granted, but for some clients that’s everything.

Regardless of your reasons for working with a financial advisor, hiring a financial advisor or CERTIFIED FINANCIAL PLANNER™ takes a leap of faith. While there are many benefits, there is no way to guarantee that you will be better off because you hired a financial advisor.

Still, according to an IRI study published in 2014, people who worked with financial advisors were twice as likely to feel confident about their retirement than those who did not. Another study titled The Future of Retirement found that people with financial plans had accumulated 250% more assets than those who without plans. David Blanchett and Paul Kaplan of MorningStar authored a research report titled Alpha, Beta and Now… Gamma, which found that financial planners added about 1.8% of additional total return for their clients each year resulting in 28% higher income in retirement.

For an excellent article from Forbes.com that references these sources and others, click here.

If you are convinced that hiring a financial advisor is right for you, click here. I just might know an advisor who can help you cross the bridge to a confident retirement.

Survey Says…

zEk8RJdmQrqja2XwbjgJ_DSC_2368Survey Says …29 people responded to my reader survey.

Thank you so much for providing your feedback.

Here is what I learned.

First, I need to write my questions more carefully. Obviously I am not a pro at taking surveys. The first question had a glitch that didn’t allow for existing clients to say that they learned about my blog simply by being a client. Oops. I already know that most blog subscribers are clients so I might have been a little careless on that one. I will know better next time.

Second, Most of you read my blog because you are a client. For those who are not, you likely learned about my blog because you attended one of my college planning workshops. That’s good to know. A few of you found me on your own. One of the benefits of a blog is that it’s a great way to stay connected to people. Maybe you will become a client in the future.

Third, Your favorite topics are retirement, financial planning, and IRAs. College planning and charitable giving were at the bottom of the list. Interesting to me was the fact that even though many of you came to my blog through the college planning workshops, you may read the blog for other reasons. Another interpretation, of course, is that most of you are clients of mine for whom college planning isn’t a major goal, perhaps because your kids have already graduated from college.

Fourth, Overwhelmingly you prefer a weekly blog. All the experts say that blogs should be posted more frequently. Apparently they don’t have kids, clients, and a business to run. I like the weekly posts. We will stick with that.

Fifth, Some of you like my blog posts A LOT. For that, I am very grateful. Thank you for your kinds words and the comments you shared. You are the small subset of readers that I try to appeal to most and the reason for doing the survey in the first place. I will try to keep delivering content that you find valuable. Please tell your friends.

Sixth, You have been reading my blog for quite a while; more than a year, in most cases. Thank you! I also learned that personal stories and examples are a big hit. I agree and I think it makes things more interesting.

I won’t swamp you with continuous survey requests, but I will probably do this again in the spring. Ultimately, I want to know what kind of person you are and what you want to read. In the meantime, if you have any thoughts or comments you wish to share with me directly, please email me.

Take My Reader Survey

zEk8RJdmQrqja2XwbjgJ_DSC_2368I have gotten great reader support and feedback regarding my blog over the past two years. While I enjoy the compliments and kind words, there is always room for improvement.

To be sure my blog does the best possible job addressing your needs, I need to know more about you. To do that, I have created a short, 6-question survey.

Would you please do me the favor of completing my survey? Click here to take the survey.

It’s very short and completely anonymous. I have no way of knowing who says what on the survey.

Completing the survey helps me help you by letting me know more about you and the type of content you find relevant and interesting. Your feedback is an important tool for me to improve and tailor these posts to better meet your needs.

Thank you in advance. I really appreciate it!

Twenty Years and Counting

shutterstock_251503735-page-001 (2)Twenty years is a long time. Well, pretty long anyway. This past May I celebrated my 20th anniversary with Focus Financial. Looking back, 20 years doesn’t seem as long as it used to.

A lot has happened since May of 1995. Not only have I changed, but my clients have as well. Below are some of the ways in which they have changed over the past 20 years and a few guesses as to how things might change in the next 20.

Information at your fingertips. When I first started at Focus Financial I didn’t have a computer. It wasn’t that they weren’t available. I just couldn’t afford one. However, I wasn’t alone. You probably didn’t have a computer either – even if you could afford one. That soon changed however, and people went from getting their information from the business pages to having it delivered wirelessly to the palm of their hand via their smart phone 24/7.

The velocity and amount of information available today means that you always know (or have the ability to know) what the market – and the world — is doing every minute of the day, every day of the year. With YouTube, Google, podcasts, ebooks and more all in addition to the traditional media you had in the past, investors have never been more informed – or misinformed – than they are today.

You are much more knowledgeable. All that access to info makes for a much more knowledgeable investor. 20 years ago I met many of my first clients by offering basic financial education courses at various employers around town. We covered such topics as “what is a mutual fund”, “the time value of money” and “the power of tax deferral”, concepts that most of you take for granted today.

Today I speak and educate clients on topics like how to “Pay Less for College”, and “Savvy Social Security Strategies”. The need for education and information is still there, but it’s gone from basic financial education to much more detailed and sophisticated topics.

The shift from investment transactions to fee-based retirement planning. The entire industry was transaction and product-focused prior to the mid-1990’s. Now the focus is much more on client relationships, providing higher levels of service, and planning for important life-goals like college or retirement.

Managing client assets in today’s world means having access to a variety of investment options and strategies without a compensation bias. While investment or insurance products may sometimes be the tools we use to help clients reach their goals, it’s really more about servicing clients in an efficient way that always puts their best interests first. Sadly, the industry still has a long way to go in this regard.

Retirement is here and now. No longer a theoretical concept decades away, retirement now stares you in the face. If you are not retired already, you soon will be. Every day 10,000 people reach retirement age. In 1995, you worried about having enough money to last to the end of the month. Today, you worry if you have enough to last to the end of your life.

You have real money to lose. According to CNN Money and Fidelity Investments the average 401(k) balance topped $91,300 last year. But you are not average. Your retirement savings are likely to be some multiple of that. In fact, the older you are the more likely it is that your retirement account is quite a bit larger than that.

In 1995 it was one thing to invest in stocks and risk a 10% or even 20% market correction. After all, you didn’t have that much money to begin with and retirement was still decades away. Today, a market correction could reduce your retirement account balance by an amount that exceeds your income for an entire year or more. Diversifying assets, having retirement income from multiple sources, and managing risk means more than ever.

A look into the future

It’s been said that the only constant in life is change. Just as things have changed in the past 20 years you can be sure that they will continue to change over the next 20. Below are three trends that I think will continue to evolve.

Your standards will continue to rise. As investors become more knowledgeable and accumulate more assets, their standards for client service will increase as well. And they should. As you approach retirement there is more at stake. More money, more demands on your resources, less time to make up for mistakes.

The best financial advisors will continue to sharpen the saw, seek out new and innovative ways to meet their clients’ needs, and increase the quality of service they deliver. The constant challenge to improve and do better for clients is one of the things I like most about my business.

You will require a team. In 1995 a young financial generalist in a solo practice could make a go of it. Now you need a team of specialists. The financial advisory team of the future will include team members who specialize in regulatory compliance, client communications, social security and Medicare, technology, and retirement planning as well as tax, estate planning and insurance specialists. All this is in addition to managing your investments.

Your “financial advisor” will lead your advisory team, but he or she won’t be doing it alone. Just as every ship has a captain with a crew, your financial advisor will need to be part of a larger team to meet your needs. Many advisors, including myself, are already building their teams and taking steps to meet their clients’ future needs.

You will demand more personal interaction, not less. Index and exchange traded funds, robo-advisors, and 24/7 access to information will make it easier than ever to distance yourself from your advisor or even go it alone. While I hate to admit it, I realize that a certain percentage of people will do just that. However, that has always been the case.

Twenty years ago an established advisor might have worked with hundreds of clients. Even today, many advisors work with a large number of people. Recently, a colleague of mine confided that she is responsible for over 1,000 families at the bank where she works, and admits that she really can’t service them all. Fortunately that is becoming less true as advisors continue to focus on providing a higher level of service to a much more limited number of clients.

Yes, 20 years is a long time, but it’s just the beginning. The future will bring challenges and opportunities, and will reveal itself in ways we can’t even imagine. I look forward to being a part of it and really believe that our best days are still ahead.