Or Ten Reasons To Get The Full Story
By Alan Goldfarb, CFP®, AIF®
A personal finance editor from a large daily newspaper recently asked three advisors in my office if we could come up with a list of the top ten issues people are worrying about at their first meeting in our office.
A few of the advisors in our company spent some time comparing notes, and here, in David Letterman top ten order, are the most frequently asked questions from prospective clients in this region.
10. Do we have enough insurance?
9. Can we afford, and how do we pay for, a major purchase (second house, boat, etc.)?
8. What is the smartest way to pay for or save for education expenses?
7. Can we use our business to fund retirement faster?
6. Can you help me with this large financial transaction (stock sale, buyout, options strategy, etc.)?
5. Can you help us with this big life "transition" (sudden wealth, divorce, terminal illness, forced retirement, lottery winnings, litigation settlement)?
4. Can you help us with estate planning? Can we afford to make gifts?
3. Can you help us manage our investments better? It's too much money and I'm uncomfortable.
2. Can you help us plan retirement? Have we thought of everything? Can we retire safely?
1. Can you help us with strategy, cash flow and tax issues for our employee stock options?
In discussing these issues, we know that most people believe that there are rules of thumb or wise maxims that we will hand down from our financial mountaintop. Instead, we offer them these verities:
- Rules of thumb have too many exceptions for professional advisors to use them. Pros prefer to run the numbers. The media gives rules of thumb and formulas, for example, on how much insurance or bonds they should own. You know, "multiply your salary times six" or "subtract your age from 120" and so forth. Experienced pros think that this is asking for trouble. Like doctors, we get real data and do real tests rather than "wing it" with a formula.
- Responsible financial planning always solves problems without creating others. If we advise the sale of an investment to avoid a loss, we also take into account the possibility that we may increase your taxes by doing so. In contrast, I know a woman whose broker "reduced the risk in her portfolio through diversification" resulting in a tax bill the following April bigger than her annual income!
- There are always multiple solutions to every problem. It is important to examine numerous ways of solving problems, because some are clearly superior when all is taken into account.
- Without good numbers, advisors cannot give good advice. Without doing the work, where exactly could good advice come from? It may take several hours to input data and populate a spreadsheet, but with accurate numbers, advice is valuable: often it is as good as gold.
People usually consult a professional advisor when they have specific problems that are causing them serious discomfort. However, excellent financial advice is a process that requires peripheral thinking. Advisors are trained to visualize the process as a circle of financial areas surrounding you and your discrete problem or issue.
So, we take care. To advise you, we may need to actually play out what we are recommending to you on a spreadsheet to trouble shoot which peripheral financial areas may be effected by the actions we recommend. Shooting from the hip with quick answers to questions on our top ten list is for journalists, not advisors. Because we are held accountable for your financial well being, and they are not. Financial journalism is entertaining reading. Financial advice that can actually be taken for your benefit is valuable work.