Client Success Story: Senior Executive Gets Peace of Mind

Client Success Story: Senior Executive Gets Peace of Mind

One of our clients is a C-level executive for a large international company. He came to our firm with a complex set of needs ranging from restricted stock planning, real estate investment needs, concerns about his investment portfolio, and worries about his overall risk management plan. His primary goals were to build wealth and to protect it. After analyzing his financial situation in great detail, we were able to help him devise a risk management plan that gave him significantly better insurance coverage for his real estate portfolio, and we also rescued him from some very poor whole life insurance products. We also helped him devise a much more robust life insurance, property & casualty insurance, and disability income insurance strategy. When we first sat down, his group disability income insurance was no where near sufficient to protect his family in the event of a long-term disability. After working with his HR department, we were able to build an executive-level supplemental disability insurance strategy that augmented his disability coverage from about 60% of his pay to around 80% of his pay. For someone at his income level, this was a critical risk that needed to be ameliorated. He also completed the financial planning process with an investment strategy, a clear retirement plan, and some advice on what to do with his restricted stock. Most importantly, our client had peace of mind that his family would be taken care of financially in the event something were to happen to him. Every client has different goals, but this was a clear example of a client who was able to greatly benefit from...
Client Success Story: Retirement Hopes Become a Reality

Client Success Story: Retirement Hopes Become a Reality

When we first met with Phil and Nancy (clients’ names changed for confidentiality purposes), they weren’t sure if they could retire. As their financial planners, we had not yet taken them through the financial planning process, so we weren’t sure either. Phil was an IT professional who worked for the state government. He enjoyed his job, but he was ready for a change and wanted to retire. Nancy was a homemaker who enjoyed singing in her church choir. Phil was not a high income earner, but he and Nancy were frugal and did a good job saving over the years. Phil had a keen eye for details, and he asked us a lot of very good questions. One of Phil’s biggest concerns was deciding which retirement pension plan option to select at retirement. He also had questions about whether or not it made sense to purchase additional years of pension service credit and long-term care insurance. After analyzing Phil and Nancy’s finances in great detail, it became clear that their retirement plan could benefit from the purchase of additional years of service credit. We assisted them with this process, and we also helped them determine the most efficient means of funding that purchase. We further analyzed Phil’s pension, and we were able to advise him on the best pension payout option, one that would ensure that Nancy was protected in the event of Phil’s passing. Fast forward several weeks later when we met for a final review of their financial plan, and we were able to present some very good news. Not only was Phil in a position to...
Making Retirement Money Last: A Summary of Withdrawal Strategies

Making Retirement Money Last: A Summary of Withdrawal Strategies

As prospective retirees near retirement, one of the most important things they’ll need to do is come up with a sustainable withdrawal strategy for the retirement assets they’ve accumulated. Importantly, this decision could determine whether or not one’s portfolio will run out of money. Here’s a brief summary of many of the methods available to retirees:  FIXED AMOUNT METHODS 1.) Constant Dollar Amount (adjusted for inflation each year) One method to accomplish this has historically been the “Income Portfolio” wherein a portfolio is invested in dividend stocks and interest bearing bonds. 2.) Fixed Percentage Amount (adjusted for inflation each year) – For example, William Bengen’s well-known 4% rule. Designed to address sequence of returns risk, the idea is that withdrawing 4% of a portfolio’s total value each year resulted in the portfolio safely lasting for 30 years (3.8% is the safe withdrawal rate if one does not want to spend down principal). The downside is that simply because a portfolio will last 30 years doesn’t mean that it will meet one’s income needs (i.e. 4% might be too low of an income). Additionally, research has shown that this strategy usually results in significant under spending. Nevertheless, this approach is widely known and still represents a helpful point-of departure for many practitioners when beginning to frame the retirement income discussion.   3.) Bucket Strategy / Evensky & Katz Cash Flow Reserve Strategy – This is a needs-based strategy that is a fixed dollar amount, but is also in conversation with the fixed percentage amount strategy. A financial planner works with a client to determine a realistic dollar amount that can...
How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

  We regularly come across clients who follow an indexing investment strategy. Indexing is not necessarily a bad thing; we follow what one might call an enhanced indexing strategy for our own portfolios. Indexing is usually an investment strategy that is associated with keeping investment costs low and investing in an entire investment index. With that said, indexing—at least the way we often see it done by clients—is not enough to be a successful investor. While costs and holding a wide array of securities are important to a total investment strategy, there is more to being a successful investor than merely selecting indexes and avoiding expenses. Asset Allocation First and foremost, investors need to keep asset allocation in mind. A failure to properly allocate one’s portfolio is probably the most fundamental flaw we see investors make. We’ve all seen the pie charts that lay out sample asset allocation models (see sample, below). Contrary to what some might think, there’s actually a lot of academic research behind the idea of asset allocation. In fact, the fundamental ideas behind such pie charts resulted in a Nobel Prize being awarded to three economists in 1990, and their ideas still lay the academic bedrock for investment success. In our own practice, we spend a lot of time on our portfolios to ensure that they represent an optimal amount of return for a given level of risk. We also work hard to avoid unnecessary risk, and we pay a lot of attention to a portfolio’s Sharpe Ratio—a measure of risk-adjusted returns created by Nobel Laureate William F. Sharpe. Most portfolios are lacking important slices of the pie, or...
Some Advisors are Trying to Mislead You: Three Ways to Stop Them

Some Advisors are Trying to Mislead You: Three Ways to Stop Them

My colleague Erin Hadary and I were recently in an office building in which we could overhear a “financial advisor” meeting with his client. Within a few minutes, it became clear to us that the advisor was putting the hard sell on his client to try to get her to purchase an annuity with a 5% “guarantee”. We were able to track down this advisor’s website, and we found the following description of the firm’s compensation (firm’s name redacted): Compensation to the advisor is in the front of most clients [sic] minds when hiring an advisor. [—] prides itself in being a predominantly fee based practice.  We believe this allows the client and the investment advisor representative to be on the “same team”.  The client never has to wonder if there is a conflict of interest because of commissions paid to the investment advisor representative because fees are disclosed prior to opening an account.  Our types of fees are hourly rates, flat fees and percent of assets under management. After reading this extremely misleading description, it’s no wonder the general public is often confused about how advisors get paid and where conflicts of interest truly lie. I agree that “Compensation to the advisor is in the front of most clients [sic] minds when hiring an advisor.” After this, however, the description of the firm’s compensation model completely falls apart. First, the firm describes itself as being predominantly fee-based. This in and of itself isn’t a problem, but the next line reads, “We believe this allows the client and the investment advisor representative to be on the ‘same team'”. A fee-based advisor does not...
Tony Robbins on Trump’s Abandonment of Retirement Investors

Tony Robbins on Trump’s Abandonment of Retirement Investors

While I disagree with much of Tony Robbins’ approach to investment management in his 600-page tome Money: Master the Game, he gets just about everything right in his recent Fortune article about the Fiduciary Rule. With the Dow reaching record highs, Tony notes that “President Donald Trump’s plan to review the Labor Department’s fiduciary rule may be good news for Wall Street, but not for hard-working Americans saving for retirement.” I’ve written at some length about the Fiduciary Rule here, and I recently helped contribute to a NY Times article about it here. The gist of the Fiduciary Rule is this: Legal fiduciaries are obligated to put the needs of those they serve ahead of their own, but the Department of Labor found that the financial services industry often doesn’t do this. As a result, they proposed the Fiduciary Rule—regulation designed to ensure that consumers aren’t fleeced by overpriced financial products and conflicts of interests with financial advisors. About this fiduciary standard, Tony Robbins comments, I’m a fan of the fiduciary standard. Doctors and lawyers are legally required to do what’s best for you—why not your financial advisor as well? While most people assume financial advisors are registered investment advisors (RIAs), who are legal fiduciaries, it turns out that less than 4% of them are. As if this weren’t confusing enough, there is another class of RIAs, so-called dual-registered RIAs, who are affiliated with a brokerage and sell financial products for a commission. If the Fiduciary Rule goes away, what should consumers do? In addition to asking questions about fees, as Ron Lieber rightly points out in the aforementioned NY Times piece, consumers...