As with many labor-intensive professional services, financial planning is not inexpensive to provide for clients. There are overhead costs, potential staffing costs, regulatory and compliance costs, in addition to the costs for software and services to support how professionals deliver their value. Accordingly, all of this is wrapped into the price that financial planners must charge their clients to earn a reasonable living and an adequate business profit. Yet often clients balk at the cost of financial planning. Which begs the question - if your clients think financial planning is expensive... to what are they comparing that cost?
Retirement Income Guarantees: Must It Be All Or None? Should It Be?
For many years, the use of annuities for retirement income guarantees often fell along all-or-none lines - either you annuitized the entire amount of income the client needed, or you didn't. In more recent years, this view has shifted, whether it means just annuitizing a portion of the client's assets to satisfy some of the income needs, or using a variable annuity with income/withdrawal guarantees to insure at least a portion of the income goals.
Although these strategies are viewed by many as a more balanced and "diversified" way to distribute income needs amongst various products and risks - for instance, insuring 50% of the income goal and investing towards the other 50% - it begs a fundamental question: what exactly does it mean to insure half of a client's retirement income goal?Read More...
Social Security Shuts Down Withdraw-And-Reapply Strategy – For The 0.0003% Who Care
The proverbial writing has been on the wall for a while, but now it's official: the Social Security withdraw-and-reapply strategy will no longer be available, except under relatively limited circumstances. On the plus side, though, it appears that the strategy has been far more hype than actual value, and the number of people directly affected should be very minimal.
Do You REALLY Have A PLAN For Dealing With A Decline In The Markets?
One of the often-professed virtues of financial planning is that while we cannot necessarily completely prevent market declines from impacting client portfolios, at least when they do happen, “we have a plan.” Yet for too many financial planners, the reality is that the “plan” is nothing more than “we’ll keep doing exactly what we have been doing, and wait and hope for things to get better.” Well, if your only plan for dealing with a market decline is waiting it out in the hopes that things will recover in a timely manner, you don’t really have a plan; you just have a hope. A real plan takes more.
Good (Career) Wellbeing Promotes Good Financial Health – And It Just Makes You Happier, Too!
In the research on Wellbeing, nothing is more important than being able to wake up every morning with something to look forward to doing that day. The impact of having high Career Wellbeing on happiness exceeds even the benefits of having good financial health.
On the other hand, part of the value of having a positive career is its ability to propel your financial wellbeing forward as well! Yet the research is also clear that while career wellbeing promotes financial health, it's not about how much money you make!
Does the Probability of Success Drive Your Retirement Plan?
As Monte Carlo analysis becomes increasingly popular in retirement plans, financial planners are talking more and more about the probabilities of a client's success or failure. Yet in the end, most planners evaluate client goals, look at the probability of success (defined usually as not running out of money), and the client makes a decision about whether they like the result or not. Oddly enough, planners rarely take the next logical step: ask the client what probabilities they would like to see, and use that risk/success metric to determine what the other answers - such as retirement spending or the retirement year - could be.
Starting A Financial Planning Career – Think It’s Been Hard In The Past? You Ain’t Seen Nothing Yet!
Most young planners have heard the stories about how difficult it was in the past to start a financial planning firm. The business was all about products, and sales. It was an "eat what you kill" world - and if you couldn't hunt effectively for business, you didn't survive long. Yet the reality is that as the financial planning world changes and evolves, it is actually getting even harder to start a firm now than it was in the past. Because while it may have been difficult to sell products as a 20-something-year-old "kid" in order to survive a decade or two ago, that's nothing compared to the challenge of trying to be a 20-something-year-old comprehensive financial planning expert who can build a deep advisory relationship with a stranger!
Worried About Spending? Focus On What REALLY Matters! (And It’s Not The Small Stuff!)
The personal finance space has no shortage of tips to managing your spending, from bag lunches in lieu of eating out at work to home-brewed coffee instead of the morning Starbucks routine. Yet the reality seems to be that in so many situations, we dig ourselves a tremendous spending hole because of our big purchases, and then worry tremendously about the small stuff trying to make up the difference. If you really want to change your financial reality for the better, though, it's the big stuff you really need to focus on - where you live, and what you drive.
In-Plan Roth 401(k) Rollover Conversion Guidance Issued by IRS
The Small Business Jobs Act of 2010, passed earlier this year on September 27th, opened up the possibility of completing an in-plan Roth conversion rollover from a 401(k) or 403(b) to a Roth 401(k) or Roth 403(b). However, the rules are not quite as simple and flexible as typical Roth conversions, due to the fact that the account is still first and foremost a qualified employer retirement plan. Fortunately, the IRS has issued guidance to help individuals understand the details of the new rules - which is fortunate, because there are some significant differences that could otherwise catch clients (and their planners) unaware!
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Secular Bull and Bear Market Cycles – Planning Implications
Although financial planners often rely on long-term averages when making capital market assumptions - whether to design a portfolio or create a retirement plan - there is a growing body of research that makes it clear: not all starting points are the same. Even over time horizons as long as 20-30 years or more, investing in high valuation environments tends to lead to below-average returns (and a notable dearth of results significantly above average), and the reverse is true if valuation is low when the investor begins. While many have written about the investment implications of market valuation, my interest is broader - how would it change our financial planning recommendations, beyond just the portfolio composition?