MONEY financial advisers

Cleaning Up After Another Financial Adviser’s Bad Advice

broken piggy bank fixed with tape
Corbis—Alamy

Explaining to clients that another financial adviser has given them bum advice can be awkward. Here's how I do it.

Average Americans have a poor opinion about financial advisers, and with good reason. Too many “advisers” are just salespeople for products that generate commissions for the adviser but rarely deliver the promised investment returns to the client.

As a financial adviser myself, I often see unsuitable investments in prospective clients’ portfolios. I can’t just badmouth those clients’ current adviser. If I point out how this adviser has abused their trust, how are they going to trust me? What can I tell the prospect about another adviser’s bad advice without dragging myself down to his or her level?

Recently I reviewed the investment statements of a prospect family who owned about $1 million in assets in joint taxable accounts and IRAs. The IRAs were invested primarily in variable annuities. The family had already shown me that their retirement income needs were covered by pensions. Their primary interest was in asset transfer to their children.

There’s nothing wrong with variable annuities if used for the proper purpose. For example, clients may have already maxed out 401(k) contributions but still want to set aside additional cash in tax deferred investments. However, there is no reason, in my opinion, why you would ever put a variable annuity inside an IRA. There is no additional tax benefit, but there is an extra layer of cost and complexity and there is a loss of liquidity due to surrender charges. If you don’t like the investment returns of the annuity, it could cost you up to 11% or up to 11 years to get out.

There’s a wrong way and a right way to deliver bad news. The wrong way is a declarative statement along the lines of, “You idiots were totally taken advantage of.” The prospects tend to grab their papers and stomp out the door.

The right way is to engage the prospect in a series of questions and answers; that educates clients without making them feel stupid.

“Tell me about your thought process when you purchased these annuities,” I asked.

“Our broker explained that the annuity would grow tax-free with the stock market, and then at a certain point we could convert to a term annuity which would pay out a level payment for the rest of our lives.”

“Did he note that your assets are already in an IRA?” I asked. “Where growth is tax-free already?”

“No,” they replied.

“Did he tell you that you could also achieve growth by investing in a basket of mutual funds?”

“No.”

“Did he advise you that once you convert to a fixed annuity, there’s no residual value for your children?”

“No.”

“Did he explain that, because of the various fees loaded onto your investment, you were likely to have sub-par returns?”

“No.”

“Did he explain what the surrender charge is?”

“Sure!” they replied. “That’s the insurance company’s way of making sure we stay committed to the annuity.”

“That’s the marketing department’s answer to what a surrender charge is,” I said. “What the insurance company doesn’t tell you is that they paid a commission of up to 11% to your broker on the sale, which the insurance company amortizes over the next 11 years at one percentage point a year. So if you exit in year five, there’s still 6% of that 11% commission to recover, hence the 6% remaining surrender charge.”

By this point, the couple was looking distinctly uncomfortable.

“Look,” I said, “there may have been some other reason why he recommended this strategy. All I can say is that for the needs that you have described, I would have invested you in a plain vanilla basket of fixed income and equity mutual funds. We would have complete flexibility to adjust the asset allocation over time. If for some reason you weren’t happy, you could cancel your relationship with me with an e-mail, no surrender charge. We apply a monthly advisory fee to the assets in this plan, which is 1/12 of 0.75%. The fees you pay me are computed and disclosed to you in our monthly report. As your assets rise in value, so does our monthly fee, so no mystery about my incentives.”

Nobody likes to find out that their current adviser isn’t focused on their best interests — that is, a fiduciary. I provide information, let the prospects draw their own conclusion.

We turned to other topics, and I followed up with a formal investment proposal a few days later. I was not surprised that the family decided a few weeks later to move their accounts to my firm, nor was I surprised that the annuity accounts would trickle in only after the surrender charges had expired. Even though the family had concluded that they had received a raw deal from their current adviser, those annuities still were locked in for a few more years.

———-

David Edwards is president of Heron Financial Group | Wealth Advisors, which works closely with individuals and families to provide investment management and financial planning services. Edwards is a graduate of Hamilton College and holds an MBA in General Management from Darden Graduate School of Business-University of Virginia.

MONEY Financial Planning

The Hazards of Financial Advisers Who Are ‘Just Like Family’

Andrew Olney/Getty Images

Trust should be a byproduct of skill and integrity — not a marketing tool.

We financial planners may know more about our clients than their doctors do. We are often among the first to know when clients’ families are affected by significant life events such as engagements, pregnancies, career successes and setbacks, or serious illnesses.

Does that mean clients should think of their planners as part of the family? According to a recent article by Deborah Nason for CNBC, some planners would like clients to see them in that light.

I was one of the professionals interviewed for the article, which discussed planners providing emotional support for clients and building long-term relationships with them. It also addressed the impact these services have on client retention rates.

My firm’s client-centered services focus on clients’ emotional as well as financial well-being. Still, I was uncomfortable with the tone of part of the piece, especially statements like: “. . . advisors are serving as thinking partners, therapists, surrogate family members and community organizers” and “Some advisors set out intentionally to become part of the client’s extended family.”

Some of my unease came from one essential word that was missing from the article: integrity. My guess is that for the advisers quoted, integrity is such a given that they didn’t think to mention it. Supporting clients’ well-being with services like financial coaching only serves clients well when it is built on a solid platform of professional skill and integrity. The only way to build the trust that is such an essential aspect of comprehensive financial planning is by being trustworthy.

Both clients and planners need to be fully aware — not just at the beginning of their professional relationship, but as they work together over time — of the importance of that essential foundation of integrity and skill. It has to be maintained through transparency and professional safeguards. Otherwise, a “family” relationship could obscure an adviser’s lack of knowledge in a particular area or make it very hard for a client to question advice that may not serve them well.

To take this one step further, it’s wise to remember one of the reasons unscrupulous con artists are able to fleece unwary customers out of millions of dollars. They have honed the ability to manipulate people’s emotions to persuade customers to trust them, and they then abuse that trust.

Also a matter of integrity is the question of whether it’s even appropriate for planners to “set out to become part of the client’s family.” This has the potential to lead to a manipulative and patronizing view of clients.

Serving clients’ best interests in a fiduciary relationship is the opposite of viewing them as customers to be sold a service. Planners who “sell . . . the relationship,” as one adviser quoted by Nason put it, run the risk of putting their agenda and their goal of creating a relationship ahead of the clients’ agenda and goals. There is nothing wrong with wanting clients for life; such long-term relationships can certainly serve clients well. But those relationships are built, not sold.

One of my clients who read the article told me: “I don’t want a planner to set out to ‘become part of my family.’ I want a planner to provide an impeccable level of service and trustworthiness that invites me to start thinking of him or her as ‘family’ — eventually, if that is comfortable for me.”

This, I think, is at the heart of client-centered fiduciary planning. Over time, advisers might become ‘family’ because of their integrity, advocacy, or chemistry, but such close relationships should always originate with the clients. Moving into such a position of trust has to be earned and only comes by invitation.

———-

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.

MONEY financial advisers

The 3 Biggest Money Worries of First-Time Parents

first time parents
Ashley Gill—Getty Images

Good news, explains a financial planner: They're easily addressed.

Over the last 13 years I’ve worked with countless millennials preparing to embark on their journey to parenthood. First-time parents are concerned about many things, starting with feeding their newborn, keeping the little one healthy, or just sleeping through the night (for both parent and baby).

Amid the whirlwind of emotions a single parent or couple may go through leading into the birth of their first child, I’ve found that first-time parents all find themselves confronting the same three financial questions:

  1. How will we afford this baby?
  2. How will we pay for college?
  3. What if something happens to us?

As a financial adviser, I often find myself counseling first-time parent trying to process it all. The great news is that all three of these questions can be answered with a little bit of planning.

1. How will we afford this baby?
You can count on new and unexpected expenses with your little one on the way. Many of my new-parent clients have found that three of the most significant expenses in the first year are daycare, diapers, and baby food. By increasing your monthly contributions to a liquid investment savings account, you can get a head start on changing your spending habits and begin to prepare for costs you know are coming.

2. How will we pay for college?
College is getting more expensive every year. If you want to put your money to work, start saving early and take advantage of time and compound returns. A 529 college savings plan offers you 100% federal tax-free growth for qualified higher-education expenses. (State tax advantages vary from state to state and may depend on whether you are a resident of the state sponsoring the plan.) As the parent, you retain complete control of the assets. To help bolster their child’s college fund, many parents encourage family and friends to contribute to their child’s 529 plan instead of giving toys or other presents for major events like birthdays and graduations.

3. What if something happens to us?
It probably isn’t going to hit you in the first trimester, or maybe even the second, but it’s a realization so many parents reach by the time their newborn comes home to the nursery: What if something happens to us? Most new parents have never had to sit down and plan for contingencies like death. But the moment you have someone depending on you — both financially and emotionally — for the next 20-plus years, it hits you: “I need a plan.” For many, this plan has two major pieces that ultimately answer two questions:

a. Who will take care of my baby? An estate planning attorney can help you gather information and consider some important issues designed to protect your family. Through your estate plan you can dictate guardianship instructions for your baby, control over the distribution of your assets, and medical directives.
b. Who will pay all my baby’s expenses? Life insurance can provide your child, or your child’s guardian, with a lump sum payout upon your death. Term life insurance is typically the least expensive, and thus the most common, option; you pay a set amount each month over a certain number of years, and in turn are guaranteed a death benefit should you die during that term. The policy’s lump sum payout can help your beneficiaries cover the costs you would have otherwise paid.

By starting your planning early, you can set aside the extra cash you’ll need when your family’s newest addition arrives, split the college bill with your old pal “compound returns,” and prepare for the unthinkable. Once you have these pieces in place, you’ll have your mind clear to focus on what is most important — your family. (And your sleep.)

Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

MONEY financial advisers

A Good Financial Planner Is Like This Year’s Hot Pitching Prospect

150511_ADV_Pitcher
Nick Turchiaro—USA Today Sports/Reuters Toronto Blue Jays starting pitcher Daniel Norris throws a pitch during first inning in a game against the Atlanta Braves at Rogers Centre.

Like the Blue Jays' Daniel Norris, a good financial planner is true to him- or herself.

“Stop asking questions, Maurer, and do what I tell you to do,” said the general agent for the Baltimore region of a major life insurance company.

At the time, early in my career, I was sure this guy watched Glengarry Glen Ross every morning before work. His lines were a little different, but they were no less rehearsed.

“I made over a million dollars last year!”

“I buy a new Cadillac every two years — cash on the barrelhead.”

I was told how to dress: Dark suits, white shirts, and “power ties” that weren’t too busy. Light blue shirts were allowed on Wednesdays. Never wear sweat pants, even to the gym. Enter and exit the gym in a suit. Your hair should never touch your ears or your neck. Facial hair was strictly forbidden. Jeans, outlawed.

When you have a “big fish on the hook,” invite them to the Oregon Grille, one of the nicer restaurants in the rolling horse country north of Baltimore. Get there a half-hour early and tell the maître d’ your name so that he can use it when you return shortly with your guest. Ask where you’ll be seated and pre-greet your waiter. Also let him know your name — along with your “regular” drink, so that you can ask for it momentarily.

As one in a class of newly minted “financial advisers,” who was I to argue with this six-foot-five collegiate lineman as he passionately outlined his method of perception manipulation? Who was I to argue with a million-dollar income and cash on the barrelhead?

Who was I to be original in a world that ranked sales and profit above, well, everything? Who was I to be myself?

This is the old school, and, thankfully, a new school is emerging. The new school doesn’t eschew teamwork, but it questions uniformity. The new school doesn’t worship individuality, but it also doesn’t fear personality. The new school isn’t anti-profit, but it refuses to elevate sales above the personhood of the advisor or the best interest of the client.

While the old school is proprietary and exclusive, the new school is open-sourced and inclusive. The old school insists while the new school nudges. The old school deflects questions and denies suggestions for improvement while the new school welcomes both.

The old school crafts a narrative to which it requires conformity. The new school sees the benefit in allowing advisers to tell their own story and attract the clients who resonate with it.

The financial services industry is not the only realm where this is true. Insistence on conformity may be even more evident in professional baseball, where one of the MLB’s most promising young pitchers is putting convention to the test.

Daniel Norris is a 22-year-old surfer dude who lives in a WalMart parking lot. His ride, a 1978 Volkswagen Westfalia, doubles as his residence. His manner and method might cause any prospective employer to hesitate before bringing him into the fold. But his ability to mow down major league batters with a fastball consistently in the mid-90s earned him a $2 million signing bonus and a spot on the Toronto Blue Jays’ roster. Of course, he’s instructed his agent to limit his allowance to only $10,000. Per year.

Here are three reasons why nonconformity is working for Daniel Norris and could also work for you:

1. He’s authentic. He’s not being different just for the sake of being different. He’s not rebelling against convention as much as he’s being true to himself and his values.

The point isn’t to not be everyone else, but to be yourself. This means that if dark suits, white shirts, power ties and Cadillacs are your thing, that’s what you should wear and drive. But if you prefer no ties—or bow ties—and Levi’s, well, you get the idea.

2. He’s a great teammate. There are certainly players who’ve questioned his unorthodoxy, but no one questions his dedication. “He’s in great shape. He competes on the mound,” says Blue Jays assistant general manager Tony LaCava. “He has great values, and they’re working for him.” And for Toronto.

Being yourself doesn’t mean being on an island. Some, like Norris, might thrive off of extended periods of solitude, but our greatest work often complements and affirms the great work of others.

3. He’s good. Really stinkin’ good. His 11.8 “strikeouts per nine innings” ratio was the best in the minors last season, according to ESPN. And he’s competing for a starting role in the majors ahead of schedule. If Norris were just another dude living down by the river in an old VW bus, we’d never have known about it. That he throws a 96-mile-an-hour fastball low in the strike zone — while doing so in a way that is true to his values — is what makes him special.

If you do things differently, especially in the financial industry, you may well encounter some resistance. You’ll likely have to work harder to prove yourself. But if you do so with a high degree of excellence, you’ll earn the respect of your peers.

There are a growing number of financial advisers who have diverted from the conventional path, and to good effect.

Carl Richards drew criticism from many in the industry when he confessed his greatest financial sin, but a willingness to acknowledge his imperfection endeared him to those skeptical of the industry’s propaganda campaign regarding adviser infallibility (read: everyone).

Carolyn McClanahan gave up her career as a medical doctor when she failed to find a financial adviser who would focus on her as much as her investments. She went back to school and started a planning firm that centers on clients’ values and goals. She’s also become a recognized expert in all things money and medicine.

Recognizing the dearth of women in the advisory realm, Manisha Thakor seems to personify much that the field is lacking, this imbalance considered. Manisha became an industry thought leader, a voice for women advisors and clients.

Michael Kitces is, at heart, a nerd. He struggled with individual client interaction, but turned his passion for education and teaching into a thriving business as the adviser to advisers. “To do anything other than what I do, given my story, would feel like a violation of myself and who I am,” he told me.

How might your life and work look different if you took the same conviction to heart?

Financial planner, speaker, and author Tim Maurer, is a wealth adviser at Buckingham Asset Management and the director of personal finance for the BAM Alliance. A certified financial planner practitioner working with individuals, families and organizations, he also educates at private events and via TV, radio, print, and online media. “Personal finance is more personal than it is finance” is the central theme that drives his writing and speaking.

MONEY financial advisers

Breaking Up Is Hard to Do…With Your Financial Adviser

broken $ candy heart
Sarina Finkelstein (photo illustration)—Ashley Jouhar/Getty Images

Firing a financial adviser can be uncomfortable, but certain circumstances make it necessary.

Ending a relationship is never easy. You nurture it, get comfortable with it, and you learn what to expect. Sometimes you think about walking away because you’re just not sure it’s what you want. You wonder if breaking up is worth the hassle — and you decide to stick it out, telling yourself that next year will be better. But will it? Maybe not.

Should I stay or should I go? It’s a question people regularly ask, not just about their significant other but also about their hair stylist, their personal trainer, and, yes, their financial adviser.

The idea of leaving your financial adviser — and having to find a replacement — can be daunting. It involves a lot of research, paperwork, meetings, and time. Lots of time. All that and still no guarantee that this new adviser will be any better than the old one.

But things are changing. Consumers with money to save and invest now have more affordable, higher-quality investment options to choose from. As a result, more and more people are rethinking their long-term relationships with their financial advisers.

Four percent to six percent of U.S. investors change financial advisers in a given year, according to a 2014 survey by Spectrem Group, a firm that researches investors. The reasons for these break-ups vary, but ranking high on the list are a lack of communication, frustration with complex or hidden fees, and major life events such as death, divorce, or inheritance.

It was the death of a parent that started the ball rolling for one of my clients. A smart, savvy, and accomplished woman in her mid-30s, she juggles a demanding career, marriage and motherhood. When her father, a successful real estate developer, passed away unexpectedly, she and her sisters inherited money and securities. They also inherited his long-time financial adviser.

For years, her father had trusted this adviser to work in the family’s best financial interests, and she had no plans to end the relationship. The emotional loyalty factor made it hard to jump ship. Besides, she was only paying the typical 1% fee for decent portfolio growth.

Then she did a little digging and some comparison-shopping, just for her own education, and discovered she was wrong. In fact, her adviser had invested her in an actively managed fund with significant fees. He also had recommended a new fund for her — one with a front-end load that took 5% off the top. When all was said and done, she was paying 2.3% in annual fees, not the typical 1%.

Not only was she surprised, she was furious. She felt like a trust had been broken, which is understandable. As she told me, if the financial adviser had disclosed all of the funds and fees up front, she might have reacted differently. But he didn’t, and that made it much easier for her to leave and take her retirement account with her.

So if you’re re-evaluating your adviser’s performance, consider what’s important to you and your financial goals. Do you want better communication, a lower risk factor, lower fees? Or is it just time to shake off the inertia? Whatever your reasons, if the relationship isn’t working for you, don’t be afraid to kiss it goodbye.

———-

Sally Brandon is vice president of client services for Rebalance IRA, a retirement-focused investment advisory firm with almost $250 million of assets under management. In this role, she manages a wide range of retirement investing needs for over 350 clients. Sally earned her BA from UCLA and an MBA from USC.

MONEY Small Business

New Ways to Invest in Small Businesses

Cafe owners
Getty Images

When nonprofessional investors are able to put money into small businesses, everyone can benefit.

I met with Paul on Tuesday. He is the CFO of a business start-up. He’s not sure if the next phase of his company’s financing is going to go through. Although he believes in the business model and the mission of the company, some days he thinks he won’t have a job in three weeks.

I met with David on Wednesday. While he’s a great saver and earns a decent buck, he isn’t wealthy. He wants to invest in small companies so much that we’ve set up a “fun money” account, which is 10% of his otherwise well-diversified, passively managed portfolio. “Fun money” is specifically set aside so that he can make individual investments he believes in.

Because of the way small business investing is structured in this country, the likelihood of Paul and David connecting has been infinitesimally small.

This drives me mad.

It’s not just these two who are missing out. Because small companies drive job and economic growth, the economy of the country loses when Paul and David don’t connect. And because the current system of funding is biased, some small businesses are a lot less likely to get funding despite their worthy ideas.

Recent developments could change all this.

To raise their initial start up money, small business owners typically first use their savings, and then appeal to their friends and family. Next, they go to banks. If they get big enough and have certain ambitions and contacts, they can get venture capital funding or private equity funding, which is what Paul was waiting on.

These sources of capital are all enhanced if you are affluent and well connected. Do your friends and family have extra money to invest in your business? Do you know anyone you can talk to at a bank? What about impressing people in the venture capital world? A lot of people with good ideas are shut out.

Enter the Internet. Raising money got a lot easier.

The Power of Reward Sites

With reward sites, startups with good ideas raise money in exchange for rewards.

Sesame, which opens doors remotely from smartphones, raised over $1.4 million on Kickstarter.com. The reward here was a chance to order the device.

Then there is Lammily, Barbie’s realistically proportioned cousin, whose designer raised almost $500,000 through Tilt.com. The reward for funding Lammily was the chance to pre-order the doll, and sticker packs with stretch marks, cellulite, freckles, and boo-boos.

The reward sites show that companies can raise large amounts of money through small contributions from a large number of people. Research suggests that Kickstarter.com reduces company funding gender bias by an order of magnitude and reduces geographic bias as well. Reward sites cater to consumers who love new products and want to support new ideas.

You may get first dibs on a cool new doll, but sending money to a reward site isn’t investing.

The Risks of Private Equity

Traditionally, to get private equity funding, you have to sell to accredited investors — the richest 1% of the population, roughly speaking.

Accredited investor regulations were set up in in the wake of the 1929 crash, when a lot of people got ripped off because they invested in dubious enterprises. The idea was that people with a high level of wealth are sophisticated enough to understand investment risk. Unfortunately, this leaves the Davids of the world — investors who are sophisticated but wealthy — shut out of these types of investments.

Private equity placements are not always a great deal. When I’ve looked into them for clients, I’ve concluded they are expensive, risky, and difficult to get out of, even if you die. The middlemen who offer these and the advisers who sell these seem to be the ones most likely to make money. The best deals I’ve looked at weren’t hawked by sales people or investment advisers, but came through clients’ friends and family.

The rise of Internet portals set up to connect small companies with accredited investors has the potential to cut down on intermediary costs. Still, the sector remains small.

In 2012, President Obama signed the JOBS act, which directed the Securities and Exchange Commission to devise rules opening up small business investing to non-accredited investors.

Some organizations didn’t wait for the SEC to issue the rules. Instead, they dusted off exemptions in the securities legislation that most of us have ignored for 80 years.

States Get Into the Act

Some states have picked up on crowdfunding to boost their economies. Terms vary, but generally investors are subject to investment limits and companies are subject to a cap on raising money. Each individual, for example, might be limited to investing $10,000; each company might be limited to raising $1 million. Both investor and company are generally required to reside in the state.

This is music to ears of people who want to invest locally. The first successful offering using this type of exemption was in Georgia in 2013, where Bohemian Guitars raised approximately $130,000 through SparkMarket.com.

Other Exemptions

Village Power is another example of raising money using an exemption. This intermediary helps organizations set up and fund solar power projects. Village Power coaches their community partners to use an exemption in the SEC rules, which allows for up to 35 local, non-accredited investors.

New Rules Open Doors

New rules issued March 25 by the SEC removed a lot of the barriers for companies raising money and for non-accredited investors.

Companies will be able to raise up to $50 million. Non-accredited investors are welcome to invest, sometimes with limits — 10% of their net worth, say, or 10% of their net income.

Although Kickstarter has said that it won’t sell securities, other fundraising portals, such as Indiegogo, are looking into it.

And if all goes well, Paul, David, and I can start looking for the new opportunities in June of 2015.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY Love and Money

3 Money Questions Every Couple Must Answer Before They Marry

bride and groom wedding toppers on top of heap of cash
Malerapaso—Getty Images

An open-ended conversation about finances is a crucial step on the road to marital bliss.

Marriage season is in full swing. Countless couples will step up to the altar this spring. Most will spend a lot of time imagining their blissful life together. Some will make an effort to see how they can communicate better. And a few brave folks will tiptoe into a discussion about each other’s finances.

If these couples knew that many of the fights they were going to have throughout their marriage would be rooted in money and their financial choices, they all might take time to discuss and foster financial compatibility right now.

Since spouses are going to share money choices and the consequences of their actions, it’s important to be on the same page. I’ve been fortunate to be in a lovely marriage for over two decades, but money has been at the core of many of our biggest disagreements.

We aren’t alone. Our firm has worked with thousands of families to help them with their financial lives. One lesson we’ve learned is that the way a couple makes financial choices tells whether their marriage will thrive or not.

Good news: It’s never too late to have an honest conversation about money.

There are three things you should absolutely discuss before you are married. (It won’t hurt to chat about them after the wedding, too!) But when you do, remember these important rules for talking about money. Don’t judge your partner. Don’t state your opinion as if it’s a fact. Try to see the other person’s perspective. And, most important, keep your emotions in check.

Here are the three questions you must ask one another:

1. How do you like to spend money? There is no right or wrong. It’s simply about preferences. But we can all have differing perspectives that can become frustrating over a lifetime together. Early in our marriage, my wife organized a ski trip for us for my birthday. I thought it was an odd present, given that she had given me something that was for both of us. I had grown up thinking a present was a material thing that was given to you. You can imagine she was put off by my tepid response! Some of us like and get more enjoyment buying material things — clothes, maybe, jewelry, or some new technology. Some prefer to spend on experiences, such as dinners or travel. The way you like to spend money will be a huge part of your joint life together.

Like most people, my tastes have changed over time. Today, I’d rather spend on experiences than things. In your marriage, you will both evolve and adapt, but having a healthy way to talk about your preferences will make your life easier (and make you feel more appreciated).

2. How do you feel about debt? How you view and use debt throughout your marriage can completely alter your future. Debt allows you to spend tomorrow’s earnings today, but it also reduces your financial flexibility once you have it. I grew up in Africa to parents who struggled, and I watched my mother drowning under bank debt. That has given me a massive (and perhaps not logical) aversion to debt. My wife grew up in California and was surrounded by people who borrowed; she herself has had a credit card since she was a teenager. When we had less in savings, I wouldn’t consider borrowing a lot to buy a nicer home, and I’d only buy cars I could pay for in cash. She wasn’t thrilled that for much of our marriage we lived in homes that were not as nice as we could probably afford. When you are entering a relationship you should clearly understand each other’s perspective on debt. It’s the one thing you will both have to be responsible for, together or not.

3. How do you feel about saving? Saving is all about delayed gratification; there is no immediate payoff. That sits well for some folks, but others really dislike it. For me, saving is like a security blanket: I like to know that I can pay off my house, lose my job, have a modest catastrophe, and we will still be okay. My wife assumes we don’t need to worry so much about bad things happening. Truth is, I do worry too much about things that are very unlikely to occur. It’s also true that saving more today means spending less now. You need to discuss how important building a safety net or saving for a new home is to each of you, compared to spending and enjoying that money today. Saving requires sacrifice, so you need to agree how much deferred gratification you can put up with.

Discussing money and what we do with it can be a touchy subject, and you will probably both have strong feelings. But being respectful of each other’s perspective and working together is necessary for a healthy and vibrant financial life. A discussion about money is the starting point (and most important part) of any real financial plan that works. These conversations should be the beginning of an “I do” that lasts forever.

Read Next: A 3-Step Plan for Avoiding Money Arguments

Joe Duran, CFA, is CEO and founder of United Capital. He believes that the only way to improve people’s lives is to design a disciplined process that offers investors a true understanding about how the choices they make affect their financial lives. Duran is a three-time author; his latest book is The Money Code: Improve Your Entire Financial Life Right Now.

MONEY Financial Planning

The Danger of Mixing Politics and Investments

U.S. Democratic presidential nominee Sen. Barack Obama (D-IL) (L) makes a point to Republican presidential nominee Sen. John McCain (R-AZ) during the presidential debate at Hofstra University in Hempstead, New York October 15, 2008.
Jim Bourg—Reuters U.S. Democratic presidential nominee Sen. Barack Obama (D-IL) (L) makes a point to Republican presidential nominee Sen. John McCain (R-AZ) during the presidential debate at Hofstra University in Hempstead, New York October 15, 2008.

Believing that the country is headed in the wrong direction doesn't always translate into a good investing strategy.

Looking at a chart of the S&P 500’s performance from 2007 until now gives you a totally different perspective on the market decline of 2008-09. What an opportunity that was, right?

In hindsight, it’s easy to recognize that March 2009 was a bottom. I won’t bore you with stats on how much the market has gone up since then, because you already know it’s a lot.

We financial professionals find it easy to recall historical market data, but how often do we recall the politics that might have contributed to the decline in the first place?

Not too long ago I had the pleasure of meeting a man who had traveled extensively but was considering settling down given his advanced age. He had asked that I take a look at his portfolio because he was considering changing his “investment guy.” He mentioned that he had taken a significant hit in 2009 and that he had not fully recovered, so he wanted me to review his portfolio and advise him on what he should do now in order to have enough during retirement.

Soon after we started talking, it became apparent that he was of the belief that the country had been heading in the wrong direction since 2008. His portfolio appeared to have been built around an assumption that the market would collapse beyond its 2009 low.

Whether or not it was a good investment decision at the time would depend on a number of factors. In hindsight, however, it wasn’t a good strategy after March 2009.

Did his “investment guy” share his political views as well, continuing to believe that the country would come to an end? I don’t know. What is certain is that the client’s portfolio suggested that he was expecting a significant decline.

I recall having a similar conversation soon after 2009 with a couple who made it clear to me that they were not confident that American capitalism would survive. They shared with me their displeasure about the political environment at the time and felt that the country was in decline.

I began telling them they should ignore news reports and turn off their television because in the long run, that information would have no bearing on their investments

They looked at me as if to say I was misinformed, and politely walked out of my office.

As financial professionals, we all have our own political views, because we’re human. Some are in alignment with our clients’ views, and some might be to the left or right. But does that mean we should allow our political views to dictate our financial planning advice?

Over the years I’ve learned that my personal political views have very little to do with the advice I extend to my clients. Regardless of whether or not I agree with clients or potential clients, my goal is to remain neutral and apolitical. I focus on just the facts as best as I can.

Bottom line, my political views are irrelevant when it comes to planning and providing advice that would allow my client to navigate the financial noise.

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Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY Aging

A Sad Lesson From My Mother’s Decline

senior woman staring out window
Getty Images

A diagnosis of dementia spotlights the importance of protecting against devastating outcomes.

Lessons of financial awareness and self-sufficiency began early for me. I was just 13 and my sister was 11 when our father left us. My mother was 35 at the time and had no work experience and only a high school diploma. She had dedicated her married life to our family and supporting my father’s career.

She never had access to our household finances, ever. In the blink of an eye she was faced with having to learn how to provide for the three of us. She found a retail position, making little more than minimum wage. My sister and I did what we could to help, both working full-time in addition to going to school.

When my mother was 53, I was 31 and married with two young children. My sister and I started to notice Mom’s increasingly odd behavior. She got lost while driving familiar places, acted like a child, and forgot to bathe and wash her clothes, among other worrisome behavior. We thought perhaps she was dealing with depression and we sought professional help. She was prescribed antidepressants and went to counseling. Over the next year she continued to decline, and lost her job as a customer service representative.

Shortly thereafter, she was a target of a financial scam. She initiated three outgoing wire transfers totaling nearly $30,000, her life’s savings. To her, in her increasing confusion, it was great news! She had won the Mexican lottery! We only learned of it from a bank teller who was suspicious of the wire instructions. (If a loved one is exhibiting early signs of dementia, it’s very helpful to get to know the local bank branch staff and title accounts so they can alert family if they notice odd or uncharacteristic behavior by a longtime customer).

She soon could not pay her mortgage and we were forced to sell her home. She moved in with us. I was able to find an adult daycare to care for her while my husband and I were at work. So on we went day by day. I’d drop my kids off at school and mom off at daycare, at my expense.

Several years later, when she needed around-the-clock care, we looked for a facility that approved Medicaid, since she had no resources to pay for long-term care. This was a painful, difficult lesson – and one that I share with my clients: The time to purchase long-term care is when you don’t need it. My mother would hate knowing that my sister and I are paying out of pocket for preventative care and day-to-day expenses.

Dementia may have a long life cycle. Today my mother is 68. She has not recognized my sister or me for over six years. We have seen firsthand how 13 years in long-term care facilities can devastate a family both financially and emotionally.

There was a time when we had resources to purchase protection again these risks, and we didn’t. Dementia or other disabilities can happen at any age, and the lessons have been painful on many levels. A proud woman, my mother never expected to be financially dependent on anyone. It is a painful lesson for all of us. But if there is a silver lining, it’s this: As a financial adviser, I have been able to help others avoid making a similar mistake.

As the Baby Boomer generation ages, some estimate that as many as one in three individuals will suffer some form of cognitive dysfunction, from mild impairment to full-blown dementia. Our family wasn’t ready for this. Is yours?

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Margaret Paddock, who oversees U.S. Bank’s wealth managers and financial advisers in the Minneapolis/St. Paul market, is quick to advise her clients to make preparations for catastrophic care and provisions for situations that are hard to envision, but which can come to pass.

MONEY Careers

A Good Reason to Tap Your Roth IRA Early

Concentrating surgeons performing operation in operating room
Alamy

You shouldn't always wait until you retire to pull money from your retirement account.

The Roth IRA is a great tool for retirement savings. But here’s something not as well-known: It’s great for developing your career as well.

Many of my young clients in their 20s and 30s struggle to balance current spending, saving for the next 10 years, and stowing away money for retirement. With so many life changes to deal with (weddings, home purchases, children, new jobs), their financial environment is anything but stable. And their retirement will look completely different than it does for today’s retirees.

To my clients, separating themselves from their current cash flow for the next 30 years feels like sentencing their innocent income to a long prison term.

They ask, “Why should we save our hard-earned money for retirement when we have no idea what our financial circumstances will be in 15 years, never mind 30? What if we want to go back to school or pay for additional training to improve our careers? We might also decide to start a business. How can we plan for these potential life changes and still be responsible about our future?”

The answers to those questions are simple. Start investing in a Roth IRA — the earlier you do it, the better.

There is a stigma that says anyone who touches retirement money before retirement is making a mistake, but this is what we call blanket advice: Although it’s safe and may be correct for many people, each situation is different.

The Roth IRA has very unique features that allow it to be used as a flexible tool for specific life stages.

Unlike contributions to a traditional IRA, which are locked up except for certain circumstances, money that you add to a Roth IRA can be removed at any time. Yes, it’s true. The contributions themselves can be taken out of the account and used for anything at all at any time in your life with no penalty. And, like the traditional IRA, you can also take a distribution of the earnings in the account without penalty for certain reasons, one of which is paying for higher education for you or a family member. (Some fine print: You’ll pay a penalty on withdrawing a contribution that was a rollover from a traditional IRA within the past five years. And you’ll have to pay ordinary income taxes on an early Roth IRA withdrawal for higher education.)

Although you shouldn’t pull money from your retirement account for just any reason, sometimes it’s a smart move.

Let’s say you graduate from college and choose a job based on your major. This first job is great and helps you get your feet wet in the professional world. You’re able to gain some valuable real-world experience and support yourself while you enjoy life after school. And this works for a while…until one day, 10 or 15 years into this career, you wake up and begin to question your choices.

You wonder if this career trajectory is truly putting you where you want to be in life. You think about changing careers or starting a business, but you need your income and have no real savings outside of your retirement accounts.

Now, let’s also say that you were tipped off to the magic of a Roth IRA while you were in college and you contributed to the account each year for the past 15 years. You have $75,000 sitting in the account, $66,000 of which are your yearly contributions from 2000 through 2014. It’s for retirement, though, so you can’t touch it, right? Well, this may be the perfect time to do so.

I recently spoke to a someone who did just this. Actually, his wife did it, but he was part of the decisionmaking process.

The wife has been working for years as a massage therapist for the husband’s company. Things were going quite well, but she had other ideas for her future. She wanted to go back to school to get her degree as a Certified Registered Nurse Anesthetist. The challenge was that this education was going to cost $30,000, and they did not have that kind of money saved.

So, they brainstormed the various options, one being to tap into his Roth IRA money. They determined that this would be a good investment for their future. Once the wife became a CRNA, her annual earnings would rise an estimated $20,000 — money they could easily use to recoup the Roth IRA withdrawal (though the 2015 Roth IRA contribution limit is $5,500 for those under 50 years old).

This decision gave them a sense of freedom. The flexibility of the Roth allowed them to choose an unconventional funding option for their future and gave the couple a new level of satisfaction in their lives.

And, that’s what it’s all about. We have one life to live, and it’s our responsibility to make decisions that will help us live happily today, while still maintaining responsibility for tomorrow.

Whether your savings is in a bank account or a retirement account, it’s your money. Although many advisers will tell you otherwise, you need to make decisions based on what is best for you at various stages of your life. The one-size-fits-all rule just doesn’t work when it come to financial planning. There is no need to rule out a possible solution because society says it’s a mistake.

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Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

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