MONEY Financial Planning

Financial Advice Is Good, but Emotional Well-Being Is Better

On the surface, good financial planners help you manage your money. Dig down deeper, though, and they're improving your emotional life.

On the surface, comprehensive financial planners provide advice and services in areas such as investments, retirement, cash flow, and asset protection.

We need to drill deeper, however, to get at a planning firm’s core purpose. After exploring this question over recent months, my staff and I have agreed that our core purpose is to transform the financial and emotional well-being of people. That’s the part of our work that gets us out of bed in the morning.

Here’s a closer look at the three key words of that purpose:

  • Transform: To achieve long-term financial health, people often need to transform their relationship with money by making permanent changes in their attitudes, beliefs, and behaviors. An example of transformation might be someone learning to reframe a money script that has blocked their ability to save for the future.
  • Well-being: This is a multidimensional word that includes financial, emotional, and physical aspects of people’s lives. Our purpose focuses on both the financial and emotional aspects. Since some 90% of all financial decisions are made emotionally, separating financial and emotional well-being is almost impossible.
  • People: By referring to “people” rather than “clients,” we acknowledge that, in order to foster transformation and well-being for our clients, we also need to be concerned about the well-being of all the members of our staff.

Once a firm has defined its core purpose — the “what” — the next step is to create a framework of principles to accomplish that purpose. This is the “how” that guides the operations of the company. The principles might be something like the following:

We…

  • Put clients first.
  • Guide people to reach a destination in an unfamiliar area.
  • Give sound advice and creative solutions.
  • Constantly educate ourselves.
  • Practice what we preach.
  • Are serial innovators.

Finally, behind the “what” and “how” of what a firm does is the “why.” These are the core values, the touchstone that brings everyone in the company together and forms the basis of the company’s culture. These values are non-negotiable. Even though a company’s purpose or principles may change over time, the values will stay the same. Core values might include:

  • Trust. Our work and personal interactions are based on real, unquestionable evidence, reliability, and trustworthiness.
  • Unbiased Advocacy. We are defenders, supporters, and interceders on behalf of our clients and one another.
  • Well-Being. Everything we do is in support of achieving and maintaining, for our clients and one another, a state of being happy, healthy, and prosperous.
  • Continuous Improvement. We focus on improving our processes, our client experience, and ourselves.

In defining the core purpose for a comprehensive financial planning firm, it’s essential to appreciate the importance of both financial health and the well-being it supports. One can’t have well-being without the financial means to support physical health and emotional happiness.

This is why our firm defines its purpose as transforming people’s financial and emotional well-being. This core purpose is based on the belief that comprehensive financial planning goes beyond building financial independence. It also helps clients and staff members change destructive money behaviors, clarify goals, and achieve the dreams that represent happiness to them. In the broadest sense, real financial planning offers investment advice that supports people’s investment in their own well-being.

———-

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 advice

Even a “Fiduciary” Financial Adviser Can Rip You Off If You Don’t Know These 3 Things

man in suit with briefcase stuffed with bills
Roy Hsu—Getty Images

After years of fits and starts, the move to require brokers and other financial advisers to act as fiduciaries—essentially making them put their clients’ interests first—seems to be gaining traction again. Witness President Obama’s recent speech at AARP on the topic. Whether a fiduciary mandate eventually comes to pass or not, here are three things you should know if you’re working with—or thinking of hiring—an adviser bound by the fiduciary standard.

1. Fiduciary status doesn’t guarantee honesty, or competence. The idea behind compelling financial advisers to act in their client’s best interest is that doing so will help eliminate a variety of dubious practices and outright abuses, such as pushing high-cost or otherwise inappropriate investments that do more to boost the adviser’s income than the size of an investor’s nest egg. And perhaps a rule or law requiring advisers to act as fiduciaries when dispensing advice or counseling consumers about investments will achieve that noble aim.

But you would be foolish to count on it. Fact is, no rule or standard can prevent an adviser from taking advantage of clients or, for that matter, prevent an unscrupulous one from using the mantle of fiduciary status to lull clients into a false sense of security. As a registered investment adviser with the Securities and Exchange Commission, Ponzi scheme perpetrator Bernie Madoff had a fiduciary duty to his clients. Clearly, that didn’t stop him from ripping them off.

Fiduciary or no, you should thoroughly vet any adviser before signing on. You should also assure that any money the adviser is investing or overseeing is held by an independent trustee, and stipulate that the adviser himself should not have unrestricted access to your funds.

2. Your interests and an adviser’s never completely align. There’s no way to eliminate all conflicts of interest between you and a financial adviser, even if he’s a fiduciary. If an adviser is compensated through sales commissions, for example, he may be tempted to recommend investments that pay him the most or frequently move your money to generate more commissions. An adviser who eschews commissions in favor of an annual fee—say, 1% or 1.5% of assets under management—might be prone to avoid investments that can reduce the value of assets under his charge, such as immediate annuities. Or, the adviser might charge the same 1% a year as assets increase even if his workload doesn’t.

My advice: Ask the adviser outright how your interests and his may deviate, as well as how he intends to handle conflicts so you’ll be treated fairly. If the adviser says he has no conflicts, move on to one with a more discerning mind.

3. Even with fiduciaries high fees can be an issue. Much of the rationale over the fiduciary mandate centers around protecting investors from bloated investments costs. But don’t assume that just because an adviser is a fiduciary that his fees are a bargain, or that you can’t do better. Advisers can and do charge a wide range of fees for very similar services, and fiduciaries are no exception. So ask for the details—in writing—of the services you’ll receive and exactly what you’ll pay for them. And don’t be shy about negotiating for a lower rate, or taking a proposal to another adviser to see if you can save on fees and expenses.

A fiduciary may have a duty to put your interests first. But that duty doesn’t extend to helping you find a competitor who may offer a better deal. That’s on you.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More from RealDealRetirement.com:

Should You Claim Social Security Early and Invest It—Or Claim Later For A Higher Benefit?

How To Protect Your Nest Egg From Shifting Government Policies

Your 3 Most Pressing Social Security Questions Answered

 

MONEY financial advisers

Proposed Retiree Safeguard Is Long Overdue

businessman putting money into his suit jacket pocket
Jan Stromme—Getty Images

The financial-advice regulations pushed by the Obama administration will save retirees, on average, an estimated $12,000.

When you are planning for retirement and ask for advice, whose interest should come first — yours or the financial expert you ask for help?

That is the question at the heart of a Washington debate over the unsexy-sounding term “fiduciary standard.” Simply put, it is a legal responsibility requiring an adviser to put the best interest of a client ahead of all else.

The issue has been kicking around Washington ever since the financial crisis, and it took a dramatic turn on Monday when President Barack Obama gave a very public embrace to an expanded set of fiduciary rules. In a speech at AARP, the president endorsed rules proposed by the Department of Labor that would require everyone giving retirement investment advice to adhere to a fiduciary standard.

The president’s decision to embrace and elevate fiduciary reform into a major policy move is huge.

“The White House knows that this is the most significant action it can take to promote retirement security without legislation,” said Cristina Martin Firvida, director of financial security and consumer affairs at AARP, which has been pushing for adoption of the new fiduciary rules.

Today, financial planning advice comes in two flavors. Registered investment advisors (RIAs) are required to meet a fiduciary standard. Most everyone else you would encounter in this sphere — stockbrokers, broker-dealer representatives and people who sell financial products for banks or insurance companies — adhere to a weaker standard where they are allowed to put themselves first.

“Most people don’t know the difference,” said Christopher Jones, chief investment officer of Financial Engines, a large RIA firm that provides fiduciary financial advice to workers in 401(k) plans.

The difference can be huge for your retirement outcome. A report issued this month by the President’s Council of Economic Advisers found that retirement savers receiving conflicted advice earn about 1 percentage point less in returns, with an aggregate loss of $17 billion annually.

The report pays special attention to the huge market of rollovers from workplace 401(k)s to individual retirement accounts — transfers which often occur when workers retire. Nine of 10 new IRAs are rollovers, according to the Investment Company Institute mutual fund trade group. The CEA report estimates that $300 billion is rolled over annually, and the figures are accelerating along with baby-boom-generation retirements.

The CEA report estimates a worker receiving conflicted advice would lose about 12% of the account’s value over a 30-year period of drawdowns. Since the average IRA rollover for near-retirees is just over $100,000, that translates into a $12,000 loss.

What constitutes conflicted advice? Plan sponsors — employers — have a fiduciary responsibility to act in participants’ best interest. But many small 401(k) plans hire plan recordkeepers and advisers who are not fiduciaries. They are free to pitch expensive mutual funds and annuity products, and industry data consistently shows that small plans have higher cost and lower rates of return than big, well-managed plans.

The rollover market also is rife with abuse, often starting with the advice to roll over in the first place. Participants in well-constructed, low-fee 401(k)s most often would do better leaving their money where it is at retirement; IRA expenses run 0.25 to 0.30 percentage points higher than 401(k)s, according to the U.S. Government Accountability Office. Yet the big mutual fund companies blitz savers with cash come-ons, and, as I wrote recently, very few of their “advisers” ask customers the basic questions that would determine whether a rollover is in order.

The industry makes the Orwellian argument that a fiduciary standard will make it impossible for the industry to offer cost-effective assistance to the middle class. But that argument ignores the innovations in technology and business practices that already are shaking up the industry with low-cost advice options.

How effective will the new rules be? The devil will be in the details. Any changes are still a little far off: TheDepartment of Labor is expected to publish the new rules in a few months — a timetable that already is under attack by industry opponents as lacking a duly deliberative process.

Enough, already. This debate has been kicking around since the financial crisis, and an expanded fiduciary is long overdue.

MONEY financial advice

The Investing Danger That Smart People Face

man sitting in front of a wall of certificates
C.J. Burton—Corbis

You may be brilliant and a giant in your profession, but that can get you into a lot of trouble.

While returning from a business flight last year, I experienced a queasy stomach sensation. Later than night I woke up with searing pain across my abdomen. At my internist the next morning, I asked, “Do I have food poisoning?”

“I would say something more serious,” the doctor replied. “We need to get you a CAT scan.”

Off to the imaging center. The radiologist came out: “You have appendicitis,” he said. “You cannot pass Go, you cannot collect $200. You have to go straight to the emergency room. Take this copy of your images.”

I checked in at the hospital and was triaged. I slumped in a corner, clearing my email and calling the office. Eventually a doctor came out and asked why I was there.

“I have appendicitis,” I replied.

“Really?” he said. “Did you self-diagnose on WebMD?”

“No,” I said. “I went to a radiologist. I have slides! Look at my slides.”

He did, and then he operated on me.

In recovery later that day, I realized my surgeon has the exact same problem I have: “Yeah, doc, I know you have a medical degree and 30 years of experience, but I’ve been reading WebMD and I think…”

Or in my case: “Yeah, Dave, I know you have an MBA and 30 years of investing experience, but I’ve been reading [pick one] Motley Fool/Zero Hedge/CNBC/TheStreet.com, and I think…”

What do I say when clients think they know more than I do?

At my firm, we work with executive families. Our clients are brilliant; many have advanced degrees from top universities. These clients have ascended to the pinnacles of their careers and are accustomed to being the smartest person in the room.

Trouble starts, though, when the clients confuse brilliance with experience. For the most part, the clients let us do our job, but every once in a while, we’ll get an order along the lines of:

  • “Buy Shake Shack in my account.”
  • “Put 50% of my assets in emerging markets.”
  • “Put 100% of my assets in cash! So-and-so says the sky is falling!”
  • “My 14-year-old has ideas for restructuring the portfolio.”

We could say, “That is a stupid idea. We are totally not going to do that.” But that approach leads to resentful clients who may take their resentment, and their account, to another adviser.

I prefer to use these requests as opportunities for education, laced with humor. Several clients asked us about the Shake Shack IPO in January. We showed them a simple metric: stock market capitalization divided by store count. We asked, “If Shake Shack is valued at $26 million per store and McDonald’s is valued at $2.6 million per store, do you think that the Shake Shack burger is ten times better than the McDonald’s burger?” That reality check then led us into a discussion of the risks and rewards of emerging growth stocks versus value stocks.

Clients have told me that picking stocks must be easy.

“Really?” I say. “Do you like to play poker?”

“Love playing poker,” comes the reply. “Every Saturday with my buddies.”

“Really? Do you ever go to Atlantic City and play with the pros?”

“Gosh, no! I’d get my eyeballs ripped out.”

“Really? You don’t have an edge in poker, but you think you do have an edge in stock picking, which is 10,000 times more complicated than poker? Really?”

I started investing at 17, so it’s not out of the question that a 14-year-old might have good ideas (though the same parents who think their child could manage their portfolio never allow that kid to drive their car). If a parent wants to involve a child, we’ll send that child several books on investing and instructions on how to “paper trade.” If the child is willing to paper trade for a year and show me the results, I’m willing to take his or her input. (That conversation hasn’t happened yet, but one day!)

Ultimately, there has to be a line we won’t cross. If a client starts sending daily orders, or even worse, jumping into his or her accounts and making trades without us, we have to fire the client. That is a no-win situation for us: Anything that goes well in the portfolio is because of the client’s brilliance, while anything that goes badly is our stupidity. We’ll set that client free to make room for clients who do respect our expertise.

———-

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 stocks

How I Plan for the Stock Market Freakout…I Mean Selloff

150217_ADV_StockFreakout
Mike Segar—REUTERS A trader works on the floor of the New York Stock Exchange (NYSE).

Advising people not to dump their stocks in downturn is easy. Actually persuading them not to do so is harder.

I got an email from Nate, a client, linking to a story about the stock market’s climb. “Is it time to sell?” he asked me. “The stock market is way up.”

Hmmmm.

If I just tell Nate, “Don’t sell now,” I think I might be missing something.

At a recent conference, Vanguard senior investment analyst Colleen Jaconetti presented research quantifying the value advisers can bring to their clients. According to Vanguard’s research, advisers can boost clients’ annual returns three percentage points — 300 basis points in financial planner jargon. So instead of earning, say, 10% if you invest by yourself, you’d earn 13% working with an adviser.

That got my attention.

Jaconetti got more granular about these 300 basis points. Turns out, much of what I do for clients — determining optimal asset allocations, maximizing tax efficiency, rebalancing portfolios — accounts for about 1.5%, or 150 basis points.

The other 150 basis points, or 1.5%, comes from what Jaconetti called “behavioral coaching.” When she introduced the topic, I sat back in my seat and mentally strapped myself in for a good ride. One hundred fifty basis points, I told myself — this is going to be advanced. Bring it on!

Then she detailed “behavioral coaching.” I’m going to paraphrase here:

“Don’t sell low.”

Don’t sell low? Really? The biggest cliché in the world of finance? That’s worth 150 basis points?

But it isn’t just saying, “Don’t sell low.”

It’s actually that I have the potential to earn my 150 basis points if I can get Nate to avoid selling low. That means I need to change his behavior. Wow. Didn’t I give up trying to change other people’s behavior January 1?

Inspired by Nate and the fact that the stock market is high (or maybe it’s low; the problem is we don’t know), I decided to think like a client might think and do a deeper dive into the research. Why not sell now? Why do people sell low? How can I influence, if not change, client behavior? I’ve got nothing to lose and clients have 1.5% to gain.

One interesting thing I learned in my research: Not everybody sells. In another study, Vanguard reported that 27% of IRA account holders made at least one exchange during the 2008-2012 downturn. In other words, 73% of people didn’t sell.

Current research on investing behavior, called neuroeconomics, includes reams of studies on over-confidence, the recency effect, loss aversion, herding instincts, and other biases that cause people to sell low when they know better.

Also available are easy-to-understand primers explaining why it’s such a bad idea to get out of the market.

The question remains, “How do I influence Nate’s behavior?” The financial research ends before that gets answered.

Coincidentally, I recently had a tennis accident that landed me in the emergency room. While outwardly I was calm, cracking lame jokes, inwardly I was freaked out.

Despite my appearance, the medical professionals assumed I was in high anxiety mode, treating me appropriately. The emergency room personnel had specific protocols. Quoting research and approaching panicked people with logic weren’t among them.

They answered my questions with simple sentences and gave me some handouts to look at later.

Selling low is an anxiety issue. And anxiety about the stock market runs on a continuum:

Anxiety Level Low Medium High
Client behavior Don’t notice the market Mindfully monitor it. “Stop the pain. I have to sell.”

That brought me to a plan, which I’m implementing now, to earn the 150 basis points for behavioral coaching.

During normal times, when clients are in the first two boxes, I make sure to reiterate the basics of low-drama investment strategy.

When I get a call from clients in high anxiety mode, however, I follow a protocol I’ve adapted from the World Health Organization’s recommendations for emergency personnel. Seriously. Here’s what to do:

  • Listen, show empathy, and be calm;
  • Take the situation seriously and assess the degree of risk.
  • Ask if the client has done this before. How’d it work out?
  • Explore other possibilities. If clients wants to sell at a bad time because they need cash, help them think through alternatives.
  • Ask clients about the plan. If they sell now, when are they going to get back in? Where are they going to invest the proceeds?
  • Buy time. If appropriate, make non-binding agreements that they won’t sell until a specific date.
  • Identify people in clients’ lives they can enlist for support.

What not to do:

  • Ignore the situation.
  • Say that everything will be all right.
  • Challenge the person to go ahead.
  • Make the problem appear trivial.
  • Give false assurances.

Time for some back-testing. How would this have worked in 2008?

In 2008, Jane, who had recently retired, came to me because her portfolio went down 10%. The broader market was down 30-40%, so I doubt her old adviser was concerned about her. Jane, however, didn’t spend much and had no inspiring plans for her estate. She hated her portfolio going down 10%.

Jane didn’t belong in the market. She didn’t care about models showing CD-only portfolios are riskier. She sold her equity positions. She lost $200,000!

The protocol would have worked great because we could have worked through the questions to get to the root of the problem. Her risk tolerance clearly changed when she retired. She and her adviser hadn’t realized it before the downturn.

Then there was Uncle Larry.

Like a lot of relatives, although he may ask my opinion on financial matters, Larry has miraculously gotten along well without acting on much of it.

Larry is in his 80s and mainly invested in individual stocks. This maximizes his dividends, which he likes. The problem was that his dividends were cut. The foibles of a too-big-to-fail bank were waking him up at 3:00 a.m. Should he sell?

When he called, I suggested that Uncle Larry look at the stock market numbers less and turn off the news that was causing him anxiety. I reassured him that he wouldn’t miss anything important. We discussed taking some losses to help him with his tax situation.

Although he listened, I didn’t get the feeling this advice was for him. Actually, the emergency protocol would predict this; the protocol doesn’t include me giving advice!

Uncle Larry and I discussed his plan. He ended up staying in the market because he couldn’t come up with an alternative. He also thought, “If I had invested in a more traditional way, I’d probably have ended up at the same point that I am at now anyway. So this is okay.”

He’s now thrilled he didn’t sell and, at 87, is still 100% in individual stocks.

MONEY retirement income

Forget About Retirement Planning for Millennials

piggy bank with locks for earrings
YAY Media AS—Alamy

The goal of achieving financial independence is more appealing than the idea of saving for a retirement that's decades away.

When it comes to millennials and money, many financial planners are focusing on the wrong issue.

The retirement advice most financial professionals provide was designed for Baby Boomers. Gen Y’s situation, however, looks nothing like this 30-year-old norm.

Few members of Gen Y get excited about the idea of working for the next 40 to 50 years, doing all the heavy lifting when it comes to ensuring they’ll have enough savings for the future, and then retiring to a life of no work and no purpose shortly before expiring.

Yet traditional retirement planning asks people to do just that. This doesn’t make sense for millennials — but that doesn’t mean they should throw their financial security to the wind and have no plan at all, either.

Instead, we planners should shift the focus from the nebulous concept of “retirement” to something concrete and accessible. It should be something that millennials can take real action to achieve in the short-term, not something that won’t matter for 40 years.

We should focus on preparing Gen Y for financial independence.

What Is Financial Independence?

Financial independence refers to a situation where an individual can generate enough income to pay all expenses for the rest of his or her life. Typically, that refers to passive income that comes from savings and investments, but it might also come from a side business, real estate assets, or royalties from past work.

Financial independence frees individuals from the obligation to work a particular job in order to secure a specific paycheck. It’s possible when you’re in your 20s to start building the income streams that will meet your needs for life and help you reach independence. Creating a side job that earns $500 a month today could build to provide $1,000 a month in a few years and $2,000 a month in five or 10 years.

Don’t believe it? You must not get around the blogosphere much.

Financial bloggers — not advisers or planners — have been championing this concept for years. The idea of financial independence is gaining traction thanks to bloggers popularizing it — and succeeding at it themselves.

One example: Mr. Money Mustache, a financial blog run by a man who reached financial independence in his 30s. By investing 50% to 75% of his income during his working career in his 20s and early 30s, he reached financial independence before 40.

Other bloggers have reached financial independence by building and selling a business or investing in multiple real estate properties that generate monthly income.

But the most popular way is probably the most accessible: save huge percentages of income. Bloggers, even the ones not as Internet-famous as Mr. Money Mustache, frequently report saving anywhere between 30% and 70% or more of their income. The majority of this group then invests that money in inexpensive, passively-managed index funds.

They don’t need $1 million to $3 million in the bank when they’re 63 years old. Instead, they may need to reach an investment goal of $250,000 or $500,000 in assets before they can start withdrawing 3-4%, because along with other income streams this is enough to cover their expenses each year for life.

Why Financial Independence Is the Financial Planning Answer for Gen Y

Financial independence makes sense for Gen Y because it’s more realistic, and it’s something that people don’t have to wait until they’re 60 or 70 years old to achieve.

Building income streams allows individuals to achieve financial independence within years, if those income streams are sound and stable. Even working toward financial independence via saving and investing can be accomplished in a fraction of the time it normally takes people to achieve retirement goals. Invest 50% of your income, for example, and you’ll reach financial independence in 17 years; save 75% and you’ll be there in 7 years.

And financial independence allows you to experience the kind of freedom that “retirement” does not. Free from the obligation of working a job because it’s necessary to pay bills allows financially independent people to explore new work, projects, businesses, and opportunities. It enables individuals to try new hobbies or go new places that old age and ill health may eliminate in traditional retirement after a decades-long working career.

We shouldn’t focus on traditional retirement planning for millennials. Instead, let’s give them the tools and knowledge they need to reach financial independence.

———-

Alan Moore, CFP, is the co-founder of the XY Planning Network, where he helps advisers create fee-only financial planning firms that specialize in working with Generation X & Generation Y clients.

MONEY Religion

Investing Options Grow for Muslims

150209_INV_faith_1
Stuart Dee/Getty Images

U.S. Muslims who don't want to profit from interest or invest in certain types of businesses have an increased number of choices.

A growing number of options address the special investing needs of Muslims.

The U.S. Muslim population is expected to reach 6.2 million by 2030, almost three times the nation’s 2.6 million Muslims in 2010, the Pew Research Center estimates.

Muslim-Americans are younger and better educated than the average U.S. citizen, according to Gallup data. Moreover, they want to see a greater number of appropriate financial products, according to market research firm DinarStandard.

Their investing needs are similar to those of people who want socially responsible investments, but it requires additional expertise on the part of their adviser.

Under Islamic, or Shariah law, investors must shun companies involved in, for example, alcohol, tobacco, gambling or weapons — restrictions common to many religious groups. Shariah law also prohibits interest, because loans should be charitable acts. This makes buying fixed-income securities problematic, and purchasing banking company stocks impossible.

Companies must also have little debt: about 30% interest-bearing debt to trailing 12-month average market capitalization, according to organizations that set Islamic investing standards.

More investment products are becoming available. They include sukuk, the Islamic alternative to bonds, where returns are based on profits from an underlying asset. One fund, Azzad Wise Capital Fund, is available to U.S. retail investors. More choices will likely emerge, advisers say.

Morgan Stanley adviser Mark Rogers in Farmington Hills, Mich., helped his first Muslim-American client about 10 years ago and now serves more. He does not view them differently from clients who want socially responsible investments, he said.

“Once you understand how to apply the filter, it’s just business as usual,” Rogers said.

Naushad Virji, chief executive officer of Sharia Portfolio, launched his investment advisory firm in Lake Mary, Fla., 10 years ago and now serves clients in 21 states, he said.

Virji generally sticks to individual large-cap stocks — names with low debt such as Apple and Walgreens Boots Alliance — but said he is excited about developments in Islamic finance.

Amana Mutual Funds Trust, for example, and a new ETF from Falah Capital, Falah Russell-IdealRatings U.S. Large Cap ETF , are helping meet investors’ needs. But there is more to be done, Virji said. “We are in the infancy of Shariah-compliant investing in this country,” he said.

Advisers should go through each holding with clients to make sure they are happy with the choices, said Frank Marcoux, a partner at Wells Fargo’s Nelson Capital Management, a Wells Fargo & Co. unit. Some clients are even more strict than even the standard-setters, Marcoux said.

Clients also should understand they cannot expect to beat a benchmark, when chunks of companies are missing, Marcoux said.

But the main point is that advisers can help Muslims get in the market, Marcoux said. “People are surprised that this type of product and strategy even exists, and very appreciative.”

MONEY Benefits

The Treasures Hidden in Employee Benefits

businessman with treasure chest of gold coins
Machine Headz—iStock

People often don't realize that they're missing out on valuable employee benefits. Here's how one planner helps them get what's theirs.

I’m talking with a client, Sarah, about her work benefits.

“Are you signed up for disability insurance through work?” I ask. Since Sarah, who’s in her 30s, has at least 25 years until retirement, this insurance is a very important component of her financial plan.

Sarah says she thinks she is.

“Great,” I say. “How long is the waiting period on that, and what percentage of your salary is covered?”

Sarah responds with a big “Ummmm, I have no idea.”

This discussion is actually much more common than you might think. Life gets busy. When open enrollment happened, Sarah checked the boxes on her benefits form without really understanding what she was looking at. Then she moved on with her life. What’s the harm in that?

The harm is that if she hasn’t closely reviewed her employee benefits, she may have a false sense of safety. She may not have checked the right boxes. Her coverage may have major gaps or important conditions of which she’s not aware.

As a financial planner who specializes in working with Gen X professionals, I perform a comprehensive review of my client’s employee benefits as part of his or her financial plan. I can quickly identify potential gaps in insurance coverage, or tax-saving accounts that she or he is not taking advantage of.

Not every financial planning firm does this. Some advisers think that the client already has it under control. Some advisers put a majority of their focus on investment management, and maybe they don’t think they have time to review outside information. This is a mistake.

Here’s the problem: What you don’t know can hurt you. A client may think she has disability insurance through work, but what if she never actually signed up? She suddenly gets diagnosed with cancer and can’t work. Then she misses out on the 50%-60% of the monthly paycheck that employer-provided disability plans often provide. So now she’s dealing with both the stress of cancer treatments and the challenge of paying for living expenses no longer covered by her income. And her adviser has failed her.

A review of employee benefits doesn’t have to take long. Here are the steps I take with my clients:

  1. My client sends me either the employer benefits summary or screenshots from his or her employer benefits website.
  2. I look at the retirement plan. Is it pre-tax only, or is there an option to do Roth 401(k) or Roth 403(b) contributions? What is the employer matching formula? If the client is behind on saving for retirement, is there room to increase contributions before hitting the IRS-mandated maximum?
  3. Next, I review the disability insurance information. Is there long-term disability insurance offered? If so, is the client currently signed up for it? Is there an option to increase the coverage for a little more money? What is the waiting period? Does the employer or the employee pay the premiums (affecting whether the benefits are taxable)?
  4. I review the life insurance benefits. What is basic included coverage? If the client doesn’t have enough insurance, is there an option to increase the coverage? Does that option require medical underwriting or can he or she increase coverage without a medical exam?
  5. I make sure that the client is signed up for the health insurance plan that makes the most sense for him or her. Sometimes it’s better for spouses to be on the same health insurance policy instead of separate ones through their respective employers. Would the client benefit from doing a high-deductible plan (an attractive choice if the client is in good health)?
  6. Finally, I review the tax-advantaged savings account (usually a Health Savings Account or a health Flexible Spending Arrangement and a childcare FSA) to see if there are any benefits that we could be using, and I check the other benefits (like tuition reimbursement and pre-paid legal services) to see if there is anything else that could save my client money.

Once I report my recommendations to my clients, I find that they really appreciate that I am looking out for their best interests. And it gives them another reason to stick around.

———-

Katie Brewer, CFP, is the president of Your Richest Life, where she works virtually with Gen X professionals, helping them create and stick to a financial roadmap to live their richest life. Katie is a fee-only planner, a founding member of the XY Planning Network, and a member of the Financial Planning Association.

MONEY financial advice

When Money Isn’t the Top Priority

Sometimes the right decision from the financial perspective is the wrong one from the human perspective.

As a financial planner, I sometimes have a tendency to look at personal finance as a matter of checking off boxes.

Emergency fund? Check. Budget? Check. Saving for retirement? No? Well there’s the hole. Let’s start right there.

There’s some value in that kind of thinking. After all, certain things are just good practice and running through that checklist is a good way to get a quick read on someone’s financial situation.

But I also remind myself to not take that mentality too far. I try to remember that good financial planning is really about helping my clients build a life they enjoy, and that money is just a tool that can help make that life possible.

Which means that sometimes the “correct” decision from a financial standpoint is not actually the correct decision. Sometimes happiness needs to take precedence.

I worked with a young couple recently who were about to have their second child. Like I do with all clients, I asked them right at the start why they were coming to me. What was it they wanted to achieve?

They told me that they wanted to make sure they were saving enough for retirement. They wanted to save for a new house with a bigger yard. They wanted to make sure they had the right insurance in place.

But what they really wanted was to see if they could make their budget work so that the wife could stay home with the kids. She felt like she was missing out on this once-in-a-lifetime opportunity, and they thought they might be in a position to make it work. So they came to me.

As I reviewed their situation, one thing was immediately clear: From a purely financial standpoint, switching to a single income was going to be a step backwards. The wife had a stable job, made good money with good company benefits, and it was going to be more difficult for them to reach some of their long-term goals without her income.

We talked about all of those things at our next meeting. I wanted them to make an informed decision (as did they), so it was important for them to know what they would be giving up.

But I also showed them how they could make it work with just the one income. We talked about some changes to their budget that would make it easier, and we planted the seeds of a plan to get some of their other savings back on track over the next few years.

I also shared my personal story with them. My wife quit her job when we had our first child, and it was a financial hit. But it was the lifestyle we wanted, and over the years we’ve found ways to compensate.

In the end, they decided to give it a shot. They knew exactly what kind of financial sacrifices they were making, but they also knew what kind of lifestyle they wanted. And if they could make the finances work around that lifestyle, that was the route they wanted to take.

We all make decisions every day to put happiness ahead of money. We eat dinner with our family instead of in front of our laptop catching up on work. We take our spouses on dates, go out with friends, and go on vacations. These are the moments that make our lives meaningful. They are the reason we care about money in the first place.

As I work with clients now, I try to remember that my job isn’t to help them check off all the right financial boxes. My job is to help them use their money to build a happy life.

Life, not money, is the real priority.

———-

Matt Becker is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents build a better financial future for their families. His free book, The New Family Financial Road Map, guides parents through the most important financial decisions that come with starting a family. Becker is a member of the XY Planning Network.

MONEY financial advice

The Wonderful Thing That Happens When a Financial Adviser Tells You the Truth

A tale of youthful stupidity holds the key to giving honest, genuine financial advice.

I was an 18-year-old punk with a monumental chip on my shoulder. You know, the kind of kid certain of his indestructability, sure of his immunity from the dangers of self-destructive behavior.

At 2:00 a.m. on a random Wednesday morning in June 1994, after a long day and night of double-ended candle-burning, I set out for home in my Plymouth Horizon. At the time, my car was bedecked with stickers loudly displaying the names of late-60s rock bands. No shoes, no seatbelt, no problem.

Not even halfway home, I was awakened by the sound of rumble strips, just in time to fully experience my car leaving the road and careening over an embankment. After rolling down the hill, the vehicle settled on its wheels and I, surprisingly, landed in the driver’s seat. But all was not well.

Broken glass. My right leg was visibly fractured. I had hit the passenger seat so hard that it was dislodged from its mooring. Blood dripped on my white T-shirt.

I was well steeped in the Die Hard and Lethal Weapon series, so I knew what was coming next — an explosion. Naturally, I busied myself with the task of escaping a fiery death.

The driver’s side door wouldn’t open, so I climbed across the center console with its five-speed stick shift. I’d later learn I had a broken femur. And a broken pelvis. The passenger door was also inoperable, so I crawled into the back seat, now really beginning to feel the pain. Neither of those doors would open. Metal had rolled down over the doors.

I gave up, right then, right there.

Four hours later, shortly after sunrise, a truck driver spotted the car. Soon thereafter, I was being shuttled into a helicopter headed for the R Adams Cowley Shock Trauma Center at the University of Maryland Medical Center. The last thing I remember hearing was, “This doesn’t look good. I don’t think this kid’s gonna make it.”

That initial prognosis almost proved accurate. At the hospital, my left lung collapsed. Uncooperative even when unconscious, I fought the breathing machines. The medical staff induced a coma, where I remained for five days. My parents were told that my chances of living had fallen below 10%.

Family and close friends were notified.

Obviously, I made it. But I suffered immensely with how to knit this incident into my life’s narrative. This wasn’t just some random, tragic occurrence. It was a natural outcome of poor decisions. I couldn’t reconcile why I’d been spared — a punk kid who didn’t care about anyone but himself.

I spurned physical therapy. I didn’t submit to psychological analysis for more than 12 years, until, after a series of panic attacks, I was diagnosed with symptoms of PTSD. There was simply no ignoring or escaping the shame of the most embarrassing event in my life.

But that chapter had to become part of my story.

I began working in the financial industry long before I learned to welcome this reconciliation, and I found myself right at home. Everyone seemed to be in the business of pretending. And it seemed to touch on everything.

How to dress, what car to drive, where to go to the gym. I was even taught how to answer the question, “So, how are you doing?” I couldn’t be entirely honest, of course.

I was just scraping by, in relative poverty, trying to convince the well-off to rely on me for financial advice. So, to salve my conscience, my sales manager had instructed me how to respond to that most common of questions in a way that was, as all the best lies are, partially true: “I’m doing…unbelievable!” Indeed.

I thought to myself: If I appear smart enough, educated enough, credentialed enough, experienced enough, then they will trust me. Believe me. (Pay me.)

Unfortunately, while the financial industry has built its case to the collective client by projecting a façade of impenetrable eminence, it has ignored the opportunity to build trust the way its built best. By being who we are. By being something most financial advisors are taught to never be — vulnerable.

“Vulnerability sounds like truth and feels like courage,” writes Brené Brown in her book, Daring Greatly. (If you haven’t seen her inspiring TEDxHouston talk, “The Power of Vulnerability,” treat yourself and join the 18 million souls who have.)

Perhaps the financial industry could exhibit more truth, financial regulators more courage, and advisers more vulnerability?

One financial adviser put vulnerability to the test on the biggest stage possible.

Carl Richards, one of my friends and colleagues, had reached every outward milestone of success. He was running a thriving independent advisory firm, writing for The New York Times, and working on his first book. But he knew there was a piece of him — a big piece — that he hadn’t yet reconciled with his personal story.

So he did the previously unthinkable. This financial adviser shared the story of his biggest financial mistake. In the Times.

What happened next was both fascinating and frightening. Richards, who wrote about losing his over-mortgaged house when the housing bubble burst, was strongly supported by some people in the financial world. Others, however, decried Richards as a professional heretic. Some even called for his credentials to be stripped. How dare he acknowledge financial fault and crack the public’s perception of our profession as perfect?

That stung, but the broader impact of Richards’ authenticity was remarkable. I asked him recently, “Now, three years since publishing your biggest financial mistake for the world to see, how much of an impact has that step in vulnerability had on your work and life?”

“A massive impact,” Carl said. “The surprising side effect has been what I’ve learned about the vulnerability of the human condition. None of us are immune. People have been willing to share with me because I’ve shared with them.”

My experience has been similar. The degree to which I’ve been willing to reconcile my worst moments with those I’d prefer that others see, the more I’ve been able to facilitate genuine relationships — genuine trust — with family, friends, clients and co-workers.

Of course I’m not suggesting that financial advisers should rely solely on anecdotal authenticity. Education, experience, credentials, a fiduciary ethic, and practicing what we preach are imperative. But they are a starting point. As Brown implores, “What we know matters, but who we are matters more.”

And who knows, vulnerability may even offer a competitive advantage as an adviser. While everyone else is trying to appear perfect, you can just be you.

———-

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.

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