MONEY Estate Planning

When Tragedy Strikes a Young Family

hospital bracelet on patient
Fuse—Getty Images

A cancer diagnosis prompts a financial planner to reflect on the fragility of life and the importance of preparing for the worst.

I have a client who is 39. He’s married and has two young children. He has an extremely successful career. He and his family are really hitting their stride.

One day he started to feel unwell. Eventual checkups led to a diagnosis of cancer. His wife called me on a Saturday morning to discuss the shock of what they were going through, and to get some basic sense of what to expect next, financially.

There’s no way to prepare yourself for this kind of devastating news. Brené Brown discusses this eloquently when she talks about “foreboding joy” — the sense we sometimes have, when things are going well, that something terrible will happen to us or someone we love.

This mental rehearsal for the worst-case scenario doesn’t make it any easier when we get tragic news; instead, it gets in the way of our truly feeling joyful and present in the moment right now.

What can give us a lot of peace of mind is financial preparation — the knowledge that our families will be taken care of if something happens to us. Here are some important elements of that planning:

  • Life Insurance: If you have young children who are depending on your income, a good 20- to 30-year level term policy is a solid foundation to help support your family through the children’s school years.
  • Disability Insurance: Being injured or sick and unable to work is often more financially catastrophic than death, since your expenses have likely increased to deal with your treatment, but your income has gone away. A good disability policy through your employer or through a private insurer is great protection, since it will provide at least part of your income while you’re unable to earn a living. This coverage is more expensive than life insurance, since it is far more likely a person will become disabled rather than die early, but disability insurance has substantial benefits.
  • Emergency Fund: A baseline amount of cash is the protective foundation to any financial plan. This isn’t because cash is such a great deal, since returns in savings accounts nowadays are minimal at best. Emergency funds are a great deal because they allow us to weather financial storms — for example, covering waiting period before the benefits on a disability insurance policy kick in — and ultimately to take advantage of opportunities when they present themselves.
  • Wills, Living Wills, and Powers of Attorney: If you have young children, this is essential. The issue isn’t if you or your spouse die; it’s if both of you die, since those kids will inherit life insurance proceeds, retirement plan benefits, and more. If you and your partner both get run over by the proverbial bus, you need to make provisions for who will take care of your children. You should make that decision, and not leave the courts to decide if you’re not around. Living wills allow you to state your end-of-life choices; while never easy to carry out, they always provide a level of peace to families who know they’re carrying out their loved one’s wishes.

A few weeks later, I had lunch with this couple. The husband was about to have surgery. “If I don’t wake up,” he asked, “what’s going to happen?”

It was the best of a bad situation: He had insurance. They had an emergency fund. They had the necessary end-of-life and estate-planning documents. Were he to not pull through, his wife and children would be in a position to try to find a new normal. (In fact, he did pull through, and he’s working on his recovery.)

The most important thing for any patient with a long-term illness is to focus on his overall health and mental outlook. Having financial plans in place allows a patient to set other worries aside. He can tell himself, “In the worst-case scenario, my family will be all right. Now I can focus on ‘What can I do to be well?'”

All our days are numbered. The question is, can you be present for the time that you have? The right financial plan can ease the way.

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H. Jude Boudreaux, CFP, is the founder of Upperline Financial Planning, a fee-only financial planning firm based in New Orleans. He is an adjunct professor at Loyola University New Orleans, a past president of the Financial Planning Association‘s NexGen community, and an advocate for new and alternative business models for the financial planning industry.

MONEY financial advisers

How to Be Nosy About Your Financial Adviser’s Finances

magnifying glass looking at new $100 bills
LM Otero—AP

You probably want to know how rich your financial adviser is. Here are some better ways to pry about his or her money.

What’s your net worth?

We financial professionals think nothing of asking clients this question. If the tables were turned, though, and clients or prospective clients asked the same question of us, how would we respond?

Every now and then this issue comes up in conversations among financial planners. Some advisers think their net worth is none of their clients’ business, any more than doctors’ cholesterol levels are any business of their patients.

Others are concerned that a single number like net worth is incomplete information and can even be misleading. Knowing a financial professional has a net worth of, say, $5 million doesn’t necessarily mean the person is a trustworthy or capable financial planner. Net worth tells prospective clients nothing about where the money came from. The planner may have inherited it, won the lottery, made it through a business other than financial planning, earned it from commissions on poor investments, or even obtained it illegally.

Nor does net worth reveal anything useful about someone’s understanding of money or knowledge of financial planning. I’ve worked with plenty of multi-millionaires who were horrible money managers and inept at investing. There are also many brilliant young planners who haven’t had the time to accumulate a large net worth.

I suspect that most clients who want to know about their planners’ net worth actually have several deeper questions in mind. Some may be asking if the professional actually follows his or her own advice. Imagine how troubling it might be to find out your financial planner doesn’t have a retirement plan, is a habitual over-spender, or hasn’t gotten around to making a will.

Another reason for the question may be a concern whether the planner is financially stable and will be around in the future. During the Great Recession, many financial professionals saw their revenues fall by 30% to 40%. Some who did not have a business emergency reserve had to resort to laying off staff, cutting services, or in some cases closing their doors.

Still another concern may be whether the planner is familiar with a potential client’s particular financial issues. This is especially true of high-net-worth clients. They need to know a planner can relate to the complexities, responsibilities, and emotional challenges of managing wealth.

All of these are legitimate concerns. Knowing a financial planner’s net worth, however, doesn’t address those concerns. It would be more useful for clients to get answers to questions like the following:

  • Do you follow the same advice you give clients? Give me some examples.
  • Do you have six months’ living expenses in an emergency account?
  • Do you invest your money in the same manner you will invest mine?
  • If I were to run a credit report on you, what would it tell me?
  • What are some of the things you have learned from your financial mistakes?
  • Tell me what your company has in place for emergency planning and succession planning.
  • Tell me why you can relate to someone with my net worth and the issues I am facing.

Very few prospective clients are likely to ask questions like these. That doesn’t mean they don’t want to know the answers.

Planners who want to provide exceptional service to their clients might consider providing such answers freely and transparently, without waiting to be asked. We expect clients to trust us with their financial information. One way to build that trust may be to share some information of our own.

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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 president of the Financial Therapy Association.

MONEY financial advisers

Dealing With the ‘Personal’ in Personal Finance

Two people shaking hands above restaurant table with laptop
Tom Merton—Getty Images

To really help people, financial planners have to delve into the the feelings and emotions that drive their clients' financial decisions. One planner explains why that's so hard.

While most of us financial advisers want to do the best for our clients, we often struggle at the task.

The main problem, as I recently wrote: We don’t know our clients well enough. We may say that a client’s values and goals are important, but most of us don’t adequately explore these more personal (a.k.a. “touchy-feely”) parts of a client’s life.

Why is this?

One reason we avoid deeper discovery with clients: No matter how we’re paid—whether by commissions or fees—most of us don’t get compensated until the financial planning process has neared its end.

Let’s use the six-step Certified Financial Planner model as an example. The information-gathering stage, when we have the chance to really understand who our clients are, is the second step. But most advisers don’t get paid until step five, when clients implement our recommendations.

Advisers, therefore, have an inherent economic bias to get to step five as soon as possible.

The second reason we don’t dig deep: Having in-depth conversations with clients can be uncomfortable—mostly for us. We, as advisers, may feel underqualified or inadequately trained to delve into the beliefs, feelings and emotions that drive their financial decisions.

I get it. About seven years ago, I decided that I needed to give and get more out of client interactions, not merely through questions at opportunistic times, but by a deliberate process.

On the day I decided to implement this new strategy, I saw I had a data-gathering meeting on my schedule. Perfect. I was ready to jump right in.

I had met the woman in this husband-and-wife household before—she was a human resources executive at a large company—but not the man. And he turned out to be a “man’s man.” His shoulders were so broad that he had to turn sideways to get through the doorway to my conference room. Scowling, he extended a bear-sized arm and squeezed my hand hard enough to send the clear message that he’d rather be anyplace but there.

“Really?” I asked myself. “I’m going to ask this guy about his values and goals? About his history with money and about the feelings and emotions evoked by his personal financial dealings?”

After I could delay no longer, we got down to it. My assumption that this guy would recoil from an introspective conversation was completely wrong. In fact, my nonfinancial questions clearly set this visibly hesitant client at ease.

The truth is that we’re all capable of communicating more meaningfully with our clients. We do it with our family and close friends all the time. Aren’t we capable of simply getting to know someone?

To claim lack of expertise is a cop-out. There is plenty of help out there for gathering information about intangibles. Here are three resources I’ve found extremely useful:

  • George Kinder: Kinder is a Harvard-educated financial planner who is often dubbed the “Father of Life Planning.” Personally, I find the term “life planning” problematic. It seems to brand intangible data-gathering as something apart from good financial planning, which lets the rest of us off the hook. Kinder’s work, however, should not be discounted. Kinder’s book, The Seven Stages of Money Maturity, effectively started a movement that continues to grow as new generations of planners look for more personally rewarding practices. Another of his books, Lighting the Torch, provides planners with a practical methodology to incorporate into their process.
  • Rick Kahler, Ted Klonz, and Brad Klontz: Kahler, a financial planner in South Dakota, teamed up with psychotherapists Ted and Brad Klontz on two projects that have immeasurable value to the financial planning community. The Financial Wisdom of Ebenezer Scrooge is a short, easy-to-read volume that will help both advisers and their clients examine the motives behind our financial decisions, successes and failures. I had the privilege of studying with Ted and Rick immediately following the release of their second collaboration, Facilitating Financial Health. Written for the serious practitioner, it’s one of the most highlighted books in my library.
  • Carol Anderson and Amy Mullen: Last, but in my opinion the most important, is what I believe to be the ideal resource for financial advisers who truly want to institute more meaningful conversations with their clients. With Money Quotient, Anderson and Mullen have created something very special: a nonprofit devoted to providing advisers with tangible tools designed to elicit intangible information from clients. Various degrees of licensing allow advisers to merely dabble with some of Money Quotient’s tools or transform their entire practice in a way that puts client values and goals at the center of their process.

Acknowledging that personal finance is more personal than it is finance is a great beginning. But the light-bulb moment is only valuable if it leads to the application of the associated theories and concepts.

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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 Planning

Why Millennials Aren’t Getting Love from Financial Advisers

Financial advisers are aging and mostly targeting their peer group. Where can a dedicated Millennial saver get answers?

“Follow the money” was sage advice in All the President’s Men, and “show me the money” worked well enough for the characters in Jerry Maguire. Now financial advisers are taking the same approach in their pursuit of new clients.

A third say they aren’t interested in your business if you have less than $500,000 to invest and 57% want at least $250,000 in assets to get on the phone, according to a survey from Principal Financial Group. Okay. These are business people following the money in their quest for higher fees and more commissions.

Yet this approach pretty much ignores the next mega-generation—the 80 million Millennials, the oldest of which are now turning the corner on 30. Just 18% of financial advisers say they are prospecting in this demographic. Millennials don’t have a lot of assets at this point in their life, and 29% of advisers say this generation has little interest in their services because of the cost, Principal found. So why bother?

Well, anyone building a wealth management business for the long term might find plenty of gold in this group. Millennials are hell-bent on saving and investing long term, and providing for their own financial security. Eight in 10 Millennials say the recession convinced them they must save more now, according to the 2014 Wells Fargo Millennial Study. Meanwhile, the financial industry, banks in particular, have a long way to go win this generation’s trust. They might want to get started.

Most wealth advisers are focused on Baby Boomers (64%), high net worth clients (64%) and business owners (62%). For those willing to work with the less well-heeled—advisers who just getting started and willing to build a practice over time—these twenty-somethings offer a huge opportunity. One issue, though, is that there aren’t a lot of young wealth advisers out there. Like bus drivers and clergy, this profession has a slow replacement rate and is aging fast. Among the 300,000 or so full-time financial advisers, the average age is about 50, and 21% are over 60.

The result is an industry filled with people that largely do not relate to Millennials and do not care because they have so little to invest. At the same time, we have a generation that has got the message on saving and wants to get serious about investing for its financial future. So it’s not surprising that a growing number are turning instead to online financial advice firms—start-ups such as Betterment, Wealthfront and Personal Capital—to get investment guidance with little or no minimum and at lower cost. Millennials may be broke and fee averse. But they won’t be that way forever. This time, “show me the money” may be bad strategy.

MONEY Travel

If You’re Rich Enough, You Can Get Your Broker to Book Your Vacation

Brokerages including Morgan Stanley offer concierge services for ultrawealthy customers.

Financial advisers at Morgan Stanley, one of the world’s largest securities brokerages, do not typically arrange clients’ European vacations.

But when an ultra-high-net-worth client was planning a family meeting in Tuscany, Deanna Rodriguez, Morgan Stanley’s director of lifestyle advisory, did everything from reserving a villa that sleeps 20 to planning the family’s sightseeing agenda.

Rodriguez, one of two registered brokers at Morgan Stanley employed to provide full-time concierge services, is part of a broader trend of wealth managers offering luxury travel arrangements for select clients.

“I’m not your Cunard Cruise girl. You can get that from your American Express Platinum,” Rodriguez said. “We get called in because there are a lot of moving parts and it really needs to go off like a corporate event.”

Travel services are unusual at the large U.S. brokerages known as wirehouses, but several independent broker-dealers like HighTower Advisors have begun to offer in-house travel and concierge services because demand is growing.

Firms that offer in-house concierges provide more than just travel assistance. They may also help in arranging insurance and licensing for staff at a vacation home or appraise tangible assets like fine art.

In 2014, Rodriguez expects to provide travel accommodations and these other services more than 1,600 times, up from 1,397 in 2013 and about 1,000 in 2012.

The value proposition is hard to turn down: Who better than a trusted adviser to mitigate the financial risk of luxury travel?

“We saved one client $10,000 on center-ice tickets to the New York Rangers playoffs,” said Paul Pagnato, partner of the Virginia-based HighTower group Pagnato-Karp, whose firm employs two full-time concierges. They helped one client jump a wait list to get last-minute New Year’s Eve reservations at the Four Seasons in Maui and have assisted clients in the purchase of private planes.

George Papadopoulous, an independent, fee-only financial planner near Ann Arbor, coaches clients on how to maximize hotel points and airline miles through rewards credit cards and a software program called Award Wallet.

Papadopoulous, who estimates he has 3.5 million frequent flyer miles and manages more than 100 different hotel and airline rewards accounts for himself and his family, said travel advice is one way he distinguishes himself.

The industry “is changing and we’re trying to differentiate ourselves to become more valuable,” he said.

Rodriguez, Pagnato and Papadopoulous all cautioned that these services are not right for every client. For Rodriguez, the ideal user of her services has substantial wealth, a dearth of time, and appreciation for travel with a purpose.

She recently planned a five-day, $56,000 trip to the Galapagos Islands for a father who wanted to encourage his son to use their wealth to support environmental causes.

“Part of it is economic, but the biggest part is educating the next generation,” she said.

MONEY financial advisers

Got a Beef With Your Broker? Wall Street, Attorneys Fight Over How to Fix Complaint Process

boxers in boxing match
Blend Images—Alamy

Wall Street and attorneys representing investors can't agree how to improve the arbitration system used to settle disputes between brokerages and their customers.

A proposal to strengthen the arbitration process that aggrieved investors use against securities brokers is running into obstacles just as the Securities and Exchange Commission prepares to consider it.

The plan, submitted in June by the Financial Industry Regulatory Authority, would ban securities industry veterans from serving as public arbitrators on the panels that decide cases filed by investors against their brokerages.

But now some investors’ attorneys who had pushed for the new rule are taking issue with the fact that it could apply to them as well. Other critics say the rule could be so stringent as to leave FINRA, an industry watchdog funded by Wall Street, without enough qualified arbitrators for the dispute resolution system it runs.

The SEC would have to approve the FINRA proposal for it to become a final rule.

FINRA arbitrators typically are considered “public” — those presently unaffiliated with the securities industry — and “nonpublic” — those with Wall Street ties. Many investors and their lawyers want a panel of three public arbitrators to hear their cases because non-public arbitrators may be biased in Wall Street’s favor, they say.

FINRA’s arbitration system has faced criticism for everything from not thoroughly vetting arbitrators to making it too easy for brokers for clean up their records. The plan addresses investor advocates’ criticisms that some arbitrators can be deemed “public” even if they previously worked in the securities industry for years.

The SEC solicited public opinions on the rule with a comment period that ended July 24. Separately, a new FINRA task force is conducting a broader review of the arbitration system.

Investors’ Lawyers Bite Back

One of Wall Street’s largest trade groups backs the proposal, but with a big condition.

In a July 24 letter to the SEC, the Securities Industry and Financial Markets Association said lawyers who represent investors should also be prohibited from acting as public arbitrators.

Firms and brokers would view arbitrators who have counseled investors as being biased against the industry, SIFMA wrote.

That view, already embodied in FINRA’s proposal, could hurt members of the Public Investors Arbitration Bar Association, a group of 450 lawyers who represent investors and a key force behind the push to weed out public arbitrators with Wall Street ties.

Under FINRA’s proposal, investors’ lawyers would not qualify as public arbitrators if they devoted more than 20 percent of their time within the past five years representing investors in disputes.

Similar restrictions would also apply to accountants and expert witnesses. They could become public arbitrators again, subject to certain restrictions, such as a hiatus from practice.

Lawyers and other professionals who have worked on behalf of the financial industry would be bound by similar rules.

But PIABA is already pushing back. The group has asked the SEC to reject language that would exclude lawyers and others who work on behalf of investors from being public arbitrators, according to its July 24 letter.

FINRA cites no evidence that professionals who serve investors would be biased, wrote Jason Doss, PIABA’s president. What’s more, the “non-public arbitrator” label has traditionally applied to arbitrators who have industry ties, he wrote.

FINRA declined to comment.

It is unclear how many of FINRA’s 3,560 public arbitrators would be deemed non-public. But too few arbitrators would strain the system. That is especially true when markets tank and claims spike, said George Friedman, an arbitration consultant and former director of FINRA’s arbitration unit.

“At the end of the day, we’re looking at fewer public arbitrators when we’re likely to need more going forward,” Friedman said.

MONEY financial advisers

A Young Financial Adviser Is Hard to Find

Only 5% of U.S. brokers are in their 20s, and training programs at large firms aren't getting any bigger.

Wall Street faces a mass exodus of retiring financial advisers over the next decade, so small brokerages are beefing up their training and presence on campuses to woo future employees.

Some 25,000 brokers and brokerage firm advisers will retire over the next three years, a trend that is expected to continue for more than 10 years, according to research firm Cerulli Associates. Within 10 years, roughly one-third of U.S. financial advisers will retire, it estimated.

Not enough young financial advisers are available to take their place. Only 5 percent of the 308,000 brokers and advisers at U.S. firms are younger than 30 years old, according to Cerulli.

“The issue isn’t that the seniors are leaving. It’s that the industry doesn’t have many freshmen or sophomores to replace them,” said Craig Pfeiffer, founder and chief executive of independent training program Advisors Ahead.

Training can be costly: about $250,000 to recruit and train a rookie adviser in a four-year program that only one out of four will complete, Andre Cappon, president of research firm CBM Group, said.

Though traditional brokerage firms like Morgan Stanley and Wells Fargo can recruit more rookie advisers because of their size, these so-called wirehouse firms are not expanding their training programs the way small firms are. Larger firms can be more successful at hiring established advisers and have been fine-tuning their training programs to focus on certain niches.

Morgan Stanley does not plan to increase the 1,000 trainees it annually accepts into its program in the near future, spokeswoman Christine Jockle said. Wells Fargo, which adds 600 to 900 participants per year, is trending toward the lower end of that range to “focus on quality,” Tom Allen, learning and development manager, said.

Smaller firms cannot easily poach experienced financial advisers from bigger firms, so they use training programs to build up their workforce.

“(Our increased training) stems from the need for building and investing in talent in the near future,” said Kimberly Thekan, director of talent acquisition and integration for Robert Baird’s private wealth management business. Baird is accelerating recruitment on college campuses and helping to develop a wealth management and financial planning track at the University of Wisconsin-Madison’s business school.

Regional brokerage Edward D. Jones Investments has 400 recent college graduates in its current group of 3,000 trainees. The company, which spends $250,000 on each new adviser over two years, plans on increasing enrollment every year to accommodate growing customer demand for advisory services, said John Rahal, principal and financial adviser for talent acquisition at the firm.

Raymond James Financial will triple the 100 participants annually enrolled in its Advisor Mastery Program over the next three to five years, said Tash Elwyn, president of the firm’s private client group. He said he intends to use the program to replace the company’s retiring financial advisers on a one-to-one basis.

MONEY College

Why Your College-Bound Kid Needs to Meet Your Financial Planner

Parents showing jars of money
Jamie Grill—Getty Images

Sheltering children from tough money choices now can lead to unhappiness later on.

When I schedule a meeting with parents to talk about college costs, I always ask if the student will be attending the consultation.

About 80% of the time, the parents say no. Their usual response: “He’s too busy,” or “We would rather not include her.”

That’s a big mistake.

What I do is help estimate the final costs that the parents will be facing, taking into consideration projected financial aid, merit awards and the family’s current resources. Those costs can vary widely, from $5,500 a year to attend a community college while living at home to over $70,000 per year to go to a private college such as New York University.

Students should be involved from the start, so they can understand the financial issues that their parents will be facing. Students need to see the great disparity in cost outcomes among the different colleges on their wish list.

When I meet with the whole family, we can narrow down the types of schools that would be affordable to the parents as well as meet the academic and social needs of the student.

That way, we can avoid a situation in which a high school student, ignorant of any financial implications, pursues whatever college he is interested in. Then, in April of his senior year, when all of the acceptances and awards arrive, his parents review the options and say, “We can’t afford any of these.”

At that point, the only choices are for the student to attend a school he’s not happy with (such as a local college commuter school), or for the parents to go into deep debt in order to finance an education they cannot afford.

So I try my best to convince the parents to invite their student. Perhaps the parents are trying to shield their finances from their children. Eventually, however, the kids will be part of the parent’s estate planning. The earlier the children know about the parent’s financial situation the better. If a family limits the college search to the types of colleges that meet all needs (financial, academic, and social), then the only outcome in senior year will be a happy one for both the parents and the student!

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Paula Bishop is a certified public accountant and an adviser on financial aid for college. She holds a BS in economics with a major in finance from the Wharton School and an MBA from the University of California at Berkeley. She is a member of the National College Advocacy Group, whose mission is to provide education and resources for college planning professionals, students and families. Her website is www.paulabishop.com.

MONEY Aging

As You Age, You Need to Protect Your Money — From Yourself

Piggy Bank Locked Up
Andy Roberts—Getty Images

A financial planner explains why he couldn't stop his client from making irrational decisions.

After three decades as a financial planner, I’m seeing more and more clients reach, not just retirement, but their final years. An issue that becomes especially important at this stage of life is how to help clients protect their financial resources from an unexpected threat — themselves.

One of my saddest professional experiences came several years ago when one of my long-time clients, a woman in her late 80s with no family and few close friends, abruptly fired me. Because Mary had no one else, I had helped her in many ways beyond the usual client/planner relationship and even reluctantly agreed to serve as her trustee and power of attorney in case she became incapacitated.

At what proved to be our final quarterly review meeting, Mary initially seemed confused. I was able to reassure her about the stability of her finances, and she seemed clearer by the time we finished. Three weeks later, I received a handwritten letter from her: “You have my finances in a mess. I can’t get to my money. You are fired.”

I was stunned. Yet ethically I was required to comply with her wishes by moving her holdings to another broker.

Several subsequent conversations demonstrated that Mary was suffering from periodic memory loss and delusion. Had she been disabled by a sudden accident or a stroke, I could have stepped in. Yet, because her decision to fire me was made at a time when she was arguably still competent, my hands were tied.

In theory, I could have gone to court with my power of attorney or in my position as trustee and petitioned to have Mary declared incompetent. But that posed a problem: Essentially, I would have been telling a judge, “Mary fired me as her adviser. I’d like to have her declared incompetent so I can re-hire myself as her adviser.” There was no way I was going to ask a judge to do that. I had a clear conflict of interest.

Since this experience, I have confirmed the wisdom, given the potential for conflict of interest, of never serving as a trustee or power of attorney for a client. With the help of suggestions from several other planners, I’ve also learned some strategies to help protect clients from themselves.

One tool is to ask clients to sign a statement authorizing a planner concerned about possible irrational behavior to contact someone, such as a family member or physician, designated by the client. While this would not prevent a client from firing an adviser, it would provide a method of discussing the issue and also involve another person in the decision.

Another possibility is to put clients’ assets into either an irrevocable living trust or a Domestic Asset Protection Trust (in states that allow them) and naming someone other than the client or the planner as trustee. While the client, as the beneficiary, would have the power to fire the trustee, concern about a trustee being fired irrationally could be mitigated to some degree by having a corporate trustee. In addition, with a DAPT, the beneficiary client would not have the power to amend the trust without the agreement of the trustee. This would give some protection against self-destructive choices by a client who was gradually losing competency. One disadvantage of this approach is cost, so it isn’t an option for everyone.

Perhaps the most important strategy is to work with clients to create a contingency plan in the event of mental decline. It could include arrangements to consult with family members or other professionals such as physicians, social workers, and counselors. For clients without close family members, the plan might authorize the financial adviser to call for an evaluation, by professionals chosen in advance by the client, if the client’s behavior appeared irrational. This team approach might alleviate clients’ fears about being judged incompetent by the person managing their assets.

The possibility of mental decline is something no one wants to consider. Yet it’s as essential a financial planning concern as making a will. Helping clients build financial resources for old age includes helping them create safety nets to protect those resources from themselves.

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Rick Kahler 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 president of the Financial Therapy Association.

MONEY Financial Planning

What My 3-Hour Lunch Says About Good Financial Advice

Women at a lunch meeting
Colorblind—Getty Images

Financial planning isn't about investing for retirement or saving for college; it's about turning your vision into reality.

It was Suzanne’s birthday. I really wanted her to have the next best thing to a day off. So I, the adviser, and Suzanne, my client, scheduled our meeting at Guglhupf, a lovely local restaurant.

In 2005, when I formed my company, I was sitting at one of Guglhupf’s upstairs tables when I came up with the tagline of my firm: “Driven by a Vision.” Now, years later, spending a sunny afternoon on Guglhuph’s patio with Suzanne, I had a powerful moment of living that ideal.

Suzanne is a visionary, an entrepreneur. She first came to me as a client because she wanted to be sure that the various ventures she had underway didn’t encumber too much of her wealth — that her assets wouldn’t all be at risk and that she would have enough set aside for her family’s future needs and her own retirement.

At its core, financial planning is helping people realize their vision. And for my entrepreneurial clients, I’m helping them navigate some very complicated waters at a time that’s emotionally charged due to hope, desire, exhaustion, and frankly, being stretched too thin.

These conversations can’t happen inside financial planning software, and they don’t happen on the pages of a financial plan. They aren’t about “Do I have enough money to fund my financial goals?” These conversations are about figuring out how to make those goals come to life.

And this is without my being a business consultant. I don’t know the trades of the businesses my clients start. What I do know is that there are risks associated with what they’re doing, and that likely their venture’s cash flow isn’t going to be as healthy as the projections project. I expect that there’ll be a need for another capital infusion. All of these things are going to impact their other financial planning goals: paying for their child’s education, for example, and being financially independent one day. They know all this too.

However, I believe that when a person has a strong vision for a world they want to impact — their community, their life’s energy making that impact — that inner urge trumps saving for retirement. It doesn’t trump it to the point of being reckless and blinded by today’s enthusiasm, but we recognize that they’re standing at the center point of the see saw, one foot on either arm, finding that balance between today and the long-term tomorrow.

I’ve never snuffed out their flame by saying, “You can’t do that.” I think that’s because I know what it’s like to be driven by a vision. It is my role to identify the risks I see, offer suggestions of how to look at it from another angle, ask them to name a Plan B, and beat the drum of the importance of managing cash flow. Then, I support them in their new venture, in whatever way reasonable.

At this meeting with Suzanne, there was an extra-special payoff. While I do try to stay out of the specifics of my clients’ businesses, over the course of our three-hour lunch we brainstormed about how she might finance one of her new ventures. I realized I knew some people who might be interested in funding it, and I promised to put Suzanne in contact with them. I later did, and they ended up providing money to Suzanne for this project.

So this meeting epitomized my work: My clients are driven by a vision, and I am driven to help them achieve that vision. And if we can enjoy a decadent dessert together, that’s even better.

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