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.

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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 advice

When Hugging It Out Was a Bad Idea

An awkward moment with a client teaches a financial planner not to jump to conclusions.

“We fight about money all the time,” said Zelda. “Ever since we inherited money from the family business, it’s been a source of tension.”

Stan shook his head. “What do you want from me?” he asked.

It was a good question to be asking as we sat in my office. What did Zelda want from Stan, and what did he want from her? The couple, who had come to see me for coaching, were constantly arguing about their wealth. Before, when they hadn’t had enough to pay the bills, they worked as a team. Ironically, now that they had become millionaires, they were no longer so supportive. They had lost sight of how to soothe each other about the family finances.

“Stan,” I asked, “what do you think might help Zelda when she gets upset?”

He pondered for a minute and then quietly said, “A hug?”

“Perfect,” I responded. “What do you think?” I asked, turning toward his wife.

When our eyes met, it was evident that “perfect” was not the word she would have used.

Quickly I backtracked. “Zelda,” I said, “I am sorry I spoke for you. I can see from your reaction that Stan’s idea is not a good fit. Instead of a hug, what do you need from him?”

“I don’t know,” she exclaimed, “but certainly not a hug!”

This client meeting happened a few years ago, but the memory of Zelda’s stare is etched clearly in my mind. It is a painful reminder that for advisers, curiosity is a key skill and jumping to conclusions is never prudent. While I recovered by apologizing and asking questions to gather more information, it remained a difficult meeting.

Making assumptions and losing curiosity are common mistakes made by all helping professionals, even skilled ones. You get busy or distracted.

It is vital that before each client appointment you remind yourself to focus on understanding your clients’ perspectives and metaphorically stepping into their shoes. When done well, clients feel understood and heard. When done poorly, you hit bumps in the road like I did with Stan and Zelda.

How can you maintain an open mind in client meetings and not let your own ideas get in the way? Here are three techniques to get started:

1. Identify your money mindset. A money mindset is a set of thoughts and beliefs about money and its purpose in the world. This mindset is made up of individual “scripts” or automatic thoughts that impact your saving, spending and investing habits. You money mindset is formed between the ages of 5 and 15 by watching your parents and other adults interact with money. Because most of the beliefs are formed in a child’s mind, these scripts tend to be overly simplistic when it comes to managing finances as an adult. Making matters more difficult, most of us don’t consciously know what our money mindset is. Until we identify the mindset, it impacts our financial habits without our consent. This lack of insight can be problematic in client meetings if we operate from our mindset without taking the time to discover our clients’ perspective.

By identifying your money mindset, you can notice potential blind spots and triggers for you based on your own history. In this situation, I unconsciously tried to protect Stan from Zelda’s harsh judgment. This tapped into an early childhood experience in my own family.

A bettter tactic is to teach couples about money mindsets and how curiosity about your partner can defuse financial tension. As an adviser, you can role-model this work for your clients and use it to help couples resolve differences — or at least increase mutual understanding. As with most couples, Stan and Zelda’s arguments often stemmed from having very different money histories and mindsets.

2. Uncover your conflict mindset. Talking about money is still seen as a taboo topic; therefore, most of us don’t have a rulebook on how to fight fair financially. As an adviser, it is vital for you to uncover your automatic thoughts and beliefs about conflict and learn how to help couples resolve financial disagreements in a healthy way. Whether you grew up in a home that resembled the Sopranos, where fights were loud and overt, or were reared by parents who rarely raised their voices, your upbringing influences your work with couples.

The first step is to become aware of your conflict mindset and identify its strengths and its challenges. In this example, it is clear that I prefer that conflicts be resolved quickly — hence my rush to provide the tidy solution of a hug. Had I not picked up on Zelda’s body language, I may have assumed that I helped the couple find an answer. But really, what I had tried to do was use a Band-Aid to make myself feel better, not guide Stan and Zelda toward a meaningful resolution. When I took a step back and asked them more questions about their experience, I was more effective. The discussion was not tied up in a pretty bow by the end of the meeting, but it didn’t have to be.

3. Practice curiosity. As an adviser, curiosity is your best friend. When you go into each client meeting with a healthy dose of wonder and use this to ask powerful, open-ended questions, you learn more about your clients’ motives, money mindsets, and values. This information helps you design financial plans and strategies that are more successful in the long run.

The best part is that the process fosters trust. While the meeting with Stan and Zelda was far from perfect, it was a turning point in our adviser-client relationship. For the first time, they saw that I was not just an expert but a human being who could apologize, and that I was truly curious about their experience of receiving this new-found wealth. Sometimes the most difficult clients appointments teach you and your clients the most.

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Kathleen Burns Kingsbury is a wealth psychology expert, founder of KBK Wealth Connection, and the author of several books, including How to Give Financial Advice to Women and How to Give Financial Advice to Couples.

MONEY retirement income

The Single Biggest Retirement Mistake

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C.J. Burton—Corbis

Don't think of your retirement savings as one big bucket of money. Instead, divide up your assets.

The single biggest retirement mistake I see is that retirees don’t set aside funds for income during the early years of their retirement. They go directly from accumulating retirement funds to withdrawing them. And that can be a big problem.

Let me explain. The usual approach to retirement savings is to treat the client’s funds as if they are all in one pile. Under this method, the account is divvied up between stocks, bonds, and cash. A systematic monthly withdrawal begins to provide income, typically starting out at 4% of the client’s portfolio value for the first year. Each year afterward, the withdrawal amount is adjusted upward to match inflation.

This rate is considered by many advisers to be safe in terms of generating sustainable income over a two- or three-decade retirement. Unfortunately, it leaves many clients concerned about outliving their money. Let’s use 2008 as an example. At the time, I saw recent retirees who had $1,000,000 in their 401(k)s and who thought, based on the 4% formula, that they were set with $40,000 of annual income. Within the first year or two of their actual retirement, however, the market crashed and they were then drawing on a balance of $600,000. Most could not decrease their expenses, so they continued to withdraw $40,000 through the downturn, which was an actual withdrawal rate of almost 7%.Worse yet, the market crash caused retirees to lose confidence in their original plans. They pulled most, if not all, of their retirement funds out of the market, thus missing the ensuing recovery.

The compounding errors of higher-than-anticipated withdrawal rates and bad market-timing decisions doomed many to outliving their funds. This syndrome actually has a name: “sequence risk.” Academics are well aware of this risk, but few planners properly address the issue with clients and almost no individual investors are aware of the concept.

The problem can be alleviated by setting aside up to ten years’ worth of income at the inception of retirement. I address this problem with an approach called the Bucket Plan, which segments a retiree’s investible assets into three categories, or buckets.

Here is the breakdown:

  • The “Now” bucket is where the client’s operating cash, emergency funds and first-year retirement income reside. It will typically be a safe and liquid account such as a bank savings account, money market fund, or CD. These are the funds on which the client is willing to forgo a rate of return, in order to keep them safe and liquid. The amount allocated to the Now bucket will vary based on the clients assets and sources of income, but typically you would want to see no less than 12 months of living expenses here.
  • The “Soon” bucket has enough assets to cover up to ten years’ worth of income for the retiree. The Soon bucket is invested conservatively with little or no market risk. That way, we know we have ten years covered going into the plan regardless of what the stock market does.
  • The “Later” bucket funds income, and hopefully an increase in income, when the Soon bucket is exhausted. By then, the Later bucket has been invested uninterruptedly for at least 10 years. We reload another round of income into the Soon bucket, and the process starts all over again. The Later bucket is the appropriate place for capital market participation.

Financial planners have long used the analogies of an emergency fund and an accumulation/distribution fund. The real innovations here are the addition of the Soon bucket for near-term income and the method for communicating the concept to clients.

A client who was recently referred to me had the 4% systematic withdrawal that most financial advisers recommend. This did not seem to make him happy, though, since he could not see how his finances would last in the long run. He was not confident about what might happen if he needed more than the 4% income because of an emergency. He wondered whether there would be anything left over for his children to inherit. He was losing sleep and not enjoying his retirement at all.

I explained our Bucket Plan method. The Later bucket funding the Soon bucket made perfect sense to him. He also loved the idea of the Now bucket for emergencies and unexpected expenses. The real beauty of this approach is it gives retirees great peace of mind. They are much less likely to make bad market-timing decisions because a market correction will have no effect on their current income.

The bucket concept is simple to explain, and clients always understand the role their money is playing and why. Most importantly, they have the confidence to ride out market volatility because they know where their income is coming from. Sometimes simplicity can be quite sophisticated.

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Jeff Warnkin, CPA and CFP, of the JL Smith Group, specializes in holistic financial planning for pre-retired and retired residents of Ohio. He incorporates investments, insurance, taxes, and estate planning when building financial plans for clients’ retirement years. Warnkin has more than 25 years of experience in the financial services industry, and is life- and health-insurance licensed.

Read next: Here’s a Smart Strategy for Reducing Social Security Taxes

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MONEY Aging

When Dementia Threatens a Family’s Finances

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One in three adults will suffer from dementia. Here's how to achieve financial security — and a patient's dignity — when that happens.

My client sat across the table telling me about her late husband — first, his diagnosis of dementia, and then, his suicide a few years later.

On the night before he took his own life, she had finally gathered the strength to tell him he needed to turn their finances over to her. Larger than life when he was healthy, he had been a tremendous businessman. But the dementia had robbed him of sound decision-making, and she needed to protect what was left of their shrinking nest egg.

She asked me, “What should I have done?”

In the years since his death, she couldn’t help wondering whether that final financial conversation had been the tipping point in his waning will to live. It wasn’t her fault; she had supported him throughout his illness with an unmatched strength of conviction and marital devotion. It’s pointless to try to judge the effect of a particular conversation, because he had suffered for a decade. The disease had torn through their lives, leaving a series of wreckages: their relationships, his ability to handle even menial tasks, and — perhaps most painful — his self-esteem.

I told my client she had been in a no-win situation. She couldn’t risk her own future welfare by allowing her husband’s disease to squander all they had worked for. She was in her 60s, very healthy, and had a 100-year-old mother whose zest and longevity foretold of my client’s likely need to support herself for another 30-plus years. To protect herself and her husband from risky investments, unwise purchases and even fraud, my client needed to take over the financial reins. But how do you conduct this crucial conversation about control without robbing a dementia patient of his or her already-declining dignity? With the Alzheimer’s Association reporting one in three seniors in the United States contracts Alzheimer’s or dementia, it’s time we start talking about it.

Some advice:

Avoid a crisis. Don’t wait to have one huge conversation. Ideally, you would have a series of talks before anyone is diagnosed with dementia. As part of an overall estate plan, it’s important to discuss all family members’ wishes for the end of their lives and prepare them for the possibility of losing their independence. It may sound trite to say, “One day, Dad, we may take care of you the way you took care of us,” but laying that foundation ahead of time may soften the blow. It’s nice to think that we live on our own until the end, when we quietly pass in our sleep, but that isn’t our current reality. Medical advances have been successful in prolonging our lives, but not at guaranteeing our independence.

Having a big discussion that feels like a dementia patient is the subject of an intervention is stressful for all involved. Save the intervention-type conversations for true emergencies, and recognize the patient needs to feel safe and loved, not confronted.

Understand the backstory. Everyone brings a different money mindset to this conversation. Ask yourself, why is money important to this patient? Is it imperative to provide for the family? Is it a priority to give it away? Open the conversation by affirming the ways the patient has accomplished his financial objectives until this point.

Take into account any major financial experiences that may be coloring this particular conversation. Olivia Mellan, a psychotherapist specializing in money conflict resolution, points out that men and women can have different views of common financial decisions. If a wife wants to open her own bank account, for example, she may simply desire some independence. Her husband, however, may interpret her wishes as a lack of marital commitment. If a dementia patient has had this kind of conflict, structure your discussion to avoid triggering those old memories and feelings.

Pick your battles. Can the patient retain investment control over a $10,000 account? Is there room in the budget for a weekly allowance so he can continue making spending decisions? Both tactics can distract the patient from participating in larger financial decisions.

Steven A. Starnes, an adviser with Savant Capital Management, tells a story about his late grandmother, who passed away from Alzheimer’s. Out shopping with her daughter, she found a relatively expensive necklace she just had to have. The family had created room in the budget for one-time splurges that would bring joy to her remaining years. As long as the purchase didn’t thwart the family’s long-term financial plans, it was okay. So Starnes’ grandmother came home with a new necklace that drew her focus away from the other losses she was experiencing.

Utilize helpful resources. Some financial advisers are a tremendous help in facilitating these conversations. A person’s declining financial abilities are often the first sign of dementia, so advisers are well-positioned to help a family. Just having an outside party to ask the tough questions can ease the pressure. In fact, some advisers, including Starnes, specialize in clients with dementia.

A growing number of professionals specialize in different end-of-life issues. The National Association of Professional Geriatric Care Managers provides information about care management and a directory of professionals who can help clients attain their maximum functional potential

Another source to locate a professional is the Society of Certified Senior Advisors listing of certificants who have demonstrated expertise in a range of core competencies involving the aging process. Among those holding CSA accreditation are financial professionals, caregivers, gerontologists, and clergy.

To help a family prepare for a discussion of changing financial responsibilities, circulate the book Crucial Conversations, by Kerry Patterson. Another great resource is The Other Talk,by Tim Prosch, which specifically addresses end-of-life conversations between aging parents and adult children. Do some research on the best ways to communicate with dementia patients. It’s difficult work, but it is possible to absolve a dementia patient of financial responsibilities while helping him maintain his dignity.

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Candice McGarvey, CFP, is the Chief Story Changer of Her Dollars Financial Coaching. By working with women to increase their financial wellness, she brings clients through financial transitions. Via conversations that feel more like a coffee date than a meeting, her process improves a client’s financial strength and peace.

MONEY Estate Planning

Financially Independent Kids in the Age of Entitlement

spoiled rich kids
Getty Images—Getty Images

Some adult children never become financial grown-ups. That presents a danger to themselves and to their parents.

A few years ago, when I was meeting with a couple who were considering retirement, it became clear that the biggest hurdle that stood in their way was the continued dependency of their adult children. Even though the children were well into their forties, they were still consistently asking their parents for money. This was such a persistent issue that this couple had actually withdrawn money from their retirement plans to support their children.

Luckily, there was a pension to augment their retirement savings; otherwise they would have been forced to continue working. Both spouses were not in the best of health, and working well into their seventies did not sit well with them. I strongly encouraged them to delay retirement, wean their children off economic assistance, and save more while they could.

Looking back, they are in a much better position now, because they took these hard but necessary steps. As is often the case, we may risk losing business by giving advice that’s good but unpopular. However, the road less traveled is often better in the long run for our business and our clients.

Whether they are socialites or feel they are entitled to a never-ending string of handouts, some adult children never develop into “economic adults.” I have found over the years that those clients who consistently work to raise their children as independent, productive members of society often teach frugality, gratitude, and individual productivity. Many feel that one of the best ways to ruin their children is by giving them too much without letting them enjoy the fruits of their own labor.

Our clients want to protect their offspring from the dangers of inheriting too much, undisciplined spending, and today’s overly litigious society. Many financially independent adult children do not plan on inheriting any wealth from their parents. When and if they inherit a more substantial sum, they’re better prepared to handle it having been faithful with their own savings. I encourage our clients to take care of themselves, their church, and charities first. The most important things we can leave our children are values and skills that empower them to achieve independently. Paying for education, providing seed money to start a business, or anything encouraging financial responsibility can be beneficial.

Increasingly, we’re advising clients to utilize trusts and family foundations to ensure their wealth is spent most responsibly. These entities provide safeguards for adult children with protections from themselves and those who might be in a position to take advantage of them. My personal family trust and many of our client’s have provisions where children may withdraw funds for education, medical needs, and basic support. Additional funds are available to the extent they can provide for themselves.

How do we protect against future spouses, business partners, or litigious opportunists taking advantage of our adult children? Revocable trusts established today can become irrevocable trusts when one spouse passes away, protecting the survivor from financial vultures. Irrevocable asset protection trusts serve as another vehicle to protect client interests if threats are more immediate. For those donating significant amounts to church or favorite causes, charitable trusts can provide substantial tax savings.

The Spanish have a saying: “Father merchant, son gentleman, grandson beggar.” We in America express the same thought as, “Shirtsleeves to shirtsleeves in three generations.” Only by understanding the root cause of the problem can we work to develop a plan to thwart this common malady.

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Joe Franklin, CFP, is founder and president of Franklin Wealth Management, a registered investment advisory firm in Hixson, Tenn. A 20-year industry veteran, he also writes the Franklin Backstage Pass blog. Franklin Wealth Management provides innovative advice for business-minded professionals, with a focus on intergenerational planning.

MONEY Financial Planning

When Clients Cry

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Maurice van der Velden/Getty Images

People are vulnerable when they talk about their dreams and fears with a financial planner. A planner has to be sensitive — and vulnerable too.

The first time a client cried in my office, it was as if I were hearing fingernails scratching on a chalkboard. I was uncomfortable and just wanted her to stop.

In my many years as a stockbroker, no one had ever cried in my office. My conversations with clients revolved mostly around the market and whether or not they should buy or sell a particular investment. When we talked about their family, it wasn’t an extensive conversation; rather, it was more of a “How’s everybody doing?” chat.

That changed when I became a financial planner.

Once I became a financial planner and started to dig deep into my clients’ family goals and fears about the future, I realized that market performance was important but paled in comparison to life planning. In fact, a lot of planners would agree that financial planning is not about particular investments or day-to-day market swings. Instead, it is about an individual sharing his or her goals and deepest fears in the hopes of getting help from a financial professional in achieving those goals and overcoming those fears.

Clients who open up like this are putting themselves in an emotionally vulnerable position. And I have come to realize that in order to be a more effective financial planner, I have to allow myself to be vulnerable too. It was not easy at first.

What do I mean by allowing myself to be vulnerable?

First, I had to stop talking about me and my accomplishments and listen more to my clients and what they wanted to accomplish. I remember that during my first meetings, I would do most of the talking. Now, if I start to get into my second sentence during a conversation, I hear a voice in my head reminding me to shut up, because it is really not about me.

Second, I bought a box of tissues and put it on my desk. That move might seem insignificant, but for me it’s huge. In the past, when someone started crying in my office, I would bolt out of my chair in search of tissue. It would take me a few minutes to find a paper towel, and I would return at about the time the crying stopped. Having a box of tissues on my desk allowed me to stay in the moment with my client. It allowed me to say my client and myself, “It’s safe to cry here. This is a no-judgment environment.”

Third, I had to be willing to acknowledge my own fears. Two words here: not easy. What helped were the many conversations I had with other financial planners and professionals who have been at this a lot longer than me. I’m a work in progress.

I’m not saying that being vulnerable means I feel a need to cry with my clients in order to be more effective at helping them. Not at all. I’ve learned, however, that by being emotionally vulnerable and in the moment with my clients, we are able to weather the highs and lows of life planning together a little better.

———-

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 401(k)s

Here’s a Good Reason Not to Fund Your 401(k)

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Getty Images/Tetra images

Don't get too caught up in the amount of money you're saving for retirement. Focus instead on the income you'll have.

We save for retirement so we can create income for ourselves when we stop receiving a paycheck. And as a financial planner, I am supposed to determine how much money clients need to sock away in order for them to generate enough income to sustain their lifestyle in retirement.

But if the income itself is the most important thing — not the amount of money you amass to create that income — why don’t we ever focus on building lifelong income streams outside of our investment portfolios?

A recent meeting with a client — I’ll call her Mary — sparked an interesting conversation on the subject.

The subject of the meeting was goal planning. We began by outlining SMART goals for the next year, five years, and beyond. Mary had a very specific goal for the next five years: She wanted to leave her current job and become a full-time real estate investor. Although quite interesting, this wasn’t necessarily a unique goal. Many people aspire to do this, yet they get caught up in concerns about retirement — and rightly so.

In order to truly go after this goal, Mary would have to cut back on her retirement savings. “Oh no,” says society. “How can she possibly reduce her 401(k) contributions? She’s in her early 30s and does not have anywhere near enough stowed away. Saving early and often is necessary to ensure that she can retire someday. Plus, tax deferral is too good to pass up!”

I disagree in this specific scenario. Mary happens to know a good deal about real estate. She may not be an expert investor yet, but she is working on it. It’s her dream to create a lifestyle funded by real estate activities, specifically rental income. Additionally, investment real estate can provide some great tax advantages.

However, in order for her to achieve this goal, she has to save for the next down payment on a second investment property (she currently has one such property). From the outside, this goal seems to stand in the way of saving for retirement. To achieve her five-year real estate investment goal at this stage in her life, she can’t fully fund her 401(k). She has to direct most of her savings toward future property purchases.

Let’s shift our point of view for a minute and look at this situation through a different lens. By buying rental properties, she is establishing a sustainable income stream — an alternate form of cash flow from which she can benefit now and in the future. As this rental income grows, her 401(k) and IRA balances become less relevant. The rent checks she receives monthly actually alleviate the burden of amassing a large amount of money for retirement. And she avoids the stress of watching stock market investments ride the economic roller coaster.

This approach is definitely not for most people, but it does raise an interesting question. What other income streams might we be able to establish that could supplement the income from our retirement portfolios? What can we create for ourselves that could take the place of pensions, Social Security, and even our 401(k) plans?

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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.

Read next: 6 New Ideas That Could Help You Retire Better

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MONEY Financial Planning

The Real Purpose of Financial Planning

A chat about retirement, Italy, and The Golden Girls illustrates how financial planning can help a person uncover and achieve her deepest passions.

Our meeting started with an engaging description of her latest trip to Italy.

She had come in to see how her situation looked retiring now instead of two years from now, as we had originally planned. Approaching her late 60s, she no longer felt like dealing with her new manager, who was making work a little less tolerable than it used to be.

But in our first fifteen minutes, the focus was on the delicious food she tasted and beautiful buildings she toured while overseas with her travel partner.

By listening closely, we planners can learn a lot from the small talk at the beginning and the end of our meetings. Some of the most important parts of our job are to learn the true desires of our clients and to calculate whether their resources will be sufficient to make those dreams come true. But when asked to come up with their life’s goals, many people struggle to articulate what they are or even write down a few possibilities. This is where listening helps us; we can get insights by observing what people get most excited about.

As we began discussing the possibility of her retiring now, my client mentioned her desire to spend more in the early years while her health still allowed her to enjoy traveling. That’s a common theme among early retirees.

Analyzing that scenario, we determined she would need to lower her overall spending a bit each year or generate additional income for her plan to have the best odds of success. So we spent time brainstorming options that would prevent her standard of living from declining significantly during her retirement.

The first thought on her mind was to leverage her knowledge and experiences of Italy by starting a niche travel business that would take first-time travelers on adventures to her favorite places. She also expressed a passion for teaching English as a second language. She hadn’t had the time in the past, but felt this would be a more rewarding way to spend her time than continuing in her current job, even if her income dropped.

It became quickly apparent that this line of thinking had sparked excitement in her about the possibility of doing things she’d always wanted to try — dreams she hadn’t pursued because of her current job.

She next talked about downsizing her home as she got older. Unloading her home would allow her to join a group of girlfriends that all wanted to eventually move in to less expensive, cottage-style dwellings closer to one another. She called this plan her own version of The Golden Girls.

This story reminds us that we don’t always know what we want until we are forced to think deeper about how and why we want it. We spend so much time in our daily lives focusing on what the world measures as success that we too often overlook the things that could truly make us happy.

But when the probability of adjustment is introduced, we gain a clearer perspective of the things that really matter to us. In that mindset, we have the freedom to be creative, as we are forced to embrace the idea of being flexible in the face of potential sacrifices. We begin to prioritize with purpose.

Furthermore, realizing that our money is a tool to help us experience the things we are most passionate about can take our financial planning to a new level of fulfillment. In doing so, we are experiencing the real purpose of financial planning – answering the question, “Will I have enough to do the things I want and love to do?”

———-

Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.

MONEY behavioral finance

A Financial Planner’s Most Important Job Isn’t What You Think It Is

holding hnads in comfort
PeopleImages.com—Getty Images

Helping people who are panicking about money is more important than a particular plan or a piece of investing advice.

In the past few years, many of us in the financial planning profession have been coming to terms with a difficult truth: Our clients’ long-term financial success is based less on the structure of their portfolios than it is on their ability to adapt their behaviors to changing economic times.

An increasing number of financial planners are awakening to the fact that our primary business is not producing financial plans or giving investment advice, but rather caring for and transforming the financial and emotional well-being of our clients. And at the very foundation of financial and emotional well-being lies one’s behavior.

I’ve come to understand this over my own three decades as a financial planner, so I was pleased to see the topic of investor behavior featured at a national gathering of the National Association of Personal Financial Advisors in Salt Lake City last May. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

“The dominant determinants of long-term, real-life, investment returns are not market behavior, but investment behavior,” Murray told us. “Put all your charts and graphs away and come out into the real world of behavior.”

This made me recall similar advice from a 2009 Financial Planning Association retreat, when Dr. Somnath Basu said, “Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next.”

Most advisers will agree that, while meticulously constructed investment portfolios have a high probability of withstanding almost any economic storm, none of them can withstand the fatal blow of an owner who panics and sells out.

This is where financial advisers’ behavioral skills can often pay for themselves. Murray, who calls financial planners “behavior modifiers,” reminded us that we are “the antidote to panic.”

Murray said most advisers will try everything they can do to keep a client from turning a temporary decline into a permanent loss of capital. He wasn’t optimistic, however, that the natural tendency of investors to sell low and buy high will stop anytime soon.

His final advice was blunt. “Think of your clients who had beautifully designed and executed investment portfolios that would have carried them through three decades of retirement, who started calling you in 2008 wanting to junk it and go to cash. How many of these people have called you since then and tried to do it again?”

I myself could think of several.

“How many times have they gone out on the ledge and tried to jump, and how many times have you pulled them back in?” Murray asked.

By now I could see heads all over the room nodding.

Then he delivered a memorable line: “I am telling you as a friend, stop wasting your time on these people.” The heads stopped nodding. “Save your goodness and your talents for those who will accept help from you.”

I have certainly learned, often the hard way, that helping people who aren’t ready to change is futile. Yet I disagree to some extent with this part of Murray’s advice. If clients have gone out on the ledge more than once, but have called me and accepted my help in pulling them back in, then together we have succeeded in modifying their behavior.

This is a far different scenario from that of a panicked client who refuses help by ignoring a planner’s advice. If planners see our role as “antidotes to panic,” we need to realize that, for some clients, the antidote may have to be administered more than once.

———-

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 advice

Advisers Are Trying to Sound Less Like Robots

Thesaurus and Dictionary in stack
RTimages—Alamy

Some impressive-sounding financial-industry buzzwords simply turn people off, according to research with high-net-worth investors.

Advisers are rethinking the words they use with clients to avoid off-putting terms that can sound a little less than human.

For example, the term “risk tolerance” is giving way to “comfort level.” “Financial freedom” is also passé, especially after the 2008-2009 financial crisis. Now, it’s better to use “financial security.”

Thank Invesco for the impetus. In 2007, the investment giant’s consulting arm hired maslansky + partners, a global marketing strategist to do for Invesco’s wholesaling business and ultimately, the financial services industry, what maslansky once did for conservative politicians. It was maslansky’s co-founder, Dr. Frank Luntz, who morphed the phrase “estate tax” into a more unappealing “death tax.”

Maslansky’s trademark: “It’s not what you say, it’s what they hear.”

The ongoing initiative by Invesco and maslansky involves recruiting mass affluent and high-net worth investors with assets of at least $250,000 to test how they perceive advisers’ messages.

Participants watch a spiel by an actor who plays an adviser and turn dials up or down according to how positively or negatively they feel about the message they hear. An audience observes the investors’ reactions real time.

“We find there are definitely words to use and words to lose,” said Scott West, who heads Invesco Consulting.

Invesco, which manages $790 billion, and maslansky are now focusing on the language of alternative investments. Preliminary findings show that advisers should describe alternatives in terms of “goals-based strategies” rather than “risk-based strategies,” said David Saylor, executive director of Invesco Consulting.

Investors who took part in the focus group were not motivated to learn about new investments so they could “lose less” money. But the dials jumped in response to presentations that led with how alternative investments could help clients’ attain their personal goals while minimizing losses, Saylor said.

Buzz about the benefits of humanizing sales pitches has drawn interest from other firms. Portfolio management firm Loring Ward first tapped maslansky’s expertise in 2012.

That is when Steve Atkinson, the firm’s head of adviser relations, first saw how negatively investors perceived advisers’ pitches. It felt like “a slap in the face,” Atkinson said. Advisers tended to use too much jargon, such as “volatility” and “small cap.” They also occasionally boasted too much about methods and past successes, including “Nobel Prize-winning research.”

Don Hershberger, president of Paramount Wealth Management in Jackson, Mich., immediately hired a consultant to redesign his firm’s website after sitting in on a focus group organized by Loring Ward and maslansky in 2012. The firm replaced offending jargon with a feel-good message to clients about family.

Client feedback showed the change resonated, Hershberger said. Now he is always careful to emphasize only clients’ needs and feelings — not the intricacies of specific investments — in conversations with clients and in the main messages on his website,

“We had to confirm that they were hearing what we wanted to say to them,” Hershberger said.

 

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