Financial Planning

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Dec 18, 2009 7:06 am

Client 1.  -


62 years old, owns a business, feels it is not saleable (probably right) but it provides he and his wife with decent income, enough to live but not save too much. In a good year they will put away a chunk into a DB plan . No debts, rents primary home, owns vacation home, no mortgage. Kids grown and out of the house. About 600k investments including DB Plan
Client 2 -
53 years old, just came off an extended period of unemployment, making a living but cant save, 4 kids two with med issues, drain on income. So can;t save. College coming, big mental issue for him very upset that he cant send his kids to a top grade school. About 400k investments, owns home, small mortgage (i think). Wife works part time cant work full time due to kids issues.
 
In talking to both of these clients, and broaching the subject of doing a Fin Plan, same answer - no point, I'm screwed, i know I'm screwed, and i cant do anything about it.
 
Any thoughts? How do i help these people? Do i push the idea of doing a plan, just to get their arms around where they are at? Do i let it go and just run their money?
Where do i go with this?
Dec 18, 2009 8:14 am

Client No.1 -- what's his problem? He can have a great retirement.  Client 2 is still better off then 95 percent of Americans. If he can accept the fact that his kids will have to go to a state school or, God forbid, make their own way in the world, he will befine.
THese are typical spoiled boomers. They both probably want you and me to pay for their health care, too.

Dec 18, 2009 8:59 am

Sportsfreakbob:

In talking to both of these clients, and broaching the subject of doing a Fin Plan, same answer - no point, I'm screwed, i know I'm screwed, and I can’t do anything about it.



 


Ask them if they were screwed before they started building their investments? I don't think 400m and 600m would designate a "screwed" situation. Have confidence and sell them what you have to offer.


 


Did they work hard building their portfolios or was it inherited/lottery?


 


If it was built, then work off the fact that it was not built overnight and ongoing planning helps continue to build the balance while preparing for an appropriate stream of income during retirement.


 


If it was inherited or lottery or whatever, then the value is building off the fortunate situation they have found themselves in and how best to maximize its potential.


 


No one is ever screwed they just have to compromise with reality.


 
 
Dec 18, 2009 10:05 am

Very few people want a "financial plan" but they do want help with accomplishing their goals.  You never mentioned what they want to have happen in a perfect world.  Then, depending on what they want to accomplish you help them decide if their goals are realistic or not.

Dec 18, 2009 11:45 am
Sportsfreakbob:

Client 1.  -


62 years old, owns a business, feels it is not saleable (probably right) but it provides he and his wife with decent income, enough to live but not save too much. In a good year they will put away a chunk into a DB plan . No debts, rents primary home, owns vacation home, no mortgage. Kids grown and out of the house. About 600k investments including DB Plan
Client 2 -
53 years old, just came off an extended period of unemployment, making a living but cant save, 4 kids two with med issues, drain on income. So can;t save. College coming, big mental issue for him very upset that he cant send his kids to a top grade school. About 400k investments, owns home, small mortgage (i think). Wife works part time cant work full time due to kids issues.
 
In talking to both of these clients, and broaching the subject of doing a Fin Plan, same answer - no point, I'm screwed, i know I'm screwed, and i cant do anything about it.
 
Any thoughts? How do i help these people? Do i push the idea of doing a plan, just to get their arms around where they are at? Do i let it go and just run their money?
Where do i go with this?
 
I don' think client 1 is screwed at all.  No debt, $600K in investments, vacation home, and a business that pays the bills?   Not all that bad of situation.   See if you can managed those investments and show him how to generate income from them. 
 
Client 2's problem is that he has 4 kids....4!  How can anyone expect to have saved enough for college for 4 kids in a single income household.  He feels like a failure but you can show him that he's not and his kids need to get their own loans for school so he can save his $400K for retirement.   Remember, get your clients to feel good about themselves.....then they will take your advice.
 
Seriously, I feel like half the battle in this business is to put our client's situations into perspective.  Reassure them and then explain that a financial plan will help improve their situation.
Dec 18, 2009 11:45 am

Obviously there's a lot you can do for both, most of which can be accomplished (in terms of planning and ideas) in one meeting. If you're managing the 1m, why would you need to charge a separate planning fee?


At 1% AUM, you're bringing in 10k GDC each year to "wrap" your advice. Charging a couple or several thousand extra in year one (or every year) is just and annoyance, and a hassle for you to create meaningful deliverables.
 
If anything, raise the wrap fee. If you're using 12b1 products, your "fee" is higher, anyway.
Dec 18, 2009 1:41 pm

Sportsfreakbob, what is your definition of "financial planning"?  I'm asking because I think that most people neither need nor want a written financial plan.  I also believe that we can do a very good job of financial planning without a "financial plan".

Dec 18, 2009 4:36 pm
Omar:

Remember, get your clients to feel good about themselves.....then they will take your advice.

... Reassure them and then explain that a financial plan will help improve their situation.

Outstanding post.
Dec 18, 2009 8:02 pm

I probably used the wrong words re the first client. Screwed is prob ably not the word. As long as he can work, and run the business, and the busienss holds up, he is ok. But the reality is at some point either they are going to be physically unable to work, or the business will fail, which is quite possible - its a retail no growth business. So maybe with this guy the answer is , just the conversation of look, if you take your $600k and we can make it work for you, so you earn 7% for the next 10 years, its $!.2MM. At that point, do you really need to rent your primary residence? Your 73, done working, go live at the beach house, no mortgage no rent. So maybe his financial plan is just that conversation. Probelm is when they are allocated in a way that gives them a shot at 7%, they panic whenever the market gets rough. But some of you have made good points - maybe for them, there is no need for a written formal financial plan. Its a pretty simple situation.


Omar, good idea, client 2- talk to him about the kids taking loans and the values it will teach them, and that it might not be the ideal thing, but some good will come out of it


Anon, i understand your point and there are clients for whom a FP won;t really add value, but i think a worthwhile excersise is to figure out what you need for retirement, in todays dollars and what you can add to your savings/investments each year until then, and then from there figure out what rate of return you need to achieve the number. It helps you understand what your investment posture should be. Obviouslyu the other part of that is making sure they have wills, disability, life ins review, health care proxy, estate plan, etc. So it goes beyond investimg.


I am realizing that not all, but many, too many, of my clients think of me as there investment guy only. And while thats my focus, i think helping them in other areas makes me more valuable, and makes them more sticky. So i am trying to change the way clients perceive what i do.


I think the best post on this thread was Omars comment about making clients feel good about themselves.


One more thing - Milyunair - i never talked about charging them for a plan. I am not trying to sell a plan thagt i charge for. I am considering doing that for prospective new clients who want to see a plan/proposal before signing ACATS. But i am not planning on doing that for existing clients that have been with me for some time.


Thanks for the responses. Very valuable discussion


Dec 18, 2009 8:18 pm

Yeah, charging a separate fee for planning is a good thing. I'm probably just too lazy. Okay, I know I am. 2010 should be a great year, we probably all need to kick some butt now.



 
I could use some help with case studies and new ideas.
Dec 19, 2009 9:11 am

Do a plan on them to help them realize they may not be screwed............or they may find out they might get screwed of they aren't protected. Make sure to show them the "What If's?" and role play with them on different scenarios.

I am not a big planner either but I have done enough to know 2 things about them. 1- Clients do like them because they are about THEM. 2 - If you do one on them, they will be clients for life.
Good luck.......let us know how it goes.
Dec 21, 2009 10:28 pm

You wrote--


"I am realizing that not all, but many, too many, of my clients think of me as there investment guy only. And while thats my focus, i think helping them in other areas makes me more valuable, and makes them more sticky. So i am trying to change the way clients perceive what i do."
 
So show them the error of their thinking.  Guide/lead them to thinking more clearly and cofidently.  Client 2 has 400k in investments and is worried about sending his kids to school?  buyandhold had it right:  spoiled [self-centered] boomer.  Use 100k of that pot, offer 25k to each kid, and have them each contribute the rest for whatever school they choose.  Use the other 300k as a foundation for retirement in 15 years.
 
I'm 42, and as long as I have $1 in savings, it goes to my kids education (granted, that's 10 years from now, but still).
 
Client 1 is in a good position.  When they say they don't want a plan, I think it really means "I don't want a plan that tells me I'm screwed, which I'm conviced I am".  Create one that proves otherwise.  You're the man, pull them out of the hole they think they are in.
 
Dec 21, 2009 11:38 pm
rsinvestor:

I'm 42, and as long as I have $1 in savings, it goes to my kids education (granted, that's 10 years from now, but still). 

I would not recommend anyone to think about education needs until all their retirement accounts are funded to the maximum allowed by the IRS. You can get a loan for education and last time I checked there were no loans for retirement unless you hock your house in a reverse mortgage.
Dec 21, 2009 11:46 pm

DeBolt,

I agree with you in principle.  I was being slightly facetious with the $1 comment, but really, the guy is 52 with almost 1/2 mil and is worried that his kids may not be able to go to college? 
 
With all due respect to the client I know nothing about, surely the RR can cut a piece of the pie for college, and use the decade and a half to plan for retirement.  If it means the difference between a comfortable, early retirement and no college or a lean, later retirement with college, how hard is that choice? 
 
What am I missing?  I think the original poster has the right attitude in trying to help these folks that overtly believe they don't want help.  That's how we add value.
Dec 22, 2009 12:33 am




The OP said client #2 had four kids and two with med problems. He was upset about not sending them to a top grade school. He will have difficulty doing just that. $400m split into retirement and education for 1? 2? 3? 4? kids? How does he pick which one? I would build off of what he has accomplished i.e. 400m raising 4 children 2 with health problems. $400m could be eat up with one major medical surgery. He should protect it and not tie it up in an education account. If it is not used then reward the children and pay their loans off later down the road. Just my thoughts...<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Dec 23, 2009 9:32 am
deekay:

Very few people want a "financial plan" but they do want help with accomplishing their goals.  You never mentioned what they want to have happen in a perfect world.  Then, depending on what they want to accomplish you help them decide if their goals are realistic or not.

 
I agree with this.  Most of my clients want advice and direction, but don't want/need the 75 page "plan" that we can roll out to them.  The only one's that I find benefit from a formal written plan are the young ones(35-45) with young kids, good incomes, and a lot of debt.  Why?  A lot of moving parts and decisions to make.  How do we pay off debt?  How much do we put away for retirement, savings, college?  How much life and DI insurance do we need?  Where the fukc is our money going?  Can we afford that shiny new house/boat/car we want?
My typical 50+ client is pretty well on their way.  The decisions have been made.  The kids are in/went to school already.  The decision is...how much do we continue to put away, when can we retire....how much do we need to live on.  Much simpler, something we can do on a simple spreadsheet (or a yellow pad).  Yes, there are a few that still have problems, but for the most part, they are (more or less) debt free, and just trying to decide when to retire.  If I am going to collect fees on $500K-$1mm, I'm going to sure as he!! help them with planning.
Dec 24, 2009 7:26 am

to do your Retirement Module does not take a lot of your time-- I found that if I flip the screen around and show them what I have "so far", and ask how they feel about the KEYS (which is the assumptions and the $ saved/year) that they get into the process and start to cough it up. No need to hit "print". Then I can point to actual scenarios based on various assumptions (what should inflation be? what should growth be?) and then they at least know the ranges. People love the interaction, the colored screens, the questions asked of THEM. Then sign the ACATTS.