There’s nothing more basic to a retirement plan than your client’s career—income from work makes everything else possible.
Many financial planners recognize that truth, at least in theory. But most haven’t taken the next logical step, argues Michael Haubrich, founder and president of Financial Service Group, a fee-only planning firm based in Milwaukee. Haubrich is the author of Career Asset Management: Getting Ahead, Staying Ahead and Using Your Head to Maximize Your Career Value. The book describes a model for thinking about careers as an asset, and how to develop a strategy for optimizing its value across a lifetime of work.
I spoke recently with Haubrich about his model for career asset management and how planners can effectively integrate this approach into client plans.
Q: Michael, how does the career asset management model work? Walk us through the basics.
A: For the vast majority of people, their careers are their most valuable assets—unless the person has a very large amount of inherited wealth. They fuel their standard of living, their ability to acquire other financial assets. Yet, many often don’t step away and look at their careers strategically, as something that has market value.
Once you re-frame the career as an asset like any other financial asset, you can determine how to optimize and manage it. Then you blend it into the overall financial plan.
Q: What goes into optimizing the career as an asset?
A: The career is the value exchange of your time, talent and potential in three dimensions—employment, family and community.
The goal is to maximize long-term return, which is a blend of the quantifiable and the qualitative. I use the metaphor of a rental property: Your employer is the tenant, who is renting the use of your talents and time. But you are the owner. You may be able to find some tenants who will pay the highest rent, but who will also run your property ragged—that’s the employer from hell. If that kind of job cuts off three to five years from your earning capacity because of the stress and health issues, that is a huge financial loss.
I ask clients some simple questions that I learned from a career coach to get them thinking about these issues. Say it’s Monday and the client has just come off a weekend. I ask, “How are you feeling on Sunday after 11 am? What is your attitude as late evening comes? Are you starting to get grumpy or irritable? And how about Thursday evening going into Friday? Is the mood improving?” If you’re going through that cycle 50 times a year, that can’t be healthy, and it isn’t going to sustain effectiveness in your career. You’ll either burn out or have health issues, which are costly.
Q: You developed a concept called the Working Capital Fund, which is a key part of the career asset management model. Explain how that works.
A: The idea here is a reserve fund—separate from your client’s emergency cash—that can be used to develop, maintain and organize a career. With an emergency cash reserve, most planners recommend setting aside about six months of cash as a rule of thumb. But with the Working Capital Fund, the amount you need to set aside really varies depending on two factors: the client’s career velocity and volatility. Velocity simply means the number of job changes someone goes through; volatility is the range of compensation they have between their various positions.
For example, I have a number of clients in the entertainment business who do contract work. They make a lot when they’re working, but they could go for quite a while with almost no income if we don’t get a contract renewed. Then, I have clients who are tenured professors; their volatility and velocity are both very low.
The working capital should be used for several things: funding skill set maintenance, job changes, career sabbaticals and developing lifelong learning.
Q: How did you start integrating this aspect of planning with your work, and how would you recommend that others do so?
A: We collaborate with other professionals who specialize in career development. We’ve got a network of career coaches and counselors, and we make referrals to them all the time.
Q: Do you see any progress among planners in terms of doing a better job working with clients around these topics?
A: It’s still a foreign concept for most planners—at least in terms of having an intentional conversation around this topic. I get pushback on it from some people who like the idea but just say it’s not their domain, and they don’t want to consider it. But it really is a way to deliver a huge amount of alpha in a client plan. If you help extend someone’s career by five years, the net present value is huge.