Kevin McKinley was no trust-fund baby. He earned his money the old-fashioned way. At 14, he was a clerk at a paint store. A couple years later, he was hawking mattresses. By 17, he had his first real job, a gofer at Robert W. Baird & Co. in his home town, Eau Claire, Wis.
Ellie McKinley, his three-year-old daughter, won't have to inhale paint fumes and sell bedding to pay her way through adolescence and college and even beyond. That's because her dad, the author of Make Your Kid a Millionaire, is practicing what he preaches: investing for her future.
Using Ellie as what he calls his own “personal lab rat,” McKinley, a vice president of investments for Milwaukee-based Baird, has researched the least-costly, most tax-efficient investment opportunities for parents and grandparents to save for their progeny's education, home and even retirement, and compiled them into a book, subtitled Eleven Easy Ways Anyone Can Secure a Child's Financial Future, published this month by Simon & Schuster's Fireside Book imprint. With a second child due in March, McKinley is ramping up his investments.
“When Ellie was born, I got really excited and did all the dumb things parents do, like picking out where she would go to college three minutes out of the womb,” says McKinley, who is 35 years old. “Then I got practical. I started out on the ground level and found out things even I didn't know.”
McKinley has a lot of good reasons to focus on kid-oriented investing, both as a father and as a broker. Putnam Investments has estimated that Americans have already socked away $1.5 trillion today in accounts for their children, spread out among a variety of investments including college savings plans, mutual funds, Roth IRAs, tax-free zero-coupon bonds, annuities, Crummy trusts and estate plans. And with the federal government increasing the tax advantages of college 529 plans, the figures are bound to rise.
So, he's encouraging his peers to buy his book and make their clients' offspring — and perhaps themselves — wealthy long before retirement.
Roadmap to Success
If McKinley's experience can be duplicated, it is a worthy roadmap for any broker or advisor looking to bring in more assets. A producer in the low- to mid-six figure range, McKinley says his assets under management are exploding thanks to his specialty. Since he started focusing on kids, he says, he's been attracting $50 in new business for every dollar transferred out.
The practice is so big that he is creating a new business to accommodate it. “It's more than I can handle myself,” he says. So, he is forming a partnership with two colleagues at Baird, a Northwestern Mutual affiliate. “We are setting up a framework so we can capitalize on people's desires to invest for children and grandchildren.”
It's not just about the money, though. McKinley is a bit of a zealot, preaching his message with messianic fervor. The goal, he writes, is to provide children with financial security from the start, so that they can pursue work and activities that they find fulfilling, and not have to abandon their dreams just to keep a roof over their heads.
“Most of us don't realize until we're 45 and have a cholesterol level of above 180 what we should have done when we were young,” he says.
McKinley says he's not proselytizing simply to attract new clients and boost his book, but to get rivals to take up his cause. He reckons there's plenty of business to go around, and with financial information — like tax laws — constantly changing, most advisors could use a refresher course. He believes he has sparked their interest. After speaking at a Wealth Management Leader's Circle conference in Las Vegas last year, McKinley says he was flooded with questions.
“I hope I see more competition. It would be a great and glorious world if every single parent and grandparent were exposed to the opportunities,” he says. “If we make a million people millionaires, my daughter will be the most popular woman in the nursing home.”
And an elegant nursing home it would likely be. With Ellie's dad taking advantage of all the savings programs available, he is already funding her luxurious retirement.
Millionaire ‘Starter Kit’
McKinley spends the entire book detailing various investment options, and helps guide investors to the plan that's best for them. The important thing, of course, is to start early: McKinley says newborns whose parents put aside 41 cents a day will be millionaires by the time they're 65, assuming a 10 percent annual return. “Save a quarter, a dime, a nickel and a penny. You can find that much under a neighbor's sofa cushions,” McKinley says. “Think of it as a millionaire starter kit.”
When McKinley was growing up, parents tended to build their own wealth, which they planned to leave to their children as trusts or as part of their estates when they died. But taxes can eat up much of that money, not to mention the fact that the funds aren't necessarily available when kids are most in need — while they're paying for their college education or trying to buy their first homes.
Like others of their generation, McKinley's parents didn't sock away money for their children's future. “It was not as if they were spendthrifts,” McKinley says. “They just had the attitude, prevalent at that time, that things would take care of themselves.”
Nevertheless, they did provide plenty of motivation and family values that put great importance on helping others. McKinley's father, who started earning money at 14 with his own garbage route and spent many years running Happy Sleeper, a furniture business, made an abrupt change in his life after being treated for cancer. He got out of the furniture business and into something he really loved: He became a motivational speaker. “He really connects with people and made a profession out of talking about life,” says McKinley. His mother is a family counselor.
McKinley has inherited his mother and father's enthusiasm. “He's very passionate about everything he does, and all that passion has translated into very good things,” says Mike Kelly, director of Baird's northwestern region. “His business has never been stronger.” And while building that business, McKinley has accomplished more than most. He has managed to juggle a full-time job at Baird, write the book, find an agent, help raise Ellie, and earn a Certified Financial Planner designation.
His organizational skills are amazing, says client and friend Teresa O'Halloran, who is heeding McKinley's advice in investing for her two young children's college educations. “One time I was visiting their house, when his wife asked him to help plan a menu for the coming week,” O'Halloran, a lawyer, says. “He came back a little while later with a computer printout listing the specifics of every meal.”
McKinley's not the only one in the family with business savvy. His wife, Rachel, a former massage therapist, has built the business she founded, Myreceptionist.com, into a 14-person firm, giving her the back-up support she needs to work part time and from home. Myreceptionist.com is an answering- and appointment-scheduling service that fields 1,000 calls a day.
Tot Tip No. 1
‘Don't convert an IRA to a Roth IRA if you expect to be applying for financial aid for your child's college expenses in the next few years. The resulting rise in your adjusted gross income can drastically raise your family's expected contribution, thereby reducing the size of your aid package.’
Tip No. 2
‘If your death today might incur estate taxes, yet you feel that the tax may be repealed, you may want to buy “convertible term” life insurance within the Irrevocable Life Insurance Trust. This type of policy is much cheaper than traditional cash-value life insurance, yet you still have an option to convert the policy to cash value if repeal of the estate tax doesn't hold.’
Tip No. 3
Do you want to loan money to your child, but you're not sure she's a good credit risk? Have her apply for preapproval at a bank. If she gets a thumbs-up, you should be OK.
Tip No. 4
The tax law changes in 2001 created a great opportunity for lower-income taxpayers to make IRA or Roth IRA contributions and cut their taxes. Basically, your nonstudent, nondependent child with income under $15,000 gets 50 cents in taxes refunded for each dollar put into either type of IRA, up to $1,000.