All Things Financial Planning Blog


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I Don’t Understand My Financial Plan


Get Your Questions AnsweredRecently reflecting on some of cinema’s greatest intellectual quotations, I was reminded of movie Detective James Carter’s infamous query in 1998’s Rush Hour. Chris Tucker’s character eloquently asked Jackie Chan’s character, Chinese top cop Detective Lee, “Do you understand the words that are coming out of my mouth?”

Ok, maybe not one of the most memorable moments on the silver screen, but a funny movie that stands up well fifteen years later. But, that’s not what we’re here to discuss. The quote actually jumped into my head during a discussion about how we communicate with one another, especially in advice-based relationships.

A seemingly infinite amount of information is available on virtually every issue known to humankind, all searchable within seconds from any place with access to the World Wide Web. How we process this information, understand its meaning and filter the good, the bad and the ugly really depends largely on whether or not the information is communicated in a manner we can comprehend.

This certainly has its applications in the world of personal finance. I’d argue the personal finance industry at-large, more often than not, adds layer upon layer of complexity to relatively simple concepts in order to add an air of sophistication and justify an unnecessary amount of cost. I won’t go further on that today except to say that if something sounds too good to be true, you can’t understand it, what it costs and what risks are involved, run away.
Instead, I want to focus on the authentic struggle many financial planners and advisors have in working to develop the right communication strategy based on their clients’ needs.

Scalability allows a company to grow, taking a successful model and increasingly diluting it for consumption by an increasingly growing audience. The problem with scale in the financial planning business is that those seeking advice are all at different points in their lives, with different goals, different resources to meet those goals and different ways to achieve success in meeting those goals.

We also all comprehend things differently, learn through different stimuli and apply concepts to our daily lives at different speeds. Confused? Me too. What does all this mean?

It means that we have a gap in the relationship between financial planning professional and client that both sides have to work to fill. Financial planners need to ensure they have a process in place to help identify how best to communicate concepts and recommendations in a manner that best suits each client involved.

The client, on the other hand, has the duty to speak up when they don’t understand something in their plan, be it an investment recommendation, the path to reach a savings goal or a concept or term used to illustrate a point or answer a question. “I don’t know” or “I don’t understand this” are not only acceptable responses to questions posed or information presented by a financial advisor, but should be a welcome opportunity for the advisor to take an improved approach in helping the client comprehend, thereby teaching the advisor a little more about communicating with their client and challenging them to find better ways to illustrate concepts in the future.

The bottom line is, we all need to be more vigilant about what we understand about the decisions we make and are made for us in our daily lives. When it comes to an advice-based relationship, the more we question, challenge, and discuss, the deeper, more rewarding the relationship will be. Wowing someone with the ability to use big, complicated words to make a point isn’t a talent. Effectively communicating in a manner that gives your audience the best opportunity to understand is.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH


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Emergency Cash Reserves – Unloved yet Necessary


My New Year’s Resolution for EveryoneI met with a couple recently to deliver their financial plan, and throughout the first half of the meeting we laughed repeatedly as they seemed to have guessed my recommendations and either did or planned on doing exactly what I had written down.

They’ve been contributing 15% of their wages to their long-term retirement plan, have no debt other than a mortgage that will be paid off well before retirement, are able to pay a college tuition bill within their cash flow, and up until recently have been making it a point to contribute to Roth IRAs.

Aside from the validation from a professional, what possibly could this couple have needed with a financial advisor?

Admittedly, not as much as many clients I see, but one of the major observations was the excessive amount of importance on trying to be as efficient as possible. They put every available dollar towards the long-term retirement plan or into paying down their long-term mortgage debt, and in doing so they blew past step one in creating a solid financial foundation – having an adequate amount on hand for short-term emergencies and cash needs.

Our sample couple here came to me wondering how in the world they will be able to pay for a second tuition bill, or purchase new cars. They recently stretched their budget even further by refinancing their 30 year mortgage to a 15 year, and increased their monthly minimum payment. I also pointed out that they had no options to cover any other short-term emergencies that life may send their way other than to go into debt, or raiding a retirement fund.

In preparing their recommendations, I gave them a financial scorecard they would receive the following grades:

Long-term savings – A+

Credit and consumer debt – A+

Living within their means – A+

Having adequate liquidity – D

Overall financial health – B-

What this couple was lacking is cash on hand. Unlike most of your other financial priorities, holding cash is never the most efficient thing to do and so its importance is often overlooked. Compared with paying down a mortgage at 4%, or earning 5-10% in a long-term investment, cash earning next to nothing just isn’t an attractive idea!

But, having an emergency cash reserve is a critical piece of a financial plan. It acts like a moat around your financial castle. It protects you from the need to sabotage your long-term investment plan, or take on high interest debt in order to cover cash needs.

Having a minimum of three months of your net income in an emergency cash account is a requirement of any complete financial plan (Note: three months is a minimum. If you are self-employed, have rental properties, or other concerns about income remaining stable you may need to be at six or more). Even at the expense of not fully funding a retirement account or not paying extra on that student loan for some time. Make having emergency cash in a savings account or money market a priority now, and when the time comes to need it you won’t have to worry.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI


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What is Financial Planning?


I’ve been thinking a lot recently about financial planning.

Now, you’re probably thinking something along the lines of, “As a financial advisor, shouldn’t you be thinking about planning?”

But what I mean to say is that I’ve been thinking a lot lately about what is financial planning? How is it different than experiences that consumers of financial goods and services have with other financial professionals? How do I communicate what I do with promoting the financial planning process in a way the difference is understandable?

It’s only because I’m just not sure when I say to a client or prospect that I do planning  that the message is interpreted in the same way. And I understand why that is – we all have our own experiences of working with professionals and firms in parts of the planning process; financial planning businesses operate in all sorts of differing models; and virtually everyone in the business calls themselves some variation of ‘financial advisor.’

As I’ve come to find, perhaps the best way to relate the experience of planning, isn’t in terms of planning at all. On an episode of the Colbert Report, Jerome Groopman, M.D. explained how his approach to medicine is uniquely different than how we may traditionally think of that business. Dr. Groopman, a Harvard professor, researcher, and author, has studied and written for years about the doctor-patient relationship. His most recent book, Your Medical Mind: How to Decide What is Right for You, continues exploring that relationship, and how a doctor’s advice should be in helping you come to an answer for your medical care.

This paradigm of patients being involved in the decision making process was strange to host Stephen Colbert. After all, what did Groopman go to school for if not to tell patients what to do in the face of needing medical care?

Groopman responded, “I went to medical school to help you understand the risks and benefits as an individual, so that you can put your values into [medical] decisions.”

In other words, Groopman believes that doctors should work as more of a consultant to help you come to the right decision, than someone who leads you to a predetermined conclusion. “I can certainly help guide you, and explain to you what the risks and benefits are. But I need to know from you what your personal approach is, what is your philosophy, how much risk do you want to take, how do you perceive the benefit.”

In working with a financial planner in the financial planning process, the decision making should lead to you making decisions based on your values, rather than down a pre-determined path.

Do we pay off the mortgage, or not? Should I invest in an annuity or a mutual fund? The financial answer may be obvious, but only you know where the answer to the cost and benefit decision truly lies.

What it means is that when you are looking for financial advice, consider first if the person you are speaking with feels more like that consultant who will get to know your values and goals, or if they resemble the past paradigm of providing a product or service.

This decision on who to choose to work with on your finances is one that only you can make, and it should be based on your needs and values. As a planner, I recommend sitting down with someone who can help you weigh the pros and cons to make the best decision for you…and that experience may be the best way to understand the value of a financial planning relationship.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI


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Finding a Financial Advisor Who Complements Your Style


To enjoy a successful financial advisory relationship, both the client and financial planner have expectations and styles that need to fit like a glove. This article is intended to help you identify your expectations, so you can match with an advisory style most beneficial to you.

 Advisors often profile prospective clients as “delegators,” “validators” or “do-it-yourselfers.”

Delegators want little involvement in their financial affairs due to a lack of time or interest. Delegators are happy to give up control and authorize their financial advisor to implement strategies on their behalf, either with or without prior approval. Delegators may work with brokers or high-touch fee-only financial advisors who charge based on assets under management. Delegators with significant wealth may also use family office services for bill-paying and personal financial bookkeeping. 

Validators often have a vision of their financial future and are simultaneously uncertain exactly how to reach their destination. Their financial acumen may range from very limited to experienced, yet they often feel confident in their decision-making ability. They also recognize that, as a professional with wide experience, a financial planner can supplement the valuator’s own knowledge and understanding. Validators are willing to pay reasonable fees for services. They want both advice and the ability to maintain control over their finances. Validators are eager to learn and participate in the planning process. They typically chose fee-only (no product sales) financial advisors who may or may not charge a percentage for assets under management. 

Do-it-yourselfers (“DIYers”) are highly involved with the details of their personal finances. They regularly comb through the financial news and publications. They may even read prospectuses! DIYers often feel they can captain their own financial ship better than anyone else. They keep good records, often track their spending and prepare their own financial forecasts. A DIYer foregoes the following benefits of financial planning services: uncovering “blind spots,” objective feedback and advice free of emotion, access to cutting edge knowledge through continuing professional education, and experience based on working with many clients. Financial advisors recognize that DIYers are not willing to accept help at any fee. DIYers may interview many financial professionals, yet ultimately decide to rely on themselves.

As well, financial planners and advisors come with a variety of educational backgrounds, certifications, philosophies and fee arrangements. You can find descriptions of many types of advisors.  In addition, there are checklists for interviewing potential financial planners and a summary of how planners charge.

CFP® practitioners and members of the Financial Planning Association (FPA) are distinguished from other financial advisors by adhering to a required fiduciary standard. In essence, this means the advisor must always place the client’s interest first and fully disclose any potential conflict of interest. This is higher bar than the suitability standard required for brokers and other sales representatives. Their recommendations need only be suitable for you as a client. 

If you’re looking for the right financial planner, be sure to check out PlannerSearch!

Constance Stone, CFP®
Co-Founder, President
Stepping Stone Financial, Inc.
Chagrin Falls, OH


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Is There Soul in Your Financial Plan?


Are you pondering some critical decisions in your life, wondering whether you should have another child, retire, start a business, go back to school, or remodel your home?

Sometimes I will meet with individuals new to the concept of financial planning that ask ‘should’ they do any of the above. And in walking through the conversation of pros and cons, the analysis of available resources, the what-if’s and how’s, I always find I’m never the one making that decision.

In fact, as much as we like to think we’re an intelligent bunch, one area financial planners are not generally equipped to handle are the ‘shoulds.’

You are probably thinking, “Don’t people hire financial planners to answer these kinds of questions?” Yes they do, but they can’t make decisions that reflect your personal values. They can discuss if you ‘can’ afford something; or, if you can afford it if you sacrifice in other areas. But, they are not always the right people to decide those sacrifices for you. For that, you need to bring much of yourself to your financial planning engagement and add a little soul to your financial plan.

For example, if you have another child, you might have to forgo the types of vacations you enjoy for the next several years. If you retire, you may need to consider downsizing your housing expenses. Remodeling your home may mean some trade-offs in your short-term savings plan.

And so we come to the trade-off. Should you take the vacations, or the baby?

Most would answer “Both!” But we all know from economics 101 that our scarce resources can only go so far. While the trade-off may not be as direct an exchange, rest assured they exist somewhere.

And this is where an advisor can help you sort through the issue of “at what cost” and help you evaluate the cost-benefit analysis. For example, you can always stop working (or retire). It may mean living on beans and rice, but some people value the opportunity to structure their own time over dining on haute cuisine. And some people who have saved diligently all their lives will never spend much of their money and will choose to continue to work just for the joy they receive from doing a job they love. The choice comes from what is most important to you.

And then decision making gets interesting! Is it worthwhile to work an extra year to be able to take the sort of trips you enjoy, live in the community of your choice, or know you won’t have to count on others for help with long-term care?

Most of us won’t change our standard of living during retirement, which makes it easier to discuss retirement goals. But with all of the potential trade-offs and ranges of ideal versus acceptable possibilities, the choices can seem overwhelming. (e.g., I would accept a retirement that involved taking at least two major trips per year, though I would prefer also owning a vacation home, although I would settle for my current standard of living if it meant being able to retire).

When I hear from clients how much it will mean to them to upgrade their home, the resources are available, and they are being realistic about the costs, it’s never my decision when clients ask if they “should.” Often they are asking for permission to spend and want to know where the cash will come from. But when placed in the context of having to replenish savings accounts at $350 per month for two years to pay for the upgrade, the costs become concrete and the decision is easier to make.

So while working with your financial planner on your comprehensive life plan, make sure to inject all you can into the conversation about your personal values. I enjoy talking to clients about their choices and acting as a sounding board as they bounce ideas back and forth. But in the final analysis, some decisions ‘should’ only be made by those that know best.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Northern Financial Advisors, Inc
Franklin, MI


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Secure Your Mask – Is Helping Your Children Ruining Your Retirement?


When talking with baby boomer clients about their biggest challenges in recent years, there’s no surprise that adult children are often near the top of the list. For many baby boomers, adult children can represent one of their biggest expenses. This can manifest itself through increased gifting, helping with mortgages, rent, child care or other increased household expenses. More and more, this can even come through the increased expense of taking an adult child back into the home, otherwise known as a boomerang kid.

While I’m certainly not against parents helping their children, I think it is an area that is not discussed enough when it comes to financial planning and needs to be addressed much more often when meeting with planners and other trusted advisors.

Most of us are familiar with the concept of helping yourself before being able to help others. We’ve all boarded a plane and heard the line, “If you are travelling with a child or someone who requires assistance, secure your mask first, and then assist the other person”. The airlines mention this scenario specifically because, although logical, it is an incredibly difficult thing to do emotionally and certainly not the average parent’s first reaction in a moment of crisis. We are wired to assist our loved ones in any way we can, even if it means weakening ourselves, and our ability to help them in the future.

This is an important analogy. I’m certainly not suggesting that parents should leave their children to struggle regardless of the situation. I am, however, suggesting that you secure your mask first so that you’re in the best possible position to understand whether your children truly need assistance and, if so, how best to assess the situation and get them the help they need.

Some parents are regularly gifting to children, yet giving up on some of their own goals. If that’s where priorities truly lie, there’s nothing wrong with this. But, if the gifting is driven by some guilt-based obligation that you must give to your children, it can build resentment and become a real problem within families. In some cases, the children are doing quite well and don’t truly need the assistance.

For those children that really do have a need due to unemployment or other circumstances, it’s still important to make sure you’re not causing undue injury to your own plans before helping. Is direct assistance the answer, or could they use some help in setting a budget and learning how to cut costs in lean times? Have they sought out debt counseling or other programs that could help them get back on their feet? Have they done the work and exhausted their options or are they turning to your savings as their first and easiest option? Giving a gift or making a loan ahead of answering these questions could damage your long term goals and teach your children to expect this kind of assistance over and over again. What happens when you’re no longer there or able to help?

Don’t be afraid to have frank conversations about your situation with your financial advisor. Include the children in the planning meeting where appropriate. Be open with your financial planner about the assistance your child needs, the timeframes involved, and discuss how that might impact your long term goals. If gifting or lending money is required, discuss how and when it will be paid back or, if a gift, how it could impact future assistance or inheritance.

Again, this is not an attempt to suggest the best path is watch your children suffer while you continue to thrive. It is simply a reminder that this type of assistance should be considered a financially significant moment, just like purchasing a new car or a major home improvement project. Any major expenditure deserves a little analysis and careful thought to make sure it has been carried out in the most efficient manner. Anything less might leave your children breathing fine in the short term, but have you both gasping for air later.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, Ohio


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Young? Have Your Finances Under Control? You Might Benefit from Advice Too


Call it youth. We don’t think we need help with much. And according to a few articles I’ve come across recently, young people on the whole generally don’t perceive a need for professional financial advice.

Although age is just a number, let’s assume for purposes of seeking financial advice that being ‘young’ ranges from the early 20’s to mid-40’s. And as someone who would be considered a young client, I completely understand the hesitation. The interaction that many have up until they accumulate some wealth is typically a lack of service since you are not a big account, or being sold a product like home owners insurance. We may even have friends or acquaintances starting careers in the financial world who we can’t imagine paying for advice from.

But, just over the last week I found myself working with several younger clients on issues that covered a wide spectrum of financial planning areas. In speaking to more mature clients about whether they would have benefited from advice earlier in life, the response is always a resounding “Yes!”

I would imagine a few of the ways they would have benefited from engaging an advisor when starting out are as follows: 

  • Having a professional guide who knows you well enough to help navigate problem areas you may not have anticipated.
  • Learning how to set realistic goals along with manageable steps to achieve them.
  • Being held accountable for “slips” so you may think twice about charging a major purchase on your credit card or cutting back on your savings plan if someone else will know about it.

If you have a spouse or significant other an advisor can help:

  • Facilitate conversations about finances. We all know the impact of money on relationships. An advisor can not make decisions for you, but they can create a dialogue between people with different personalities towards and histories with money.
  • Develop a mutually agreeable course. Often one person in a couple has a dominant financial personality. An advisor can be the independent voice that helps the two of you negotiate differences in your personalities to formulate and clarify the course. 
  • Provide reassurance. Should a anything happen to either of you, you know someone familiar with your goals will be there to support the other spouse.

And since young people are just about always in the beginning stages of their financial life cycle: How about the value and satisfaction of starting out on the right path instead of stumbling along? In the long run, starting your finances on the right foot early can easily overcome the benefits of waiting until the day you earn a little more.

As a profession, advisors may not have the best track record of pursuing younger clients. But, the so-called ‘account size’ mentality is quickly becoming a thing of the past. There are many ways to engage a financial advisor today, whether it is on an hourly retainer, per project basis, or a ‘coaching’ relationship. One of the realizations advisory firms today are coming to is that individuals have different needs for the type and quantity of advice.

Financial planning is not just for people who need to prepare for retirement. Young adults have their own challenges, which can include saving to buy a first home (as well as questions on the amount and process of that purchase), tax planning, insurance needs, setting up a college fund for a new baby, and more. Finding an advisor to work with even before life gets “complicated enough” is well worth the effort to get started on the right path and move efficiently toward realizing your goals.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Northern Financial Advisors, Inc
Franklin, MI