 The secret at the heart of financial planning is one they don’t teach you in the classroom. The secret is that the financial planner’s main job is to help clients develop reasonable expectations about their money, their lifestyle and their future standard of living. This can be tough emotional work.
 I originally titled this post, "Our Industry needs a Gut Check." But Nerdwallet thought this one tested better. I'll let you decide.
The Department of Labor recently issued a new rule regarding financial professionals who advise clients on retirement accounts such as 401(k)s and IRAs. Although the rule is complex and comes with some caveats, it can be boiled down to this: Effective April 2017, retirement advisors must put their clients’ best interests first. This is called the fiduciary standard. The new rule won’t necessarily eradicate bad investment advice, but it’s a step in the right direction, and it’s a good thing for investors.  Many people pay a lot of attention to the little things in their financial lives and lose sight of the bigger, more important ones. For example, I hear people talking about cutting out their favorite coffee drink to save money. This is not a bad idea, and savings, wherever you find them, are helpful. But often these same people are making large financial mistakes that they don’t realize are costing them hundreds of dollars a month.
I recommend focusing on the big financial issues: income, housing expenses, car expenses and other major costs in your life. Get the big things right, and the other puzzle pieces are much easier to fit together.  Recently I was talking with a friend about how much I like running. It’s simple, you can just lace up and go. It’s meditative, allowing for introspection and mind-wandering. And it’s great cardiovascular exercise. I looked at my friend expectantly.
“I hate running,” he said. “But why?” I was at a loss that he couldn’t comprehend my passion. “Because it’s boring … and hard.”  The idea of talking with a financial advisor makes many people feel the same way they feel about a trip to the dentist: not thrilled. After all, financial planning requires that we think through and talk about how to deal with scary or unpleasant circumstances.
But good financial planning isn’t just about downside protection. It’s also about planning so people can do the exciting and meaningful things that make life wonderful.  In keeping with my "steal shamelessly" theme, I'm providing a guest post from fellow advisor David Waldrop, CFP®. David is the President of Bridgeview Capital Advisors, Inc. in El Dorado Hills, California. David focusses on helping his clients organize and map their financial resources to their financial goals so that they can achieve long-term success on their terms. He's also a great inspiration. Enjoy!
In financial theory, risk is equated with volatility. Often this is described mathematically as standard deviation, a measure of how much variation there is in the data. Although the math that illustrates this concept is relatively straightforward, it is not helpful in understanding risk in terms of investor behavior.
When I work with clients, I discuss risk in a much different way. I use simple illustrations to show clients what might happen to their portfolio in a downturn. To make it even easier to grasp, I talk about real dollars, not percentages. People tend to be comfortable talking about percentages when their portfolio rises, but not when it falls. “We made 5% this quarter,” they’ll say. But when investors see declines in their portfolios they think in dollars: “We lost $50,000 last year.” Today I'm pleased to share a guest post from a fellow advisor. David Waldrop, CFP® is the President of Bridgeview Capital Advisors, Inc. in El Dorado Hills, California. David focusses on helping his clients organize and map their financial resources to their financial goals so that they can achieve long-term success on their terms.
I found David's recent article particularly inspiring: Today's note is a little more industry oriented than normal. Still, I thought you would be interested because it touches on my philosophies regarding Financial Planning:
Recently I got into a Twitter conversation (yes, I tweet. You can follow me at the bottom of the note) regarding an article claiming that most millennials shouldn’t be bothered with financial planning. One advisor responded that most people under the age of 50 don’t even need financial advice. Just “save as much as you can in your 401(k) and Roth,” this advisor wrote. I completely disagree. This line of thinking is a peeve of mine. In fact, it’s more than a peeve — I set up my firm specifically to help these types of clients and work with them over the entire course of their financial lives. Americans are enamored with debt. We can’t stop ourselves from buying things even if we don’t have the money to pay for them.
This is bad for obvious reasons. Paying off debt crowds out other spending, so that you don’t really get to spend your money on what you want anymore — you spend your money on what you used to want. In essence, you are trading an immediate purchase for an ongoing payment stream, reducing your financial flexibility. Almost every terrible financial situation I have seen has been a result of overindulgence in debt. |
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