What retirement issue has hit you or your clients out of left field and how
did you resolve it?
There really hasn’t been any retirement issue that’s hit us out of left field. Executing on our money stewardship responsibilities in a client’s financial life requires that we articulate in collaboration with a client, in dollar specific terms, how much money will be needed to either achieve or preserve financial independence. It’s not enough to take an ‘off the rack’ formula (i.e., at age 60 one should have X% in equities and X% in fixed assets).
Personal financial planning requires that there be a clear understanding of how much money is needed to enable a desired lifestyle free of financial worry during retirement years.
And so during the economic and financial market malaise of the past several years, it should be that a clients’ investment portfolio is structured to enable navigating and persevering through the most difficult environments. And that’s exactly what happens on our watch.
I think that the blindsiding occurs when an individual doesn’t start with a conversation that is not about money but what the money is about. And to really get clear with themselves what money is to do for them in their lifetime and how much of it is needed for financial independence (i.e., retirement).
Once that gets mapped out then it is possible to devise an investment strategy that gets the job done through all the bad and good times.
What prospecting methods are the most successful for you in attracting
retirement planning clients?
YBR Advisors is an established personal financial advisory firm, which, by the way, had its beginnings in 1987 during when there was a pretty horrific cyclical bear market. I’m referring to the one day in October 1987 when the Dow Jones Industrial Average declined about 21%. We certainly haven’t had that experience since then!
Given the number of years this firm has been established and our uncompromising effort to do good work for every client, every time, in every facet of their financial life, we are fortunate to have created a bunch of goodwill in the marketplace. So, we’re fortunate to not have to allocate any of our attention or resources to client acquisition. Instead, the phone rings and someone is on the other end asking for help.
We do, though, communicate to existing clients that our new client advisory focus is what we call the PrePost 10. This means we focus on beginning new client relationships with those who are approaching financial independence but the mission hasn’t been accomplished or folks who are already financially independent but they’re not in complete command of their financial lives and they don’t have complete financial peace of mind.
The ‘Pre’ refers to the folks who are approaching financial independence. It analogous to being in that later phase of a flight plan when one is beginning to put the landing gear down and everything really has to go right because if stuff goes wrong the outcome is completely bad.
We begin these relationships by communicating to our clients that those are the personal financial advisor relationships about which we’re specialized. The firm’s ‘processes’ are engineered to work with clients in that period of their financial lives.
It’s also true that we have worked with most of our clients for 10 or more years. We’ve all kind of grown up together. I began in the profession when I was 28 and now I’m 50. So, we have all kind of gone along the journey together. It’s natural for clients to refer others whose situations are similar to theirs. They’re all sort of approaching the runway and repairing the landing gear at the same time. I suppose it is a comfort for new clients to know we’ve been on the flight with existing clients for a long time.
Do you face any frequently occurring retirement planning mistakes with
The continuing mistake that people make is not understanding what the money truly means for them. So many prospects focus instead on the idea that it’s about the money. It isn’t.
When someone begins the process of really articulating what money is about for them in their lifetime, it’s an empowering process to get clear on what they should be doing with their money. For example, I had a retired prospective client call me recently who had heard about our solid investment portfolio management results and wanted to have us to manage ‘some’ of his money.
The person asked me how much investment return we could get on a growth portfolio. I asked this person, how little return could you get away with and still be completely financially secure?” There was silence on the other end of the line. After about 10 seconds, and I didn’t say anything during his silence, he said he’d never been asked that question before. “I never thought about it that way,” he said.
So I asked him, “Well, why would you take any investment risk that you don’t need? If you could get an investment return of 5% over the next twenty years and get everything you want out of your life, why wouldn’t you want to do that? I think the biggest mistake that we continually see is that investors really don’t understand how the money needs to work for them so there comes a day that they don’t have to work for money.
What challenges do you face when modeling or forecasting clients’ retirement
income and cash flows?
In mapping out the achievement of complete financial independence it is absolutely necessary for the advisor and the client to collaborate on completing a Retirement Income Cash Flow Analysis. This means first identifying all of the client’s monthly committed and discretionary expenses. Then, looking at each expense and asking, “Will you go up, go down, go away, or simply stay the same during retirement?” And then, there’s deciding on a number.
It isn’t rocket science. We’re simply having a conversation about what happens to each expense when this person wants to be no longer earning an income and begin enjoying the envisioned lifestyle during retirement. For example, travel might go up 40% for the first five years of retirement, and then 20% thereafter, and then continue on as they were before retirement. Social Security tax withholdings go away. Food stays the same.
We’re thoughtfully working together through a process to determine how much money a person is going to need to enable their lifestyle during retirement. This conversation is pouring the cash flow foundation upon which we can build cash flow projections and make adjustments over time. We can also, in building the foundation, articulate that there may be several years early in retirement when certain expenses will be greater during that period than they will be later in retirement.
We can build all those different variations and dynamics into our cash flow projections and give a person a meaningful and realistic picture of what their Income and Expenses Statement in not only the first year but also for the fifth, tenth, sixteenth, and so on. The process is dynamic, and so it requires keeping the conversation going — that is, to review those assumptions, make certain that the projections are proving valid, and see if there are changes required to refresh the projections and determine the implications of those cash flow needs on investment policy.
What mix of products and solutions do you use most often and why?
First and foremost, it’s incumbent upon any financial advisor to be beholden only to the client in determining investment vehicles or other financial instruments that are appropriate for our clients particular financial situation. That means that a financial advisor ought to not be employed by any single financial institution.
I think the profession needs to draw a line in the sand and insist on nothing other than that kind fiduciary independence. No matter how good hearted and how much integrity someone might have, human beings are human beings and there are inherent, deeply imbedded conflicts of interest when an advisor is employed with a particular financial institution. I know this. I’ve been there. I’ve done that. I’ve experienced all the models and it’s no mystery what is the right thing and what is everything else.
So, a financial advisor must be able to reach out into the marketplace and prescribe whatever is an appropriate instrument or vehicle for our client’s situation.