Financial planners like to think of themselves as asset managers, but many forget to manage taxes first.
Sometime during the past few decades financial planners began to think of themselves as asset managers, and clients became less interested in what their lives would look like when they retired than how much their investment portfolio grew or shrank last year. The widely held view was that retirement security lay in the "superior historical returns" of the stock market.
You could easily outlive your savings if you don't consider your tax burden in retirement. Does your advisor know this?
Accountants, investment advisors and financial planners are robotically programmed to manage clients' income to reduce the taxes they pay today because a dollar of tax-deferred income is likely to grow over time, increasing the chance they will have plenty of money to live on in their golden years.
Supposed ''smart money'' made the stupid choices that got us into our mess, aided by some bizarre SEC rules.
Corporate jets, million-dollar bathrooms and bailout bonuses make for sexy headlines in the great blame game swirling around our economic catastrophe, but the real culprits aren't crooks, risk-junkies or incompetent regulators. It's a legal system that, in effect, says people who have or control a lot of money are automatically smarter than the little guy and therefore don't need as much protection. The last year proves this assumption false.
Planning ahead means that you need to avoid the temptation to stare into the rearview mirror.
One of the more common discussions I have with clients these days is the one in which I explain that their house was never really worth a million dollars, and 10 months ago the Dow Jones industrial average was overpriced by the 5,000 or so points it's lost since then. The marketplace has spoken, and it's time to move on. That turns out to be easier said than done.
Remember those average annual returns touted by index-investing proponents? They don't add up.
If we've learned anything from one of the worst years in financial history, the most important has to be the myth of averages.
No single factor has played a greater role in the destruction of people's wealth and retirement plans over the past quarter century than the investment return assumptions on which most advisers and financial services firms base their clients' portfolios and their product pitches.
The back-to-basics allure of mutual whole life insurance is helping this once vestigial financial vehicle stage a comeback.
Suppose there was a financial instrument with a track record stretching back 1,400 years; that was so solid it could survive the Great Depression intact; that earned untaxed interest at a competitive rate; that could be borrowed against at will regardless of credit conditions; and that could be used by individuals as well as major corporations and banks as a safe harbor during economic turmoil?
The Great Bailout of 2008 and the death of Wall Street as we’ve come to think of it are the last shovels of dirt on the grave of the once-vaunted “New Economy.” After decades of financial hocus-pocus, inept regulation and corrupt governance, this historic inflection point suggests we’re ready as a culture and an industry to return to some basic values of the old ownership economy, the one that sustained our parents and grandparents through thick and thin. For those who weren’t around back then, and as a reminder to those who were, once upon a time in middle-class America:
--You saved your money at the nonprofit credit union or mutual savings bank, where you were a member or owner instead of a customer, and where you went to borrow money for a car or college tuition, at favorable rates.
True loyalty flows from getting clients and family members to speak their unspoken hopes and fears.
In coaching other financial planners, I've come to the conclusion that too many of my peers are caught up in trying to make clients comfortable, too eager to prove their trustworthiness. They have it backwards.
