Warren Ward Associates

The Little Known Tale of the Three Businessmen and the Financial Planner

Once upon a time, three businessmen were talking together and discovered that each of them had encountered a financial planner. However, each had a different experience, so they decided to talk further to see if they could agree on the definition of a financial planner.

The first one said, “I own a small business. The retirement plan I had was sold to me by an insurance agent who was unable to offer personalized advice to me and my employees. When I began to work with the financial planner, I learned what I was getting and exactly how much it cost. Finding someone who knows investments and is able to provide planning advice to my staff has been a great help. All of my costs are clearly disclosed so I know what I’m paying and what I receive for my fees. A financial planner is like a detective who can figure things out for his clients.”

The second businessman responded that the first man must have been mistaken and told his story. “My wife and I met a financial planner who took time get to know each of us. She asked us to complete a risk tolerance questionnaire to see what type of investments might be most suitable. Then the planner recommended specific stocks, bonds and mutual funds to meet our needs. She got to know us as individuals and handled our investment management needs so that we were comfortable with the level of risk we were taking while keeping our costs as low as possible. I would say that a financial planner is more like an investment expert who places a client’s needs ahead of her own. That’s a financial planner.”

The third businessman disagreed, saying neither of the others had described what he had experienced. “We didn’t need advice about either retirement plans or investments but the financial planner we met helped us through several of life’s transitions. There was the time our kids left for college, then the time we received an inheritance, then my retirement. The planner reviewed our insurance coverage, filled-out our children’s FAFSA forms, answered our questions about the estate, then helped us make the transition into retirement. I think a financial planner is more like a great travel agent. Figuring out where we are going and helping us get there – that’s a financial planner.”
 
This story may remind you of the slightly better known fable in which three blind men each felt part of an elephant. The first described the animal as being like a tree after touching its legs. The second said it was like a wall after touching its body. And the third said it was like a snake after touching its tail. No one of them had a full picture of the animal until they shared what they had learned. Financial planning is not unknown to most people but neither is it as well understood as professions like dentistry or architecture. It may be news to some but there are many aspects of people’s lives in which financial planning can be useful.

If your own situation involves a retirement plan with details you are not certain you understand, it might make sense to ask for some advice. We regularly discover extremely high costs, often not clearly disclosed. Other times, the fund choices are average or even below and it’s rare that advice is available from the sales person. If, as a business owner, you are not certain of your plan’s 404(c) compliance, you may also have personal liability should problems with the plan be discovered sometime in the future.

If your investment decisions are driven to any extent by headlines, it might be a good idea to develop a long-term plan based on managing risks as well as trying to maximize profit. There is almost unlimited information available but few have time to read, let alone digest it. Managing investments is a key component of financial planning and is a specialty of Warren Ward Associates.

Life transitions can either be expected or appear out of the blue. It’s possible to anticipate at least some of them through preparation of a financial plan but it’s always going to be easier to face one, whether expected or not, with a competent, knowledgeable advisor at your side.

Should any of these situations seem familiar, please consider taking advantage of one of our free, one-hour “get to know you”  consultations. Like your CPA and attorney, WWA always puts a client’s interests ahead of our own standing by our motto: “Financial planning as individual as you are.”

Monday, Monday – Can’t Trust That Day

In the 1960s, John Phillips wrote a number of hit songs for his group, The Mamas and The Papas, as well as for other performers. The song that provides the title of this article was one of his biggest hits. It laments the fact that Monday can’t be trusted: a Monday that begins with love intact might end much differently, with love gone.

I think of this song sometimes when I’m talking with clients about retirement. Quite often I am able to confirm that the financial aspects of their retirement will work out satisfactorily. However, despite confidence about their financial security, some people find themselves uncomfortable with the idea that Monday will come and they will have nothing to do.

During the past sixteen years, I’ve had many people ask me for advice regarding the early retirement options being offered by their companies. I always answer their question with this question: "If you retire, what will you do on that first Monday morning?" When I see their response, I know how to advise them. If they have a plan – volunteer at the hospital, play more golf, return to college and take art classes – I know they’ll be fine. But sometimes, I’m greeted with the "deer in the headlights" look or worse, a cringe of terror. When I see one of those responses, I know that they’ll need to remain in their jobs at least a little longer while we work on the "what will they do" question.

In past generations, when it was common for men to be the breadwinners and women to remain home with the children, those men’s post-retirement life expectancies were relatively short. They worked literally all of their productive lives, then relaxed for a few years – often, a very few years – and waited for the end. Compared to those generations, many of the baby boomers who are now approaching retirement have maintained better balance in their lives. Often they have enjoyed various hobbies or outside interests during their working lives and thus have something they really want to do on that first Monday morning of retirement.

When The Mamas and The Papas broke-up around 1968, John Phillips "retired", from regular performing. In his case, retirement included continued song-writing and even the re-establishment of his group when his daughter, Mackenzie, was old enough to participate. His experience exemplifies a baby boom generation trend: that people will continue to work during retirement but at something different. Sometimes, retirees are able to carve out the most enjoyable aspect of their current job or perhaps turn a hobby into a part-time business. Although I plan to work several more years, I can see that allowing Jalene to take over more of the day-to-day responsibilities of managing our practice has become appropriate. It has allowed me the luxury of concentrating on the things I enjoy most: spending time with clients, working on their investments and writing my articles. Hopefully, when I transition into retirement, I’ll remain able to contribute by focusing on two, or eventually even one, of those activities.

Helping our clients consider how they will spend their time goes beyond the scope of the typical financial planning engagement. However, at Warren Ward Associates, we believe that assisting clients in that way is an important element of the planning services we provide.

News Flash: Retirement Planning Can Be Complicated . . .

Perhaps because of its roots as a tax update letter, Kiplinger’s Personal Finance is one of the few consumer-oriented financial publications I read with any regularity. There was an article in the August 2007 issue on a topic I happen to have some experience with: the use of software as a retirement planning tool. The story opens with Bill, a 42 year old who wonders when he will have saved enough to retire. In an attempt to answer that question, he visited half a dozen different websites and used the calculators provided. Each asked for different pieces of information and all arrived at different conclusions. In order to followup, Kiplinger’s imagined a couple in their 30’s and ran their situation through five such calculators. Perhaps not surprisingly, each of those websites came up with a different answer for that situation, too.

Some of the article’s observations:

• Small changes in assumptions about potential rates of return and inflation can have a significant impact over 30 or more years of calculations.
• The range of estimated spending during retirement years varied widely.
• On-line vendors have been accused of using the calculators as "marketing gimmicks" intended to draw people into doing business with them.

Clearly, assumptions must be made when doing a projection like this. At Warren Ward Associates, ours change as our sense of the economy changes. We generally use 3% for inflation and have recently used around 8% as a rate of return for stock investments and 4% for bond investments. I would not suggest that anyone consider these percentages to be facts but they might provide a reasonable place to begin.

Of course, there is no guarantee that anyone will have enough money to last for their entire retirement lives but spending during those years can sometimes be adjusted. In making projections, we currently use 4% to 5% as a withdrawal rate from retirement accounts. However, once retirement has begun for our clients, we try to make adjustments for better and worse market years with the aim of making their nest eggs last.

A few years ago, my physician suggested that I begin a program of regular exercise, suggesting that "any" would be better than "none". In the case of financial fitness, that might not necessarily be the case. If a website’s answer is overly optimistic, you might assume everything will be fine and quit thinking about retirement planning. If it is too pessimistic, you might feel the urge to take extraordinary risks with your investments, trying to remedy the potential shortfall or perhaps give up altogether.

Retirement strategy reviews are a necessary part of planning. Both Bill, the original subject of the article, and the authors eventually decided that visiting a professional might be a better choice than depending on a website. The article rightly notes that a live planner will probably use software too, although hopefully, it will be only one of the tools employed, guided by the planner’s training and experience.

Just as the Weather Channel has turned us into a nation of amateur meteorologists, so the availability of numerous popular magazines and websites has turned us into potential financial gurus. As useful as software has become at Warren Ward Associates, we think the most satisfying results are likely to be obtained while working one-on-one with someone who is able to offer suggestions about appropriate assumptions and also help with interpretation.