Most individuals find they need a financial advisor for the first time because of a significant life change or event. It may be the company they built or work for is being sold, they are receiving an inheritance, or they changed employers and need help managing their retirement account. Whatever the reason, there is always more to discuss, either in the initial meeting or during the course of the relationship as life stages and milestones continually impact planning decisions.
There are many critical questions most investors should be asking their financial advisors initially as well as at various points in time. Let’s examine five of the most essential topics.
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What are we doing to protect ourselves against longevity risk?
Perhaps surprisingly, one of the biggest financial risks we face is longevity. “Longevity risk” is the risk of running out of money during your lifetime. No one wants to depend on their children or welfare for financial support in old age. What message does it send to the next generation if you run out of money and become dependent? The burden of supporting aging parents can be overwhelming on adult children, especially if they are also raising children and planning their own retirement.
It’s crucially important, not only to save enough to support the lifestyle you desire in retirement, but to invest that money properly. Proper investing involves owning assets that generate an income and that have a history of growing that income and in value over time to allow the owner to maintain their lifestyle as inflation erodes the purchasing power of their assets. Dividend paying stocks and income producing real estate both have a history of doing just that.
Investing in securities and holding through the ups and downs of the market has helped many individuals not only build great wealth but has provided the income needed during retirement years. Your life savings should not be held in low yielding bank accounts if those savings are needed to provide financial support at retirement and for thirty or more years into the future.
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What are we doing to save on taxes?
Taxes have a significant impact on the returns that our clients earn in their portfolios. Many advisors recommend investment products like annuities that defer taxes, but once the annuity matures the accumulated income can push an investor into a higher tax bracket, and that income is taxed at the highest ordinary income tax rates. Banks offer certificates of deposit to their customers and those pay income that is taxed at the highest ordinary income tax rate. Many individuals without a financial advisor keep a large portion if not all of their money in banks, earning low interest on certificates of deposit or savings accounts. Those accounts are taxable and don’t protect against inflation.
A lot of accountants and retirement plan consultants help business owners reduce their current tax liability by contributing to pretax retirement plans and deferring the income to the future. But all that deferred income will be subject to tax either in the client’s own lifetime or will be taxed to their children or other beneficiaries. A CERTIFIED FINANCIAL PLANNER® is qualified to advise their clients on the long-term impact of taxes and will often recommend Roth IRAs or 401(k) Roth accounts which provide tax free growth and tax free income.
Health Savings Accounts also provide a great long-term tax benefit as well as a current tax deduction. It often makes sense to pay taxes today on your earnings and invest in Roth accounts that grow tax free. The biggest liability in our lifetime is often the sum of all the taxes we pay. Tax-efficient investing, especially utilizing the powerful tax-free compounding benefit of Roth accounts, can significantly reduce the amount of tax paid over your lifetime. This greatly benefits the next generation when factored into an estate plan.
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What are we doing to optimize our estate plan?
It is common for lawyers to draft estate planning documents for their clients and then those documents get locked in a safe without completing the process. If a qualified CERTIFIED FINANCIAL PLANNER® is involved, they will advise that accounts and assets be properly titled, and beneficiary designations updated based on the estate plan. If a trust is a component of an estate plan and no assets are titled properly in the trust name, then there is no value in having created the trust.
An estate plan should consider how to most efficiently pass assets down to the next generation. If most of your financial assets are in pretax accounts, IRAs, and tax deferred annuities, then the beneficiary of those accounts will be subject to federal and state income tax. Assets often get passed down to the next generation when those recipients are in their peak earning years so they may already be in a high tax bracket, and the inherited tax liability could push that even higher.
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What are other clients doing to maximize lifetime earnings?
An often-overlooked topic is what can be done to maximize career earnings. Numerous considerations should be addressed. These include participating in workplace benefits such as the company retirement plan, employee stock purchase plans, stock option plans, expense reimbursement opportunities for education or professional development, or health savings plans.
The less obvious opportunities involve career development and exploring entrepreneurship or a side income pursuit. If over the course of a career you could increase your income by ten or twenty percent by getting an advanced degree or certification, that additional income could make a meaningful difference in your savings potential. Compounding over your career will make a big difference in your retirement savings.
Coaching from a CERTIFIED FINANCIAL PLANNER® may include better salary and promotion negotiations, pursuing leadership positions in the company, or possibly even changing employers. These can all be important conversations to have with your advisor. Returns on your financial assets will make a difference, but the impact of a positive career change or transition from being an employee to a business owner can have an enormous impact on long-term wealth building.
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What is the total cost of the investments in my portfolio?
Many financial planners charge an all-inclusive fee that covers the cost of investment management and financial advice. This tends to be the most transparent way to be charged for the service you receive. Unfortunately most individuals don’t know exactly what they are paying for the investment of their money. For example, a woman recently referred to our company had all of her money invested in annuities by her tax preparer. She had no idea one of the annuities was costing her over 3% per year in fees.
Another client asked us to review his retirement account being managed by another advisor and didn’t realize he was paying two layers of fees on that money – the advisor charging a fee, plus the funds in the portfolio charging another fee. Additionally, the advisor fee wasn’t assessed inside the pretax account to take advantage of the tax savings available.
Some affluent investors participate in limited partnerships to invest in real estate for “passive income,” but many of those structures have anywhere from two to six different layers of fees, some being ongoing and others at specific times. Not all such investors are aware they are paying so many fees or understand how the cost of fees affects performance.
Investment costs should be easy to find and easy to understand. If the fees are hidden and the advisor cannot explain them simply, it may not be in the client’s best interest to own the security subject to potentially hidden fees.
Creatively Comprehensive Financial Advice
Financial planning done right is about so much more than the numbers. An experienced CERTIFIED FINANCIAL PLANNER® should be able to guide their clients toward financial independence while encouraging them to maximize their full potential in life. Factors related to increasing earnings through career development or entrepreneurship as well as exploring strategies to improve tax efficiency are important. 
The primary role of the CERTIFIED FINANCIAL PLANNER® is to make sure clients plan well and live without sacrificing everything to the future.
For those raising children, the years pass quickly. Create meaningful memories with the children while they are living in your household. The investment in education, fitness and nutrition throughout life can improve the quality of both the working years and retirement years dramatically. There are so many meaningful topics for discussion! Talking to a qualified advisor can introduce ideas that you may never have considered, and to explore ways that would benefit you and your loved ones – today and far into the future.
