Gaining Financial Confidence in an Uncertain World

By Leslie A. Margolies

Financial Advisor

Zucker Berne Lieberman Financial Consulting Group of Wachovia Securities, Jenkintown, PA 
 

Life can be uncertain, particularly with regard to managing your personal financial affairs. Some people find themselves overwhelmed with information and conflicting advice in books or on the Internet. Others don’t have the time or interest to manage their personal assets and liabilities with discipline.  For these people, finding a personal financial advisor to act as their personal financial coach and guide seems like a perfectly logical decision.  But there are certainly some who choose not to hire a personal financial advisor and at least seem to manage their personal finances somewhat competently on their own.   Far greater, however, is the number of individuals who are not managing well on their own, but still have no idea why they would need a financial advisor.  Do you think you need one? 
 

Let’s look at what can a financial advisor do for you that perhaps you cannot do for yourself.  Well, the first answer is concrete planning.  Let’s face it, how much time do we as individuals have to plan for retirement, for our child’s or grandchild’s education, or any other major financial goals in life?  And have you written out a plan to reach these goals?  And if you have a savings plan, how much savings is enough? As you attempt to answer this last question, you need to consider not only a reasonable rate of compounded growth, but also the erosion of principal through taxes and inflation, as well as the possible impact of ongoing market changes. But few people have the knowledge or the time to do this on their own. 
 

Some might say, well just save and invest 10% of your earnings and that’s your financial plan.  But, not everyone needs to save and invest at the same rate of 10%.  It depends upon when you are starting to actually save and invest at a diligent and consistent pace—at 25, 25 or 45 years old?  It also depends upon what your short-term, intermediate and long-term goals happen to be.  Some people have only one or two goals, such as college education and retirement.  While others may have multiple goals such as annual family vacations, buying a new car, buying a second home, paying for a graduation party, paying for a wedding, making a significant charitable contribution, paying for a graduate school or continuing education for a second career.  And multiple short term and intermediate term goals can mean that savings and investing may increase and decrease during certain periods.  And even with the biggest goal of all—which is retirement—no two retirement dreams are exactly the same.  Some choose to travel and live a very active lifestyle (which requires more savings), and others may choose a more sedate lifestyle during retirement.  So, if someone has pretty big plans for their retirement and they didn't started any real financial planning until after the age of 40 years old, then certainly a 10% savings rate won't cut it.   
 

Coming from the practice of law to being a financial advisor, I know that I myself was very surprised by how complicated financial planning can be.  Not only do you need to plan for all these goals, you need to account for taxes and inflation (and depending upon the state you live in) this can vary greatly the amount of savings needed.  A lay person’s version of “planning” creates an illusion of stability. But nothing happens every year exactly as predicted. Goals change with your station in life — and financial and market conditions are constantly changing as well.  And what about drawing down your wealth once it has accumulated? When you start to withdraw from certain retirement accounts, you need to start paying taxes on those distributions and that can affect how long the funds will last.   If I want to accurately plan, then I will need to know how much I can safely withdraw each month during my retirement years and have it continue to last.  This will depend on your investment returns, the inflation rate, changes in your health or marital status, and whether you live beyond your life expectancy and other factors. 
 

So the one aspect of planning which financial advisors can accomplish for you that you may not be able to do for yourself, is creating a financial plan that is founded upon statistics (as opposed to mere hunches).  A financial advisor can take inventory of your important financial goals and prioritize them, and through today’s statistical modeling, help provide an accurate picture of your viable financial strategies.   He or she can tell you how much you need to save, how to invest it and how long you can expect your money to last being spent on the goals that you have outlined. Through periodic reviews of your goals and the performance of your investments, you can continually assess how your actual investing and spending patterns are affecting your chances of reaching all your goals. With this information, your financial advisor can make adjustments to the plan as needed to keep you on track toward your unique financial objectives.

Another tool which a financial advisor can provide is coaching.  After all, some of us may not be as disciplined as others.  A financial advisor can coach you to save more and how to save more.  Just like a coach training an athlete for a decathlon, the financial advisor can help to motivate the client to reach higher and achieve more.  Also, like an athletic coach, the financial advisor can provide guidance with various tips and techniques for improving one’s chances of success.  These may be simple things such as using credit more wisely, or accessing loans or lines of credit in a more financially efficient manner, or utilizing different kinds of accounts or taking calculated losses which provide tax benefits of which the client was not aware.

The one thing we seem to overlook the most is the financial advisor’s area of expertise—financial knowledge and experience.  While all the information out there may be confusing, that is the point of hiring a professional, isn’t it?  You don’t expect to understand all of the issues and nuances when you go to a doctor or lawyer.  Why do we underestimate the financial advisor’s ability to invest our money better than we could do it ourselves?  After all, we don’t normally expect to treat our own medical problems or represent ourselves when legal action is necessary.   So, why do we assume that whatever a financial advisor can do, we can simply do it on our own by reading a book?  Maybe that is because the level of respect that the legal and medical profession demands through the clout of their professional associations and the number of years of education involved to earn the legal or medical degree.  However, there are many professions which require “licensing and certification” similar to a financial advisor’s completion of the Series 7 examination.  For example, similar certification is necessary to operate certain medical and laboratory equipment…and yet we don’t then believe that we can read a book or go on the Internet to learn how to operate such complicated equipment ourselves. 

Maybe it’s because what a financial advisor actually does still remains a mystery….What do they do besides giving you investment advice?   Here are a few examples of the variety of ways in which a financial advisor may help you:

1. Create a Household Spending Plan (i.e. budget);

2. Create an Asset Allocation and Investment Plan;

3. Perform a Financial Goals Analysis (determine statistical likelihood that you will reach your short-term, intermediate-term and long-term goals based upon a particular savings & investment strategy);

4. Recommend Tax Saving Strategies;

5. Recommend Risk Management Strategies for individuals (for example, long term care insurance) or businesses (such as insuring key employees);

6. Create a plan designed to achieve specific goals within a specified time period (such as college savings plan, retirement plan, etc.);

7. Create an Estate Plan with tax saving strategies to reduce estate taxes;

8. Create Solutions for business issues (such as employee benefit plans or business succession plans);

9. Solve Cash Management problems (creating fixed income for retired individuals or securing lines of credits for business owners);

10. Organize Financial Data for specific purposes (to apply for and secure loans or lines of credit);

11. Investment Advice and Guidance (both in types of accounts and types of securities); and

12. Portfolio or Asset Management (investing the funds and maintaining custody of funds).

Finally, the financial advisor can provide the client with something which we can never give ourselves—objectivity.  While we may be tempted to put 80% of our money in Energy funds when we are so sure the timing is right, the financial advisor is there to reign in our whims, keeping us steady and on course.  While we may be tempted to put all of our money in money markets because we are frightened about a down cycle, the financial advisor is there to keep us realistic and remind us about the risk management benefits of diversification and asset allocation.  Ultimately, there is no substitute for a realistic and comprehensive plan that accommodates uncertainty and sound financial advice from someone you can trust.   Now, finding someone you can trust, that is the subject for another article….

For more information, see our website at www.QMG.wbsec.com
or email your questions  to Leslie at leslie.margolies@wachoviasec.com 
 
 

Wachovia Securities is not a legal or tax advisor. However, we as Financial Advisors will be glad to work with your accountant, tax advisor and/or attorney to help you meet your goals.