Broker Check

7 People You Havent, But Should Be Introducing to Your Financial Planner

| March 16, 2017

One of the best gifts my clients could ever give me aren’t material things. You can’t tip your financial advisor 20% for good service, it’s not legal, nor necessary. You’re already compensating us to keep your financial life together. But how do you make your financial advisor’s day?

A referral to a friend, family member, coworker, an acquaintance at church or from your book club, is one of the best compliments you can give your financial advisor. Do you know why? I’m sure it’s easy to understand. It provides us with an opportunity to network, to grow our business, and to help another person in need.

I often tell my clients, after they introduce me to someone who becomes my newest client: “You just made my day. Do you know that feeling when your boss calls you into his office and says that it’s time for your annual review? After about 15 minutes of discussion, your boss lets you know, ‘We’re very happy with the work you’ve been doing for us and we’re going to be giving you a raise this year.’ How awesome is that feeling?”

When one of my clients introduces me to someone new and we decide to work together, that’s the feeling I get. Not only does it present an opportunity for a raise, it also shows how appreciated my work has been. Recently, I was utilizing our planning software to show a divorcee that with a few tweaks to her investments, monthly savings, and good timing on taking her pension (assuming modest growth rates), that she’d have over $1 million more available to spend or save over the course of her lifetime. Just by making a few simple tweaks. Boom! One million dollars!

She was blown away. Here sits a woman who has never been included in the family finances before. Her ex-husband had always handled things. She feared for her future, but didn’t take action for three years after the divorce, because it was difficult and emotional. Understandably so. But when one of my clients met her and asked if I could reach out to her, that action helped change her family tree forever.

This woman now knows the value of her nest egg and knows that it’s in good hands. She knows that she can spend, not $48,000 per year, but $110,000 per year in retirement and still bless her children with a hefty inheritance. Seeing the relief and excitement on her face is exactly the reason why I do what I do. My client can now go to work every day with less tension. She knows her plan and knows what she’s doing. In addition to that feeling of validation in knowing that what I do matters, my metaphorical boss also called me into his office and gave me a raise.

One of the challenges we face is that too many financial advisors are jamming it in your face and come off desperate when they ask for your referrals. That’s why I don’t ask my clients to pull out their cell phones and write down phone numbers. That’s salesy and gross, and it damages relationship.

The dilemma many advisors face is that in order to market ourselves on a grander scale, it often takes time away from our existing clients, so many of us don’t. Some advisors write books, go on local television appearances, or sit around at a trade show for hours in the hot summer sun to get their name and faces out their. Cough, or some write a blog like this. Meanwhile, who’s watching your money? My network has its limits. Several of my friends are my clients, but the best way for me to meet my next client, while continuing to take good care of those who are paying my salary, is for my existing clients to be alert and attentive to their surroundings.

So if you’re the type of person who loves to help someone out, loves to tip your waiter for doing a great job, and loves the sense of relief you feel when it comes to your finances, here are seven people who you know that you haven’t, but should be introducing to us.

Your friends who are approaching retirement (or just retired!):

This one seems like a no-brainer, but you have to like your advisor enough to be alert and willing to help others. You may or may not be retired, but guess what, others you know are approaching it. According to Motley Fool, on average, Medicare only covers 62% of Americans’ health expenses. And only one in six employers in America offer medical in retirement. To make matters worse, the average 50-year-old has saved approximately $40,000 for retirement. There’s a challenge here. Your coworker, your parents, your friends, whoever they are, they need to have a plan as they head into retirement.

Retirement isn’t a number and it’s not a destination. It’s fluid and if you don’t surround yourself with the right team, you’ll waste all that hard work you put in to save up for your long vacation. In retirement, your health will decline, guaranteed. As my father always says, “The last time I checked, the death rate is still 100%.” You will want to dote on your kids or grandkids. You will want to do something. Every day is a Saturday when you’re fully retired, not a Tuesday. You have all day every day to do whatever you want, as long as your body and bank account want to support you. Social security and a pension may cover many of your expenses, but most retirees are planning for what could go right, and not what could go wrong.

It sounds morbid, but that’s my job. My job is to help you plan for things when they don’t seem important. It’s to get people to save more now or to set up the appropriate long term care or life insurance that will ensure that a surprise financial crisis never spoils your golden years. When someone you know says they’re retiring or wants to retire soon, ask them who they’re working with? And even if they give you an answer, ask them to have a conversation with your advisor. Who’s helping them figure out how much or how little to take out of their accounts? What happens if they make the wrong decisions on social security? Who’s helping them manage how risky to be in their investments? But most importantly, who’s helping them plan for the worst, so they can enjoy the best?

Your coworkers.

We discuss your retirement savings at length. You’re appreciative to have someone who handles that stuff for you and who teaches you about mutual funds, compound interest, and all that financial lingo that once seemed foreign but seems a bit simpler now. You go to work and sit next to folks who are just as clueless you used to be about their 401k and how to save money on taxes when investing. Ask your coworkers, how do you invest in your 401k? From what I’ve found, many people have thought they were being aggressive, but were actually extremely conservative, or vice versa.

I recently met a couple. The wife had $200,000 saved for retirement. The husband: $80,000. The husband has been putting 6% of his paycheck away into his 401k for 20 years at the same company. He’s never changed that and he’s had a 3% match the whole time. He’s never taken withdrawals. He’s averaged about a $36,000 per year salary. That’s a 2.1% annual return. He’s been sitting in bonds and cash for the good majority of his earning years.

Had he averaged a modest 8% return while using some decent growth mutual funds in his 401k, he’d have about $160,000. Or, he’d have $205,000 if he had averaged 10%. Their plan will survive, but they should be thriving much more. And it’s not just his fault. His wife was just as clueless when it came to retirement savings. She just got lucky. She picked decent funds. Where were his friends? If any of his friends ever knew something about retirement savings, they’re an accomplice to this crime.

You know the saying, “Don’t let your friends drive drunk.” Well, DON’T LET YOUR FRIENDS RETIRE POOR. If you take your money and your friends’ money as seriously as their sobriety when they grab their keys, you just might be vacationing with them in your 60’s, rather than sending them a postcard.

You know people just like him. You don’t have to know their financial picture to know that people need help, because they’re busy and because having a good financial planner in their life will make a difference.

A good friend just changed or lost his job.

Client: “My friend Mike just changed jobs.”

Advisor: “Did he leave his 401k behind?”

Client: “I don’t know. I didn’t ask.”

Advisor: (awkward silence)

Last week, I met with a new client. He’s been hustling around and jumping from job to job over the last few years as he works to support his family and save for their future. When we called a 401k company that shall remain nameless to roll over his 401k, they told him that since there was no account activity in a while, they sent a check for the proceeds to his previous address (which he hadn’t updated in a while). And, his 401k distribution is now a taxable event. Ouch! Add in the 10% early withdrawal penalty. Double ouch! That’s common. People around you are changing jobs and caught up with life. They need someone who can help push them to take care of these important things. I met this new client too late to solve this challenge, but I’m pretty certain, it’ll never happen to him again.

An inheritance.

Have you ever met someone who got money and didn’t know what to do with it? I have, quite a few times. I’ve seen people spend like crazy, rather than save some of it. They say, “I’m going to buy commercial property, and buy a business, and travel the world, and put all my kids through college, and cure cancer.” Then next week, they’ll be eating beans and rice, and wondering where it all went. I’ve also seen people who do absolutely nothing. Mom’s inheritance might as well be her urn sitting over the fireplace.

When someone dies, all of their possessions and belongings are split up among loved ones. In that mess, a few statements fall into your lap and suddenly mom’s annuity, CD, and life insurance proceeds are another task. Putting her to rest and grieving should be the most important things. If mom didn’t have a plan for her estate, and any disagreement arises among family members, get ready for a fun probate process. One of my forward-thinking job responsibilities is to help you get introduced to the appropriate estate planning professionals. We want to help safeguard your assets and make sure your family never has to wish they could revive you just to kill you again for leaving behind this big mess. I’m also here, to help clean up that mess. To help you mix the recipe of your financial life with this gift of money that your loved ones worked their entire lives to build and gift to you. My priority is to help you make good, well-thought out decisions, after giving it some time.

Every so often, through a referral, or someone who finds us through Dave Ramsey, I come across someone who has been sitting on cash or an investment that mom or dad left to them three or four years ago. One of my roles is to help make sure that three months to a year wait period doesn’t turn into three to five years. When you inherit an IRA, you can set up what’s called a Beneficiary IRA and take minimum distributions from it each year, which helps to spread out the tax liability and keep the investment in a tax-deferred vehicle. You can withdraw funds all at once and take a big tax hit in one year, or you have five years to take it out as you see fit. But if you inherit an IRA and don’t make a decision with it within that first year, you lose the privilege to take income from it. You’re forced to pull it all out at the end of that fifth year.

Also consider this. Your friend inherited $250,000 and let it sit in a bank account for the past 3 years. Not to say this is the best thing to do with the money, because it depends on your friend’s goals, age, and overall situation, but if she put that money into an S&P 500 index fund in March 2014, she’d have $319,545 today. It’s good to not rush into a financial decision after someone’s passing. Especially if you’re working with a new advisor. Take your time, but not too much time. Not every advisor has their best interest at heart. Make sure they find one who does.

Recently divorced

A divorce can be an emotional train wreck for some and absolutely liberating for others. Just like an inheritance, it’s important to take your time but not too much time. I’ve seen divorcees who are given half of their spouse’s 401k, which was granted on a specific date. That 401k that had $200,000 in it entitled them to $100,000. As the divorcee takes time in filing the appropriate QDRO forms, the market grows and grows. A year goes by. If it had been all of 2016, assuming it was invested in some good growth stock mutual funds, that’s almost 12% of market growth. They missed out on $12,000 of growth by waiting. If you know someone who is recently divorced, make sure they have a good financial coach who can be there to listen to them and to help guide them to make rational decisions for their future.

Beyond just the decisions of how should I invest this new retirement account that was split up from the divorce, it’s also important to figure out where your income is coming from. For a stay-at-home parent, you need to ensure that you know the terms of when your spousal and child support run out. Make sure you begin to think about ways to earn an income should that support stop. Do you have life insurance on your ex-spouse? Could you use your ex’s social security benefit instead of your own? These are great questions that need to be answered. While it’s an emotional time, the more you put off planning, the more you risk doing irreparable damage to your finances.

On the other side of the coin, if you are a working professional who is recently divorced, it’s important to figure out how much of a setback the divorce is to your plan. You just gave up your home and half of your 401k. What’s next? How do you make sure you’ll still retire with dignity while making support payments?

A baby is on the way.

Imagine that feeling that a mother has when she quits her job to stay home with the kids. It can be liberating or terrifying. Often times, it comes down to knowing what you can and can’t do financially. Families who make these decisions based on planning, not just an idea that comes out of thin air, are able to accomplish this feat with much less stress. We have the capability to design a plan that illustrates what life would look like if mom stopped working. Does it work? Is it better if she works part-time? I’ll tell you one thing, it’s better to know that at the beginning, than to look back with regret, saying “I wish I spent more time with the kids. We have more than we need financially.” Or “I wish I had known how far behind we would be because I haven’t worked over the past 20 years.

The friends you know with kids need to have the appropriate life insurance. Don’t let them be the ones who you donate to a go-fund-me page so their kids can go to prom after dad died. When raising a family, it’s important to make sure that you are keeping track with retirement and setting money aside each month. Don’t let yourself spend all of your money on your kids. They’ll resent you later when you’re living in their guest bedroom because you never reached financial independence.

You know how lost many people feel when their baby is sick for the first time? Trying to keep a human-being alive is overwhelming sometimes for parents. Make sure they have someone looking out for them financially when they’re driving the kids to soccer practice and dealing with tantrums.

Your super responsible friends.

We all know people who are always on top of things. If you’re one of those people, I truly appreciate it. I love it when I send out a form that needs to be signed and it’s back in my inbox an hour later. Many of my clients need me because it’s hard for them to keep up with their fast-paced lives. There’s not enough time in the day to figure out how much you need to put away into your IRA’s this year and whether your disability coverage is sufficient, while owning a business and raising a few kids.

Some of the best savers are the ones who are always on top of things. But just because they’re good at saving, doesn’t mean they have the best financial coach. Ask the people who you look up to, who helps you make great financial decisions? Often times, these folks embrace the full financial planning that we can provide for them. They want to be able to see the impact of their decisions 10, 15 and 20 years down the road. So if you know a couple or an individual who is always on top of things, put it out there, “I think you would work well with our advisor. He would like you. Who helps you make financial decisions?”