A CFP® Shares 2 Case Studies of Client Priorities Gone WRONG

WRITTEN BY: Gideon Drucker, CFP® AIF® ECA

I've recently started working with two separate financial planning clients who need help understanding what their plan truly hinges on and what is merely a shiny distraction preventing them from seeing the bigger picture.

With both clients, I've explained that my job is to provide guidance and answers to questions that NEED to be answered to put you in the best financial position possible...even if those aren't the questions that YOU come to us thinking are important.

A great financial planner is not an order taker or a Wikipedia page....spouting out answers to every question.

A great financial planner understands when a client needs to get out of their own way and when a client needs to ask a DIFFERENT question to ultimately reach their destination.

Example 1

A 47-year-old client came to us very focused on the fact that the tax abatement on her rental property is disappearing in the next few years and how that might impact her plan (and whether she should sell or keep renting the property out) as a result of the tax abatement/depreciation etc.

Meanwhile:

She has $400,000 sitting in money markets/CD's which have historically barely kept up with inflation.
She has two kids & no life insurance or disability insurance outside of employment (and even that doesn't cover 20% of what she needs.)
She has no taxable investments...so all of her investable assets are in retirement accounts that are inaccessible until age 59.5

Spending time analyzing the tax abatement & depreciation (both of which are what they are) in lieu of these fundamental issues is to miss the forest for an individual leaf. And even when it comes to the real estate question, it's not a simple math equation/analysis....and it's definitely not a question that "taxes" can answer.

Does she want to physically maintain the property?
Is the income generated worth the hassle?
What's the opportunity cost (in return and in time) for selling?
If she keeps it...what's the end game?

I also find that real estate questions around selling vs. keeping almost always boils down to how you want to personal experience & how you want to spend/organize your time as you get older more than anything else. All of the analysis in the world won't change the feeling you get (or don't get) of not getting that question about a leaky faucet from a tenant.

Example 2

A 45-year-old client came to us to asking about the investment academic research about the proper glidepath/wind down calculations for his largest investment portfolio.

Meanwhile:

He has a Roth IRA that have been sitting in cash for years...while the market has been on a phenomenal bull run.
He is in phenomenal financial shape: because of his spending rate, his financial goals, and his saving/investing rate he is on track to ALL of his short and long term financial goals.

Now the first bullet point around his Roth IRA is a common error I see...someone being obsessed with squeezing out an extra percentage point somewhere when there is a larger "less sexy" area of the plan that solving would provide 5x more value. Sequence of return risk (protecting against market volatility when you distribute funds from your portfolio) is important...but quite frankly...it's not so important for a 45-year-old doctor looking to work at least an additional 15 years that's adding 6 figures to their investments each year. All of the analysis in the world won't change that.

The far more important point here is the following: All of that analysis...what are we doing here? Aren't we trying to maximize your money to improve your life...and not the other way around? Sometimes my job is to let clients know when there are diminishing returns for more analysis and that you have "solved" what can be solved so go out and enjoy the day!!

Knowledge is good and making sure that you're missing anything is great...but you don't go to a doctor for them to show you the charts, you expect the doctor to explain what the chart means.

There are plenty of advisors that will tell you what you want to hear & provide the analysis that you asked for all while knowing how little it matters....not for any nefarious reason but because they think our job is to answer your questions.

it's not. it's to do whatever it takes to get you where you need to go. If you’d like some help getting there, you can schedule a 15 Minute Right Fit Call here.