Our team provides what we call “real wealth planning” to clients. We talk to prospective clients a lot about it. It is at the epicenter of all that we do to serve, relate to, understand and interact with our clients. (P.S. real wealth planning is not investments, selling insurance or pitching an annuity contract) So, the question becomes- what is the big deal with planning and how do motivations of your advisor play a part in your results?
First, we believe real planning is important to our clients because it helps them live their best life and leave a powerful legacy! That is a very big deal indeed. Part of the power of this process comes from its ability to answer critical life and legacy questions in a clear way that instills confidence and shapes decisions. (See more about the details of what planning is, here)
Second, why do the motivations of your advisor play a role in the results that you receive from the planning process? For wealth planning to yield maximum results for your family, your advisor must want the same things you do and be motivated by the same. Most families’ desired results are long-term success for themselves, their family and their community.
To the extent your advisor is motivated by things that don’t serve this outcome, the power of real wealth planning becomes subdued. What we are speaking of here is “conflicts of interest” in advisors’ business models and how they are paid when providing advice to you. Here are some examples where conflicts of interest could be to your detriment:
Common Question: Should we pay off our mortgage?
The Smiths are approaching retirement and accumulating funds for their goals. They have saved a measurable sum in a regular investment account over the last 10 years. They also have a mortgage on their home but have always longed to be debt free, so they ask their advisor if they should take funds from their portfolio and pay off their mortgage. Their advisor is like many in their industry and is paid based on the value of the investment portfolio. The advice will conflict because if the Smiths pay off their mortgage, the advisor will earn less on the lower investment balance. Ideally, the advisor would act as a Fiduciary in this example, and disclose the conflict of interest to the Smiths.
Common Question: How much insurance do we need?
A young family, the Jacksons, are busy raising children and rely on one income so that Mrs. Jackson can stay at home to raise the children. They are worried about what might happen if the family “breadwinner” becomes disabled or unexpectedly passes away so they ask their advisor how much insurance they should have and of what type. To the extent their advisor also sells insurance and collects commissions, the advice is conflicted because the advice has a direct bearing on the level of commission that the advisor collects. Similar to the first example, ideally the advisor would disclose this conflict of interest.
We believe that real wealth planning needs to be comprehensive, ongoing, written, proactive, and performed by a fiduciary with the right motivations. As fiduciaries to our clients, we have made a legal promise to put client’s interests ahead of our own and, when conflicts arise, to disclose those to our clients. When planning is performed with the right motivations and is combined with the proper skill set and process, it can be a very powerful force.
Now that we have addressed why real planning is so important, if you know you are missing this kind of partnership or have unanswered questions we would enjoy the opportunity to meet you and discuss your goals. One of the most rewarding parts of our work is meeting people and acting as a trusted guide to help them on their journey- I hope we can help you along yours!
Published: June 29, 2016
Authored By: N. Perry Moore, CBEC™, CFP®, MBA