Sunday, November 19, 2006

Who Needs the Financial Planners the Most? The Struggling or the Rich?

One of the fascinating and frustrating things financial planners have to deal with is the knowledge that in a sense, the planner has almost as big a task in serving a client with lesser financial assets as he or she has in serving a client with much greater sums to manage. The remuneration for serving a richer client is of course greater than that for serving a "less rich" client.

But the needs of the less wealthy client are in a real way much greater. Many clients do have enough, if it is well managed, and not eaten up by high fees. Consider the client facing retirement in a few years and perhaps finding out that she is not as well funded as she thought. Retirement, perhaps thirty years of retirement, will cost her (or you) quite a lot. Paying the bills, keeping up a home and car, and just living each day with fear of running out of money are really the more burdensome challenges.

Another client, a wealthier client, will eat well, live well, and fret about things like passing on as much of her wealth to the next generation as the tax man will permit, and in the way she wants, and perhaps accomplishing some personal charitable endeavors and all kinds of other goals. She has needs, but does not face anything dire. Her needs can of course involve overcoming significant challenges, but she won't suffer the same kind of anguish as the challenges facing the first client.

One of my personal peeves with the financial planning profession, is that not enough energy and creativity, in my opinion, have been directed to finding exemplary, non-exploitative ways to serve the first client. As far as the second, well, I think it's safe to say that most of the best planners, just like the Reverend Will B. Dunn in Doug Marlette's amusing comic strip Kudzu, feel a very strong call to serve the frightfully well-to-do.

As for the first client, I have heard one well-known speaker at a Financial Planning Association event a few years ago suggest in so many words, that you can't help that client, so just sell her an annuity and move on. I was, to be polite about it, very disappointed.

No, I cannot undo a client's lifetime of poor financial or life choices, or just plain adversity. But there are many clients who could still see a broad range of possible outcomes, with the better outcomes more likely if they are well served. But trading a sum the client now has for an annuity representing a substantially smaller present value (and pocketing a quick commission,) just does not seem like much help to me. That is what you get when you buy an annuity. I am not totally against annuities, carefully chosen, and particularly for clients like physicians with wealth protection concerns, but there are significant concerns for everyone but the salesmen and insurance companies about their costs, and about giving and getting understandable disclosure of those costs so that a financial lay-person knows what is involved -- well, does the term "surrender charges" mean anything to you? It should. If it doesn't, you are assigned to look it up for next time! hint. They can involve serious money.

We need to find better ways to serve you if you are more like the first client.

While we are considering "inadequately funded retirement" concerns, I would note that for those able to work, the usual financial planner's suggestion to keep on working a few years more and save every dollar you can in that time has some practical shortcomings -- I found one beautifully illustrative article awhile back in USA Today. The link is below. Retirement may come before you expect it.

A hopeful thought: Have you got something you always dreamed of doing?

Come back and see the Unknown Advisor soon!

Here's that story: Many Americans retire years before they want to

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