Undoubtedly you have, at some point, been exposed to someone from Generation Y (born 1978-2000). It could be in the form of a colleague, an employee, restaurant server or even one of your kids. Gen Y, sometimes referred to as Millienals, Gen Text, and Gen Why have a unique set of characteristics. These characteristics often leave others from other generations, mainly baby boomers, scratching their heads. Since most financial planning firms tend to be owned by baby boomers, and most new financial planners tend to be Gen Y’s, conflict and misunderstandings because of generational differences are common. Fortunately, many can be solved with a little intergenerational coaching!
In theory, it seems like such a great idea. The greatest fear of a retiree is living longer than expected and/or outliving his/her money. Only slightly less worrisome is the similar risk that the retiree lives so long that inflation erodes wealth and income to the point that the retiree can’t maintain his/her standard of living. Yet there is a single financial services product that tackles these two fears head-on, with rock-solid guarantees (at least as long as you buy from a strong company): the inflation-adjusted immediate annuity. Or for those who are a little older with a shorter time horizon (where inflation is less of an issue), the even-more-widely-available traditional immediate annuity. But despite the apparent “perfection” of the solution to address the problem, immediate annuities are just a tiny fraction of overall annuity sales, and most clients are completely unwilling to put any money into them. So what’s the deal? If immediate annuities are such a great solution, why doesn’t anyone want to buy one?
For many planners, passive and strategic investment management is the way to go. As such planners often point out, the evidence is mixed at best that any money manager can ever consistently generate alpha by outperforming their appropriate benchmark. Accordingly, as those planners advocate, the best path is to minimize investment costs as much as possible (since we know expenses we don’t pay is more money we keep in our pockets), and investment allocation changes should only occur via a regular rebalancing process. Yet rebalancing does not always improve your returns; sometimes, it actually reduces future wealth. So if you try to come up with a “passive” rebalancing strategy that only enhances returns and doesn’t ever reduce them… does that mean you’re actually being active after all?
A core aspect of the financial planning process for many planners is not just the analysis and development of recommendations for clients, but the embodiment of that work into a written financial plan document. In the plan presentation meeting itself, some planners use this written document as a guide to walk the client through the analysis and recommendations, although many simply focus on key recommendations and points for the client to understand, and let the clients simply take the written document with them.
Yet once the clients leave the office, written financial plan in hand, how many of them ever crack the spine open and take a look at it sitting at home? Anecdotally, it seems to me that most planners agree on the answer to that question: virtually no one ever opens up their financial plan document at any point after they walk out of the planner’s office.
Which begs the question: if “no one” ever reads the written comprehensive financial plan that’s being delivered, why do we keep producing them?
For most financial planners, the focus of college planning advice is accumulation based. After all, it seems that almost by definition, "planning" for college means acting in advance by saving up money ahead of time so that the costs can be funded when the child is ready to matriculate. If you just pay as you go when the tuition bills show up, you may be funding college, but that doesn’t really constitute "planning" does it? Yet the reality is that many actions can be taken in the final high school years leading up to college beyond just long-term accumulation planning; however, most planners seem to skip these client conversations about so-called "late stage college funding planning" opportunities, despite the potential for a high impact on the actual client costs to fund college. For the most part, it seems this is by no means willful negligence, but simply a lack of awareness about the strategies that really do exist. We’ve just never had much opportunity for training about how to do this effectively. Until now.
It has been popular in recent years to bash volatility, and standard deviation as its most common way of being quantified, as a terrible measure of risk. Not just because of the criticisms associated with standard deviation itself and whether market returns are normally distributed, but at a more basic level: is the up-and-down volatility of an investment what a client really cares about? Shouldn’t risk be more focused on loss, the impact of losses on goals, and the probability of achieving goals, than just the raw choppy volatility itself? Yes, perhaps, but on the other hand maybe we don’t give volatility itself enough credit for the risk that it does create: volatility in investment returns leads to volatility and uncertainty about the timing of retirement and other goals and the risk that they cannot be achieved in the time anticipated.