July 30

3 Key Steps in Financial Planning


3 Key Areas an Advisor can help in Financial Planning

As Seen in the Bradenton Herald | Investor’s Column

July 30, 2019

Morningstar and Vanguard both published interesting research speaking to the value of working with an advisor. While they both concluded that the profession provides significant value, neither spoke to stock tips, annuity selection or fund picking as a value add.

Rightfully so, their analysis placed a higher value on helping clients put their financial houses in order, coordinating their investments with their planning and maintaining discipline during periods of market volatility.

I liken our true value to a quote by General Omar N. Bradley: “You must navigate by the stars, not the lights of each passing ship.”

That is, we keep our clients focused on the important issues and help minimize the anxieties that come along the way.

So what financial information should you be paying attention to? The following are three key areas you want to make sure you have a good handle on and to review at least once a year.

Asset Protection

You’ve worked hard to create wealth and a rewarding lifestyle. A good advisor should understand that when helping a client; they need to understand loss aversion.

Psychologist Daniel Kahneman won a Nobel prize in economics in 2002 for his work on this ground-breaking theory. Loss aversion contradicts traditional economics, which states that we should be indifferent to an equal chance of gain or loss.

Loss aversion states that our feelings of loss will be twice as strong as our reactions to a gain.

A good financial plan accordingly will take into consideration our fears by ensuring we address any areas of potential threats to our lifestyle. My definition of asset protection includes the areas of estate planning, insurance and liabilities.

Estate planning is not just for the rich, nor is it only about death. By the time a couple reaches 65, the chances of one partner becoming incapacitated rises to over 50%. Without basic estate planning documents, your loved ones will have a difficult time making medical and financial decisions on your behalf without a court order and possibly a guardianship appointment.

This, of course, takes time and money and can lead to additional frustration on top of dealing with an incapacitated spouse.

Estate taxes have changed dramatically in the past several years and as such a review of your older documents would be in good order. Additionally, Powers of Attorney are often a source of conflict with financial institutions and should be reviewed regularly to ensure there are no issues with acceptance.

Insurance should cover the areas of liability, life, long-term care and disability. Ideally you should understand any gaps in your policies and plan and discuss the risks and rewards of self insuring versus buying insurance.

Lastly, a review of any outstanding mortgages or loans should complete the review of your asset protection plan. In some cases, advanced planning may be required for issues revolving around domicile, divorce, creditor protection and other unique situations.

Retirement Income

The next areas to review are your liquidity, sources of income and the tax burden of your plan. A good plan should consider and accommodate all three of these areas to help address your longevity in retirement and any potential hiccups along the way.

I often see too many retirees who have traded their liquidity for a product that likely won’t provide a sufficient rising income and further harms their tax planning.

I always start with a review of the tax return and a client’s balance sheet. There is a tremendous amount of value in reviewing tax returns. We are able to get a good understanding of sources of income and how tax efficient the assets are at producing growth and income.

Given the changes in the tax plan this past year, there are some good strategies to consider for smoothing out future taxable distributions. This could include some changes in asset location, charitable strategies and Roth conversions in addition to more advanced strategies.

The ultimate goal in this phase is to pursue a predictable income that can help maintain and possibly enhance your standard of living throughout the rest of your life. A good understanding of the best practices around dynamic distribution strategies, social security rules and total return concepts can add a lot of value to the plan.

Portfolio Management

The last step to consider in your financial plan is portfolio construction. Investment management has adapted more in my 24-year career than at any other time — but ultimately there are just a handful of strategies.

By constructing a portfolio that is aligned with your family’s objectives, you give yourself a much better chance at success. What’s important here is to find a strategy that makes sense to you, rebalance periodically and stick with it.

The big mistake comes when in the middle of chaotic markets, you tell yourself what Sir John Templeton deemed the four most dangerous words in investing: “It’s different this time.”

Before you succumb to such a belief and sell out, I implore that you to seek a qualified professional to run the numbers and review the ramifications.

What’s most important to you and how can you best secure it? Financially speaking, the answers are most likely not going to be found watching investment talk shows.

Focus on what you have most control over and put together a plan to best address the various issues. Review your objectives and how your financial decisions are moving you toward your goals and away from potential obstacles.

Once you have put the time and effort into your plan, don’t forget to stop and smell the roses.

Gardner Sherrill, MBA, CFP is an independent Retirement Wealth Advisor with Sherrill Wealth Management. To learn more visit www.sherrillwealth.com Securities and advisory services offered through LPL Financial, A Registered Investment Advisor, Member FINRA / SIPC.


advice, behavior, counterintuition, planning

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
  • Home
  • /
  • Blog
  • /
  • 3 Key Steps in Financial Planning

You may also like

Creating a tax-efficient social security strategy

Prepare for 5 Tax Traps in Retirement

About the author

Gardner is a CERTIFIED FINANCIAL PLANNER and principal of Sherrill Wealth Management in Bradenton, Florida. He has spent 20+ years in the wealth management field helping families negotiate the various obstacles and opportunities that retirement provides them. Read More

Subscribe to our newsletter now!