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Published on: 03/27/2014 • 11 min read

3 Things Most Financial Planners Do Wrong

Three Things That Most Financial Planners do Wrong!

Usually when I talk with reporters they ask me my thoughts or ideas on planning topics. Last week, I got a very different question that really made me think. The reporter asked “What are the three things that most financial planners do wrong”?

That reporter knows that I have been focusing on assisting clients of all walks of life for over 15 years and that a question like that would really get me going. My answer of course was, “How would I know…I have never made any mistakes”.

After he stopped laughing at me (because of course we all make mistakes…but those that succeed learn from them), it really led to a great discussion. The whole team at Avidian Wealth really believes that the client’s success is derived from combining great planning and prudent investment management.  Therefore, I thought that it might be a good idea to share a few of these “planning errors” and stories with you.

Selling vs. Advising:

In a new financial advising relationship, most financial advisors want a client to say “yes”. That is what we all learn in our training courses. Many advisors, especially when new in their career, hear a lot of “no’s”, so it is only natural for all of us to want to hear yes more often. At the end of the day, the important thing is for the client to be better off down the road and help them make the hard decisions even if you know they won’t be happy about it. Here are some hard examples that financial advisors face throughout their careers.

1. My last broker didn’t get me the returns I wanted…will you get me higher returns? Of course, we all want to say yes…so the client will say yes, but the right answer should be, “How did you determine the returns you ‘wanted’?” (more on this in a moment).

2. I really want to retire at 60. I am 55 and I feel that haven’t saved enough. Will I be able to retire at 60 and not run out of money? All advisors want to say, “That’s what I am here for…we will build a plan to get you to your goal!” What really should be said is “Let’s discuss all your goals and make sure that you can reasonably reach them with a high probability of success. If we can’t hit 60, then we will find a goal that is reachable – is that OK?” more on this in a moment).

3. All my last “advisor” wanted to do was sell me insurance policies. I don’t believe in insurance. Can we work together and never talk about insurance? Most advisors don’t want to be seen as sales people and will say “sure”, but what if the client really needs insurance? The correct response to the client needs to be: “Why don’t you believe in insurance?”  This way one can determine if the client really doesn’t believe in “insurance”  or whether it was really insurance salesmen!

Bottom line, as a financial planner, you will learn more about the client when you ask the right questions even if the answers are NOT what you want to hear!

Focusing on Investment Returns and Not On Your Goals:

Many financial advisory and financial planning relationships start off by talking about investments (stocks, bonds, mutual funds, etc.) and the returns of a client’s portfolio vs. “benchmarks” like the S&P 500. All investors want to work with financial advisors want to “beat the market”.  However, at Avidian Wealth we always discuss why benchmarking is a bad strategy, it is truly impossible to actually do over a long period of time.  Furthermore, in order to “beat the market” you have to take on substantially more “risk” which can really work against your real investment goals.

Most of us know that the S&P 500 returned over 30% in 2013. If your advisor (or you) missed that mark, did you do a bad job? The correct answer is “Why should I really care what the S&P 500 did in 2013?” In 1999, most financial advisors had clients (which happens during any “bubble”) tell us to buy more “Tech Stocks” as they wanted the 40% returns.  Of course, that delusion was quickly shattered during the “Tech Wreck” in 2000-2003 as when many stocks lost over 70%! If we had said “yes” to our clients, and bought more tech stocks, did we really advise our clients in their best interest,  or did we just appease them so they would not “fire” us?  Whose interest did we put first?

Bottom line, the S&P 500 will always rise and fall (don’t forget it was down over 37% in 2008). You would have “beaten the benchmark” if you were down only 35% (that means a $1,000,000 would have been down to $650,000 on December 31, 2008), but is that a victory? The answer is NO! The only true benchmark you, and your advisor, should be worried about is whether you are on track to meet your goals.

You must believe that you have a financial plan you can stick with in both good and bad markets. Most investors make the mistake of wanting to buy more into the market when it is doing well (I call that “buying on greed”) and want to “go to cash” when the market is doing poorly (I call that “selling on fear”). When you follow the pattern of buying on greed and selling on fear, you do exactly the opposite of what you are supposed to do (buy high and sell low). A good financial advisor will help you follow the “golden rule” of billionaire investor Warren Buffett, the Oracle of Omaha, who said:

“Investors should remember…if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”

With a well thought out financial plan, your financial planner should be able to identify the return you need to achieve your goals. I have always called this my client’s “Hurdle Rate”. That is really the only benchmark you should care about!

Focusing on Financial Products or Tax Savings vs. Clients Goals:

Many financial advisors want to sound smart and sophisticated to their clients and throw out terms such as:

  • Intentionally Defective Grantor Trusts (IDGT),
  • Family Limited Partnerships (FLP),
  • Irrevocable Life Insurance Trusts (ILITs),
  • Internal Revenue Code Section 1031 (1031 Exchanges),
  • or Simplified Employee Pensions (SEP IRAs),
  • Master Limited Partnerships (MLPs).

I have absolutely been guilty of this one (so my personal clients can stop laughing now).

Many advisors focus their efforts on saving taxes and/or protecting wealth by using a myriad of technical and confusing planning strategies (which could be some of the vehicles listed above). In my experience, most clients want to take care of their loved ones, save taxes, and protect wealth. Because of that belief, advisors assume their clients would jump at the chance to move forward with their brilliant planning strategies (this happens with financial advisors, CPAs, and Attorneys), however, they are often disappointed by the response of “I want to think about it”.  What those clients are really telling us (and you should tell your advisor) is: “I have no idea what you just said and how does that help me based on my goals?”.

I believe the best financial planning starts with our having a deep, meaningful discussion with the client about their family goals and issues, current assets, and “what keeps them up at night”. I suggest if you and your financial advisor haven’t had a talk like that in a while, it is probably time to do it.

In the past, I have worked with many clients who have not:

  1. Signed or updated their Wills,
  2. Sat down with their CPA to review their tax returns,
  3. Had a meeting with all of their advisors in one room (financial advisor, CPA and attorney) at the same time to discuss – them.
  4. Determine how best to “coordinate” their financial planning goals, with good strategies, to make sure they don’t run out of money in retirement. That their family is taken care of at the end of the day.  There is a prudent plan to enter retirement (or exit their business if they own their own business), and that they are paying the least they can in both income taxes and estate taxes.

My experience is that it these planning ideas end up in limbo not because of time, cost, or biases.  It happens because meetings are not fun and they are confusing to clients. Advisors tend to “tell” their clients what to do instead of trying to understand what they want and then finding a plan to get them there. A few years ago, my partner, Cy Cattan and I were referred to the client of an attorney here in Houston. The attorney was a GREAT attorney, and the client was very smart (if not overly analytical). The client was a business owner who had known the attorney for many years, and they were also good friends.

The client asked the attorney “I have a son in the business that working with me. How can I sell or transfer some of my business to him”? Then the attorney came-up with a great plan which allowed the client to make a gift of a certain amount of money to an IDGT where the son would be trustee, and beneficiary, (an added bonus was that the trust was set up as a Generation Skipping Transfer Tax Trust – GST Trust) to “season the trust” and then sell a portion of the business to his son as an installment sale. To geeks like me, I loved the plan. The client said – “let me think about it.”

So why did the client not say “yes” to the attorney, and friend, who had the client’s best interest at heart? The answer ended up being that the client:

1.Wasn’t sure he fully understood it

2.Wasn’t sure if there might be a better “mousetrap” out there (this client loved reading about estate planning techniques)

3.Based on #2, this client was in “paralysis by analysis” and just could not make a decision

4.Wasn’t sure he wanted to sell his son that much of the business, and how it would affect what he was also leaving for his other two daughters (in his estate distribution).

5.Wasn’t sure how it would impact his wife’s retirement if he were to die.

Bottom line, we met with the client, got to understand his goals, used our planning software to model a few scenarios and “tweaked” the plan. Within several weeks, the client got back to his attorney and executed the plan.

The lesson learned is that by listening to the client, and modeling in “real numbers” what this would mean to him, his wife, his son, and daughters we got the job done. His decision to move forward was not based on our building a better mousetrap or saving a few more dollars in taxes. The client moved forward because he now understood that the slightly revised plan would work given his complex (and sometimes competing or conflicting) goals.

In the end, working with a financial planner is really all about you and your financial goals. Before executing your financial plan, you may have better results (and feel better) if you have a great conversation with your advisory team. Once the team is working together to achieve your goals, and when everyone is on the same page, I bet you will find it much easier for you to say “yes” and feel good about it!


Financial Planning and Investment Advice offered through Avidian Wealth Management (STA), a registered investment advisor.

STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

As always, a copy of our current written disclosure statement discussing our services and fees continues to be available for your review upon request.

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