Question:
We have a financial adviser/money manager that we’ve been working with for many years. I honestly have no complaints, as we are on track to meet our goals.
However, we have an outside account. It started out as a play account where we’d research a stock and invest in what we thought would do well. We’ve had our winners and losers. The account is substantial now. Our adviser just found out about it, and I think he is a bit hurt.
The problem is we’re not ready to turn over the funds for him to invest. Are we breaking some sort of unwritten code of conduct? Do others do this? How do you react when this happens to you?
Answer:
It is perfectly normal to have “play” accounts outside of your managed assets. If you are working with a money manager, an outside account allows you to explore a different asset class or level of risk that your manager may use. If you are working with a financial adviser, you can still have the account; however, your adviser should know about the assets so they can properly plan for you.
We believe you should have someone look at your asset allocation as a whole. For example, if you decided to invest 10% in The Coca-Cola Company (NYSE: KO), and your money manager places 10% of your investments in Coke as well, you can easily become overweight in a position. A financial adviser can consider your asset allocation for your stage of life, liquidity needs, cash flow needs, and your risk tolerance.
We often have clients who call with a “hot stock” tip that they are itching to invest in. We review the stock and if it doesn’t meet our criteria, we let them know. If they insist on investing, we separate the money into a “Las Vegas” account to let them invest as they wish. We call it a “Las Vegas” account, as we remind the client that they’d likely have more fun in Vegas than watching their investment go down. That’s not to say some clients haven’t picked winners too. The point is this though: We have the benefit of knowing of the account. We can modify the rest of their financial plan to account for the alternative investment.
Money management is certainly difficult, but when you are providing financial planning, implementing tax strategies, estate planning, and accounting for liability and risk tolerances—financial planning becomes a full-time job. You should be nimble enough in your plan to accommodate any changes that come, whether it is a market swing, an unplanned expense or government legislation. Case in point: at the end of last year, we didn’t know what would be happening with the tax laws. This year we have higher capital gains for high-income earners, in addition to the Medicare surtax on investment income. With little insight as to what Congress would do, we decided to take capital gains for clients last year.
Additionally, as financial advisers, we have staff dedicated to the different aspects that make up a client’s financial plan. Moreover, we even consult experts—while we understand the need for proper insurance planning for our clients, we consult experts whose sole job it is to help companies buy health coverage for employees. In our opinion, the financial landscape has become increasingly difficult to navigate alone. We believe you need to consult experts in each field. A financial adviser acts as a quarterback of sorts, bringing together all the pieces to make a comprehensive plan.
At Henssler Financial we believe you should Live Ready, which includes understanding the difference between money management and financial planning. If you have questions regarding your financial future, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.