Tricks of the Trade

Financial Plans, or Retirement Plans, are typically completed using a software program.  An adviser meets with a client, reviews their situation, collects the information relevant to the plan, and then runs the analysis.  During the process of “running” the analysis, there are normally some features of the system that the advisor can adjust, such as the inflation rate, savings rates, etc… This process produces the plan.  The advisor then delivers and reviews with the client.  By and large, this is how it is done in most situations.

None of this is necessarily surprising or unusual.  However, you might be interested to know how we were trained at my prior firm. We were instructed, as we communicated with clients, to let them know that we were working on their analysis for a week or two – even though it was basically generated immediately.

The idea was to create the impression that there was a huge commitment of time and resources to this process, that we were working hard on their personalized analysis, in spite of how simple it really was.  Instead of simply being honest with our clients about what we provided, we had to mislead them about the process to create value.  In addition, once produced, we were taught how to sell the company’s products from specific pages of the report.

Unfortunately, I think too many ploys are used to help advisors and investment firms create perceived value instead of real value.

Trusting Your Advisor

Receiving investment, tax, or planning guidance is an important way for some people to develop confidence about how they are handling their money.  As you work with a Financial Advisor, developing a sense of trust that they are working on your behalf and are competent at their profession will go a long way towards helping you implement their advice.

However, if you are looking to develop a healthy relationship with an advisor, I would suggest that you develop standards for the level of information and education you receive.  I was trained at my prior firm on how to “connect” with my clients as a way to develop trust.  I was taught that if I learn what my clients’ real values are, if they open up to me, that they would trust me and then invest with me! I think this is a common practice in the financial services industry – train advisors to connect on an emotional level with clients.

I fully support the notion of getting to know the people that I work with and how their experiences form their attitudes and their goals.  But it should not be done as an alternative to fully educating clients as well.  I do not support advisors abusing the trust clients have placed in them and downplaying product features their clients may question.

The products that you invest in, and their costs, matter a lot to your financial success.  I would suggest that you make sure you fully understand:  1) what you are investing in; 2) the costs of the investments; 3) exactly how your adviser is compensated; and 4) how much total compensation they receive.

Retirement Plan “Leakage”

Apparently “Leakage” is a big problem for retirement plans.  I continue to read of industry commentators who believe that  people taking money out of their retirement plans is a “problem” that has to be “solved.”  OK, sure, I do not support anyone taking money out of their retirement plans – if they don’t have to!  Who would support that?  It is disappointing to see anyone withdraw from their accounts and diminish the value of an asset important to their future.  However, I am curious how many of these commentators have assisted real people.

I have been working with employees of mostly non-profit organizations for almost 20 years now and have dealt with thousands of people and have handled hundreds of distributions.  Many of these people are middle and lower income.  I can only recall one, maybe two, that were done casually. Seriously!  Most of these people knew what they were doing, understood its impact on their future, and felt bad that they had to do the loan or withdrawal.  Many were in costly debt and had few other resources.  But unfortunately, people make mistakes or experience bad luck – life happens!

So, it is just my experience – but I have quite a bit of it.  I have practically never encountered a client that took money out of their retirement plan that was not in a very difficult situation with seemingly no other good options.

Planning for Retirement

The Financial or Retirement Plan.  Are you in the market for a financial or retirement plan?  At PlanVision, we support planning a lot!  We actually think that the process of planning for your financial future is more important than the plan itself.  Plans can be riddled with flaws and subject to change on a daily basis – but the process of planning can you help you get more engaged in understanding how you can plan for your future.

But beware!  At the firm I used to work for, which I believe is the case for many firms, the financial plan is used as a tool to sell a company’s products or services – and it can be a very lucrative tool for the agent or representative as well.  So, is this a surprise?  Should it be?  Maybe, maybe not.  As an agent I was trained how to “sell” and position our products with this tool.  Almost all of the plans specifically recommend the firm’s products.   We were instructed to do as many as possible, because the number of financial plans you did was directly correlated with your numbers and your income – which was evaluated every week.  It was a great tool to gather assets – that was the goal.

Maybe there is nothing wrong with that.  Maybe that is fine and consumers should not be naive about this whole process.  But keep in mind that your financial or retirement plan is about your interests and your future!  And while your interests and your future may align with the sales interests of the person and company providing the plan, I am confident that in many cases they do not.