Managing your assets like (or with) a professional

Our finances have many components, and we all want to maximize the benefits of our assets. But in what situations are we better off consulting with insurance agents, mortgage brokers, investment managers and financial planners, and when can we manage those issues ourselves?

Personality, ability, time

Firstly, let me begin by saying that many people do a good job of managing their assets.  They are educated and can use the incredible resources available today to make good sound financial decisions with their money.  What they don’t know, they ask friends or family, or find appropriate answers on-line.  They take the time to make good decisions that help them build wealth and manage their expenses over time.

However, there are also many people who despite being capable of managing and controlling the different elements of their finances unfortunately lack the time to implement their plans properly. They might even go through the years on ‘cruise control’ until they recognize the ramifications of their lack of attention, often only reaching out to a financial professional when they realize they are causing significant harm by not devoting sufficient time to their finances.  Those who recognize early on that they need help can avoid that feeling of regret others feel when looking at their neglected portfolio of assets.   These individuals need to realize early on that it makes financial sense for them to pay for a service even though they might be able to do the job themselves.

Different Stages in life

When young couples request financial planning services their needs are generally very different than those in later stages of life. The main purpose of such a meeting is to focus their mindset, to improve financial awareness and maximize their earnings and savings in the decades of earning power ahead of them. The slight irony is that they have to be financially mindful in order to take this step, but the knowledge they acquire at a young age helps them in an inflated manner over time because of the many years the advice can be implemented (a bit like the potentially very large compound interest they receive on their savings). This kind of meeting with a financial planner or insurance broker is usually a one-off, as they move forward with a vastly increased knowledge of how to set themselves up for the next couple of decades.

People in their late forties approaching a financial planner are in a very different place. They may have larger expenses on the horizon possibly anticipating their children’s weddings and financial support of the young couple. They will hopefully have about a couple of decades of earning power ahead of them, but at this point it is crucial that their finances are structured so that they can meet their short and medium term expenses, while simultaneously ensuring they up their savings rate to fund their retirement. These meetings tend to be periodic – the initial one to review their pension set up and overall financial situation and ensure their assets are invested correctly.  Follow up meetings every few years, or if and when there has been a significant change in their financial situation can ensure they stay on track.  I like to give the analogy of an annual ‘well visit’ to your GP doctor to ensure you are track with your health.

People in their sixties approaching retirement, work with financial professionals to focus on immediate steps and transitioning into retirement with the smaller number of potential earning years ahead. Earnings need to be maximized with focus on achieving one’s pre-retirement goals.  All investments need to be evaluated to ensure they are at the appropriate risk level.  Sometimes risk needs to be reduced while other times it does not (and one might even want to increase the risk profile). As retirement approaches, cash flow, tax optimization and liquidity issues become major concerns and often there are many tweaks that need to be made in one’s plan. Meetings held annually, if not more often are often necessary during these critical transition years as there tend to be many evolving elements to be considered like one’s changing insurance needs.  Life insurance and disability insurance are less important at this stage with health and long-term care becoming more of a priority.  

Fiduciary relationship

At what point should a family seek a fiduciary relationship – a trusted ‘outsider’ who takes care of money or other assets? The answer to that question depends entirely on the relationships and personalities involved and the complexity of the family dynamics. Many prefer to prepare a plan and execute it themselves. However, if for whatever reason that will not work, a family should consider a fiduciary relationship in order not to jeopardize the cherished personal relationships in the family, which can be strained by struggles with financial issues. 

Unfortunately, a major cause of friction between siblings and intergenerational family members is rooted in financial issues. Sometimes there are more than enough funds, however, some parties resent if and how they are being spent, or alternatively there are insufficient funds and some parties feel they are carrying more of the burden than others.

As parents age, they sometimes recognize that they have less desire to spend time on their assets. Before their mental capacity diminishes, many appoint an independent professional to be a steward of their wealth, rather than appointing one child to the task and potentially sidelining others. Typically, financial professionals, lawyers and accountants are appointed trustees.

Hoping for the best, being prepared for the alternative

People who set their finances in order do so in the hope that they will be able to use their funds as they wish and when they wish. However, sometimes different life events such as illness or death override the original plan. When someone’s partner suffers a debilitating illness or death, the survivor suffers a huge trauma which frequently impacts their emotional stability. It takes time to recover from such a loss, and often the survivor does not have the headspace to think about finances, regardless of how necessary it may be. However, if there is an existing relationship with a financial professional it helps mitigate the overwhelming feeling of not being able to cope with the financial minutiae, and makes the transition much easier.

Prevention is better than cure

We don’t only go to the doctor when we are sick. There are times when we all must go to medical professionals for tests to ensure we are healthy. We do those checks to prevent ourselves from developing serious illnesses due to neglect. It’s a similar situation with financial professionals. Consider the potential benefits of working with lawyers, insurance agents, or financial professionals to avoid financial neglect that can negatively impact on your long-term stability.

Is there a financial issue you would like us to cover? Email with your suggestions.