While a great deal of attention may be given to setting client goals and cash flows in the initial planning process, we often find clients and advisors alike taking only a cursory look at those items when it comes time for a plan update. When the client’s goals and life have not really changed much over a few years, the plan may not be altered significantly beyond updating the account values and checking the results. If the plan remains in the comfort zone, everyone is satisfied and little remains to be done. If this describes your typical process, then both you and the client may be in for some surprises down the road.
Remember when you created the initial client plan and presentation and how you collected and entered a great deal of information about the client and about the client’s goals? That process was critical to building a useful plan for the client which would provide confidence in achieving valued goals. Interestingly, you may need to develop much the same level of information and fine-tuning when you update a plan (at least on an annual basis as quarterly will be too often) so that the plan remains relevant. Let’s take a look at some examples.
Among the items we gather for building our initial plan are the client’s annual earnings, savings, tax status and the like. Typically, we can expect the client to inform us of a change in marital status, their retirement or taking a new job and we will have some indication of whether planned savings have been made or goals funded by reviewing the transactions and values of client accounts. However, there are other items that we may easily ignore in the update process and should not. For example, here are some of the major items to consider:
Partial Year Issues
Since updates and status reports occur rather more often than annually, the advisor will be faced with the remaining current year flows likely being lower than the amounts we expect for a full calendar year. We do not want to overstate what is coming in or going out by simply using the usual totals. For example, where the client puts contributions in a 401(k) plan monthly and we have entered an annual amount (or percentage) in the data entry, a partial year period is going to be wrong if we do not separate out the current year from future years and supply an appropriate number. The difference in the flow may not sound like much, but in plans without a lot of flexibility, it could make the plan result change, either way, and not accurately reflect the actual situation.
Another related partial year issue is the timing of the birthdays for client and spouse and its effect on the plan. If the timing is right (or wrong, depending on your point of view) the plan might show one more or one fewer years remaining in the plan than would actually be the case. An extra year of spending or one fewer year of savings and investment growth might make a real difference in plan results, though again plan dependent.
Does this sound like a lot of work to do for a client when preparing at least annually an updated status report? The suggested steps are definitely more than a cursory check on things, but is not reasonable confidence the aim of the process you have “sold” to the client? How might you be sure that the plan result – confidence level – in a report is real if you do not make sure the numbers being crunched are accurate? Yes, some of these flows will cancel each other out if they are equally off in the opposite directions, but how sure can you be that everything is in balance and correct for purposes of the client’s plan if you do not update them?
Once you have a process in place for handling the recurring status reports and monitoring, a comprehensive annual updating will not be as burdensome and will show the client that you not only understand their real life situation but are making sure the plan actually tracks it.
George Chamberlin has been working in the legal and financial industry for over thirty years, including working at Wealthcare Capital Management from 2002-2009. George practiced law for several years before focusing on writing, planning and software development in the estate planning and financial planning areas. During his time at Wealthcare, George wrote weekly e-mails for advisors and their clients, engaged in basic and advanced financial planning and estate planning as well as working on a variety of other Wealthcare projects. Since 2009, George has worked as a registered investment adviser representative in his own firm, meeting and planning with clients, and more recently as a consultant to financial advisors, including Wealthcare advisors, on a variety of matters including advanced financial and estate planning.
George Chamberlin & Mentor RIA Consulting © 2015