You Deserve More Than Investment Management and a Retirement Plan

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I met a man recently who had about $10 million. He had never been to see a financial professional. He had made some bad decisions and had most of his money outside of retirement plans. I know you are probably thinking how lucky he was to have so much money, but I remember thinking what a shame it was that his mistakes were going to continue to penalize him.

For example, with most of his money outside of retirement plans, he had failed to take advantage of the tax planning strategies available. He had paid too much tax in the past and was now and would continue to be paying too much tax as a result of this decision over many years.

Some people have an aversion to receiving financial help and want to do it themselves. And we want to support them. We have no secret ingredient at Marotta Wealth Management. Instead, we openly and publicly publish our strategies as articles on our website. We strive to provide the necessary resources for anyone to prepare their own investment plan and meet their financial objectives.

And while I do think that you can self-educate and many can do it themselves, generally speaking, the value of an outsourced professional is their time and expertise. They might have more time than you to focus on your case and they likely have more expertise in developing a good plan.

For example, most investors on their own practice investment management and stop there. A rare few branch out to do some lite financial planning. However, almost no investors on their own practice comprehensive wealth management. It takes too much time and requires too much expertise for investors to do it on their own.

Investment Management

Most people seek the services of a financial professional to get help with investment management.

Your investments are the engine of growth to your financial plan, and many believe that you simply need to have enough money to be fine. “Just give me $10 million,” you think, “and I will be fine too. Just make me a lot of money and I won’t have to worry about financial planning, retirement accounts, taxes owed, or anything else.”

Most investors don’t know how to judge investment management other than by its recent returns. It is the basis of so many scams that seem and are “too good to be true.”

Recently, a client had a significant amount of money invested with a hedge fund. I am not a fan of hedge funds. In this case, the investor had already been to two different meetings by the fund and was quite impressed by their returns. He wanted to invest more money. When asked, he did not understand what they were invested in. Two meetings and he still did not understand their investment strategy. I looked at their portfolio and found that they invested exclusively in “distressed securities.” Yes, it is true that in good times distressed securities have one of the highest upside potentials. If they don’t go bankrupt, they may make a lot of money. This is the perfect investment strategy for a hedge fund. They will try to make a large amount of money in order to maximize their 20% of the upside. They don’t care about you or your goals, they are only concerned about returns and their profits.

“Well if it makes more money,” you may say, “why not invest everything in a distressed securities hedge fund?”

Because life is littered with people who lost a significant amount of money in schemes like these. Risky endeavors like poor investments, Ponzi schemes, or distressed securities hedge funds may be the downfall of your financial goals. It may or may not have any troubles, but your financial goals are not worth risking.

This is where there is the first divide: Investment management is all about the investments. Financial planning is about you and your goals.

Lite Financial Planning

Some investment advisors are willing to say or at least imply that they will give you financial planning services.

Lite financial planning often develops a net worth statement and analyzes your savings cash flow in a so-called retirement plan. The professional will look at how much you are saving and if you are likely to have enough money or if you are in danger of running out. The calculation is simple and often results in a clear answer: You either pass or you don’t pass. It usually doesn’t include a safe spending or savings rate. If you are on track, they often don’t tell you what you need to do to stay on track. It usually focuses on your immediate spending and not your future financial goals.

Lite financial planning often costs an extra planning fee. Somewhere between $2,000 and the moon depending on how much they want to discourage the process. It is usually a one-time process. Those who prepare this lite financial planning are not usually credentialed as a CERTIFIED FINANCIAL PLANNER™. If they are, this planner will often be someone other than your regular financial professional. Perhaps as a result, lite financial planning will also probably not change your investment strategy.

I would wager that many of the generic advice articles we have written contain as much if not more financial planning advice than many of these lite analyses. And this is where there is a second divide: Lite financial planning is generic analysis applied specifically to you. Comprehensive financial planning is built bit-by-bit as specific analysis for you from the start.

Comprehensive Financial Planning

Financial planning is the process of determining what financial steps will best take you from your current situation to fulfilling your life goals. As with your life goals, it must change and evolve. Comprehensive financial planning is a bottomless cavern. It is never complete and never exhausted. We can only offer comprehensive financial planning; we can never say that we have delivered it.

In 2019, the CFP Board updated their definition of Financial Planning:

Financial planning is a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.

Comprehensive financial planning is all about the ongoing process of recognizing and meeting life’s goals. It is an iterative process that requires a lifetime to unravel. Goals change as do our family’s finances. What is important to us now is adjusted by what is important to us later. Children grow up and either have their own finances and are independent or don’t. Grandchildren either come or they don’t. We are left to react to what unfolds. Some charities become important; others slide from view. Your story matters very much to the financial planning process.

This truly personalized financial planning is what brings the most value.

While each component of financial planning is personal to your unique situation, each component part is also integrated with other components creating a dynamic and interconnected system. Integrated financial planning takes a holistic approach to how each component is set into the context of your situation and affects other areas of your finances.

Because we strive to offer comprehensive financial planning, the generic advice that a lite firm might dole out is easy compared to the work that we do. We are able to write extensively on how to practice your own lite financial planning and give that advice away for free because it does not compete with the level of service we provide.

Photo by Dan Meyers on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.