I can only conclude a few things from that statement, which I’ll address shortly. Having a financial advisor or planner create a comprehensive financial plan requires multiple meetings, hours of preparation and analysis, and sometimes considerable expense. It always amazes me that clients don’t understand how important is to be accurate.
First a little story
Let me share the story that prompted me to write this article. I’ll share a little about Joe Client first. Joe has been a client for 8 years! For the last several years he has been really concerned about market volatility. He’s getting older and doesn’t want to take as much risk anymore because his $200,000 portfolio is all he has left. So we adjusted the portfolio to make it more conservative a year or so ago.
I got a call from Joe Client recently. He had a CD maturing for $35,000. Needless to say I was surprised this money existed. He wanted to find out if I had an investment that would pay more than a CD, but without exposure to the stock market. We discussed a few ideas and he didn’t seem all that thrilled. Then it occurred to me to ask about cash reserves or emergency funds. I wanted to make sure he was still covering this base. After a bit of explaining, he said he had another $100,000. Shut the front door!
Don’t you think that dramatically changes the scenario?
If you go to the doctor and complain about heart burn and indigestion you might get some prescription Pepcid. However, if you leave out a symptom like numbness in your left arm, then you may be rushed to the emergency room for a completely different health issue! The same goes in financial planning. The example above is over 60% more in assets!
How does this affect the client’s plan?
It changes many aspects of the client’s financial plan. More financial assets change his retirement income projections, his estate plan, his net worth and possibly his asset allocation. That’s four of six major sections in a financial plan. It makes a significant impact!
Why clients tell little white lies
I said I would address why investors hide assets from their advisors and planners. I think there are several reasons.
1. They may not trust the advisor and are not ready to turn over these assets for management.
2. They don’t think these funds are relevant to the situation.
3. They’ve done some mental accounting and these funds are for something else.
4. They don’t want to invest the money and/or be “sold” by the advisor.
In all four of the scenarios above, you still need to share this information with your advisor or planner. The advisor cannot give you quality advice with details left out. Do yourself and your finances a favor and disclose it whether you want to or not. Just explain to your advisor exactly the purpose of the assets. Do you really want someone giving you advice based on false details?
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