June 1, 2022

Attention all you late 40-, 50- and early 60-somethings who have been managing your finances on your own and think you might want to hire professional help: My goal here is to bring you some clarity so that you can get out of “maybe” and make a decision to hire someone or keep being your own financial planner for good.

The “Problem” Might Be Your Brain

When interviewing potential planners, what is most likely tripping you up is your own brain. We all want to be seen and heard. It’s human. Warning bells will always go off in our heads. That’s what the brain is supposed to do.  This is normal.

When you get on the phone with a potential service provider, especially around money, your frustration goes up and your enthusiasm goes down as soon as you feel like this person isn’t “seeing” you or “hearing” you. That’s also very human.

It might go something like this (exaggerating to make the point):

You:  “Please recite the alphabet.”

Prospective Planner:  “A … B … oh, let me tell you about what I did for my last client.”

You (rolling your eyes, thinking):  I am nothing like your last client.  Why are you telling me this story?

Where it goes wrong is when you get mad, angry, depressed, despondent, or whatever and you give up your search.

Think of it as Buying Milk

Imagine if you didn’t have to roll your eyes or wonder why you were being told something you didn’t ask about. If you were shopping for a gallon of milk rather than a financial planner, there would be no eye-rolling.  You’d move onto the next brand without dwelling on your disappointment.

That’s what you need to do here.  Negative thoughts and feelings are going to come up, consciously or unconsciously.

You need only recognize when they come up, accept them as part of the process, and manage them.  You want to do this before you give up on a potential planner or your search.  But once you’re clear it’s not a good match, move on.

Here are the brain stories I “hear” most often.  Go down this list and see if any of these have crossed your brain in some way or another.

1. I’m not that complicated and neither are my finances.

Most people do not think that their lives or their finances are complex. They own a house, managed their careers, have a couple 401k’s, are out of debt except for maybe a mortgage, maybe have a kid or three, and want to be able to not work for a paycheck one day and live a long and healthy life until one day they simply don’t wake up.

Seems cookie-cutter enough such that any financial planner should be able to do an analysis and answer all their questions in a few minutes, and you want to start having that conversation.

This is rarely the case.

First of all, you’ve known your financial life for decades and this planner has at best a five-minute snapshot.  To steal from the medical field, diagnosis without examination is malpractice.  You don’t want that.

Second of all, the smallest wrinkle can have a significant impact on a plan – your physical and mental health, the physical and mental health of your given and chosen family members, your age, when you want to stop working for a paycheck, what else you want to spend your money on, etc.  Choosing to spend or gift money in one area of your life is likely to impact other areas.

A potential planner’s unwillingness to assess your situation on the spot or over-thinking your situation might appear as condescending or over-complicating.  Maybe it is.  Most likely it’s not.  Don’t take it personally.

Counter-thought: “I am open to the possibility that someone can look at my situation with neutral and compassionate eyes and guide me in the right direction.”

Make this request:  “Please explain your planning process so I can understand how it works and what data you will gather.”

2. It’s a waste of money to hire someone to manage my money.

If you’ve been managing your finances yourself for most of your adult life, you probably have a lot of hesitation about hiring someone to help you.  You’ve gotten this far, after all.

You’ve probably also been told and perhaps believed that you don’t need someone to manage your money because you do it just fine, that professional money managers can’t beat the market, and paying fees for money management eats into your returns.

Even if you’ve come to acknowledge that planning is separate from money management, you’re annoyed that the planners you most like get paid by placing assets on a management platform and paying a percentage of those assets as a fee.

The fear that you’re going to lose money and control is real.  It’s also probably getting in the way of the idea that this may be money well-spent, that your financial situation might improve dramatically, and that reducing your stress alone will make hiring someone worth it.

Counter-thought:  “I am becoming someone who can do a great job hiring a financial planner and genuinely enjoy the relationship, personally and financially.”

Make this request:  “Please explain to me how you make your money and what I will get for that fee.”

3. I am a conservative investor.

Never once has anyone told me they were an aggressive investor.  Well, maybe once a client come into my office and said, “I like to take a lot of risk with my money, what have you got for me?”

The other 99% will say at some point in the first meeting or two that they are conservative with their money and don’t like to take a lot of risk.

What I believe is behind this statement is a fear that this planner will drag you into some investment that doesn’t match who you are as an investor, will lose money, and you’ll be stuck in it for years with no way out, living in a van down by the river.

Counter-thought: “This is my money and my life. I have agency here. I get to decide where my money gets invested.  Do I trust this person to listen to me?”

Make this request:  “Please explain how you choose investments for your clients and how I will have input into what investments are chosen.”

Remember:  It’s Not An Amputation

Here’s another truth: Choosing a financial planner is not an amputation. Down the road, if the relationship or the services are no longer working for you, change planners. That may be cumbersome, but better to be working with someone who like and trust who does good work for you than someone you’re second-guessing too often.

If you’re struggling with hiring a planner and need some perspective, this article is one of many that helps you sort out how planners are paid, how to hire one, and where your own struggles might be holding you back.  You’re also welcome to reach out for help.

Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

What does this mean and why do you care?

Warning:  Remember, this is a blog.  The goal here is to present the big picture on sometimes complicated subjects. By design, I oversimplify.

First, it will likely mean higher rates.  Mortgage-backed securities have bond-like quality.  They sell with a price (what they cost) and a yield (what they earn).  The law of supply and demand drives price and yield.  Sorry to haunt you with Economics 101. If prices are high, the yield goes down (which generally drives people to sell).  If prices are low, yield is high (driving people to buy).  If the Fed stops buying those securities and there is no other buyer, prices will drop to attract those buyers, yields will go up as a result, and those yields are directly correlated to mortgage interest rates, which means—you guessed it—that interest rates on mortgages have to go up as well.  Got it?

Second, understand that just a few years ago, the Fed owned no MBSs.  None.  By March, it will own $1.5 trillion.  Trillion with a T.  This means that $1.5T is now in the marketplace.  Too much money in the marketplace can mean greater inflation (too much money chasing the same amount of goods).  Now, so far, we haven’t seen greater inflation.  It’s the Fed’s job to keep that in check.  Someone also has to pay for these purchases, meaning that the American taxpayer is likely going to have to pony up money to cover it.  That may mean higher taxes—higher income taxes, higher capital gains taxes, and the list goes on.

We can’t predict the future, but we can do our best to anticipate what might be coming around the blind curves in the road.  This might be a good time to consider refinancing into that 30-year fixed-rate loan if you haven’t already.  This might be a good time to consider a loan modification.  This might be a good time to consider retirements and education funding plans that provide a tax-free component.

Remember, Cash is King

So far, it is still impossible to take your ATM card and stick into the side of your home or your investment properties and pull out cash.  If you are in the habit of accelerating your mortgage pay-off, stop. Review what you’re doing and why. Just because that seemed like a good idea years ago doesn’t mean it’s a good idea now.  It’s hard to get that money back once you’ve put it in your house, especially in this lending environment.  Often, you’re better off keeping the mortgage, getting the mortgage interest deduction, taking the money you would have used to pay off that mortgage, having that money make money for you, and in the future be at choice as to whether to pay off the mortgage or keep it going.  The potential upside is more retirement income and more liquid assets available to you. To me, that equals financial security.  Having to sell a piece of real estate in a potentially down market to generate cash for retirement or other needs is terrible. Often it results in lower sales prices and less proceeds in the seller’s hands. What I want for my clients is options.  Keep your options open.  Keep your assets balanced.

What will this mean?  Most likely, nothing. Congress has been way too busy with healthcare to deal with this issue, especially since the tax generates relatively little revenue. But this issue is a mess for the estate planning of those high net worth folks who tend to contribute to political campaigns and issues.  While the estate tax goes away, the carry-over basis rules step in.  Congress has tried that before. It doesn’t work.  In the spring, Congress will likely reinstate the estate tax to 2010 levels and make it retroactive to January 1, 2010.  We’ll have to see where Congress goes from there.

What should you do?  Bay Area residents will likely have a net worth of over $1 million when they die, so you need to pay attention to what happens and be in contact with your estate planning attorney.  Those folks with parents on life support with estates greater than $5 million might have some opportunities here, but for most of us, no need to kill off those aging relatives next year and no need to panic about your estate plan.

As a member of the Estate Planning Team, I can work with clients to implement a tax strategy called the Deferred Sales Trust, which just got its private letter ruling from the IRS this summer.  This strategy allows owners of highly appreciated assets—real property, businesses, private stock—to sell those assets and defer the capital gains taxed owed. Those clients can then earn money on the money they owe the government and can come out ahead financially with proper planning.  Even in a down economy.

How the DST works

The process starts with a property owner transferring ownership of the property to a dedicated trust, which promises to pay the client with an “installment sales contract.”  The trust then sells the property, stock or other capital asset to the buyer. The contract promises payments to the owner or their trust and those payments can be structured to continue to future generations with additional estate planning.  The tax code does not require payment of the capital gains tax until the seller starts receiving installment payments.  The DST is not unlike a no-risk “seller carry-back” financing structure.

The Deferred Sales Trust has the ability to generate substantially more money over the long run than a direct and taxed sale. It is also superior to a direct installment sale as the concerns of a defaulting buyer are eliminated.  Check it out:  www.mydstplan.com/jlanning