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It’s Time to Review (or Initiate) Your Client’s Financial Plan


The coronavirus has presented two threats to your client. Their health and finances are at risk. When they come to you, it's best to actively review their financial plan now to help them make the necessary changes.

Jun 2nd 2020
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The coronavirus has presented two threats to your client. Their health and finances are at risk. Social distancing and other precautions supports their health. Their finances suffered a setback when the stock market declined about 9 percent YTD (5/20). No amount of handwashing will immunize you from that problem.

You need to get inside your client’s head.  When people feel a pain, they don’t run to their family doctor. They go to “Doctor Internet,” look up the symptoms and start worrying about the worst possible outcome. When the pain persists, they see their family doctor. Prepared for the worst, they are often relieved to learn it’s something else that can be easily cured.

Your client may (or many not) have gone through the financial planning process with you. Retirement planning is usually the major objective. The 9 percent stock market decline is the pain the client felt. If they had  1,000,000 in investment assets on New Year’s Day, they may be assuming a 9 percent decline means they now have $ 910,000. Continuing the worst-case analysis, they assume they won’t reach their retirement goal. They will need to work longer, work forever or live a drastically reduced lifestyle.

As their accountant and financial planner, you are their doctor telling them they need to pay attention to that pain and get it checked out. Here’s why:

  1. Asset allocation: If every cent was invested in equities, a 9 percent decline might mean a loss of $ 90,000 from their million. Let’s suppose they took your advice about asset allocation, maintaining a 50/50 split between stocks and bonds. Now, their losses might only be $ 45,000, even less if the bond side of the equation appreciated as rates fell.  Their loss might be less than the worst-case scenario they feared.
  2. Diversification: Stock market indexes have been a popular way to cut out the middleman. Your client is smarter, having money spread across different managers or exchange traded funds representing different sectors. The S&P Index is composed of 11 sectors. The overall index might be down 9 percent, but the Information Technology sector is up 4.44 percent, Health Care is only off by 0.81 percent and Consumer Discretionary is down 1.44 percent.  If your client is overweighted in certain sectors, they could be doing even better.

Let’s focus on their big fear: Their retirement plans have gone up in smoke. They are planning on continuing to put aside money. They will be contributing towards their 401(k). They have years before they retire. Using retirement planning software, you can run different scenarios. Show them probability-based results. What’s the likelihood they will reach their goal after the shock to the stock market we just experienced?

Suppose the picture is even grimmer. The outcome doesn’t need to be the worst-case scenario they fear. Suppose they worked a few years longer? It gives them more time to save. Their Social Security benefit should grow. Would they be comfortable with a more modest lifestyle? Some people would rather scale back expectations vs. working longer. There’s also the possibility of saving more before retiring to make up the current shortfall in savings. This might sound impractical, but downsizing might have been in their plans anyway. The net cash received selling their home and moving to a smaller one in retirement becomes part of their asset base. They might own a vacation property (or two). They might lighten up on these assets.

The importance of addressing financial planning now is to give your client a realistic picture of where they stand and demonstrate they have options.  Using the medical analogy, they have a treatable illness, not a fatal disease.

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