Diligence by Who? You or Your Financial Advisor?

By
Mark Nicolet, CFP®, MBA, ABFP™
August 22, 2018
Share on:

Recently, I followed up with a client after the client had been away on a family vacation for two weeks. Prior to that trip, the chaos of summer, work travel, and meetings had prevented the client from following up with me on a minor but impactful recommendation I had encouraged the client to consider in our last conversation. Before I had the opportunity to even say, “Hello,” the client apologized and communicated that I was owed a phone call. Yes, I had encouraged a decision knowing the impact would further strengthen the client’s financial situation, but in my diligence, I didn’t expect a phone call. The definition of diligence: careful and persistent work or effort. I love the simplicity of this definition and the use of the words persistent and effort. From knowing the client, I know the client is incredibly diligent in her own work and personal life. You see, when my client picked up this phone call, and the diligence of my follow up had just replaced the client’s call, eased the burden of the client having to call me back (amidst her intense work schedule), and ultimately resulted in the client making a best decision to improve the efficiency and effectiveness of her plan after re-clarifying the client’s priorities and current time frames.

An ongoing and sound financial plan requires an immense amount of diligence. If you are not ready to double down on this level of diligence on your own, why not hire a Decision Coach and Certified Financial PlannerTM professional to sprinkle the entirety of your plan with some diligence? Have you rebalanced your 401(k) lately? Have you increased your contribution percentage after your last raise? Did you update your life insurance planning after you moved into a new home after your second child was born? Are you planning on saving for that dream trip to Europe, or is that just going to magically happen in the next five years? What are the trading fees on your brokerage account? You have given thought to each of these questions. You have even discussed the answers with your spouse or close friends. Yet, you are busy and these action items are on the top of your priority list on a Tuesday. All of these questions require thoughtful planning with ongoing diligence, communication, and action. As soon as you settle into a plan with the right cash flow, life happens and you will need to adjust the game plan. My client didn’t forget to call me back. My client wanted me to call me back. Yet, my client didn’t call me back and didn’t make up her mind, until I called. Was I upset that I had to follow up several times? Was I frustrated my client seemed non-responsive? Of course not! It’s my career and joy as a Decision Coach. It’s part of my role as your financial planner to be diligent, to hold you accountable, to help you make qualitatively better decisions over time. Do I expect this to take a few follow up calls and three incredibly productive and ongoing quarterly progress checks between annual reviews? Of course! I love crafting a game plan for you. I love when you approach a financial decision and prior to making a decision, you reach out to me. I want your plan to be dialed in, so ultimately, you are living the life you want now, saving for the life you want in the future, as I provide the guard rails of diligence all along the way. A lot happens in a year and all of those little decisions have a significant impact over a long arch of time. Why I am so diligent with your financial plan? So, you don’t always have to be…don’t apologize, let’s just make the next best decision together and I’ll handle the follow up so we can one day celebrate together, not just because you are retiring, but because of the life you lived to get there.

You may also like:

By
Mike Loo, MBA
January 9, 2019

A recent survey found that among Millennial parents, nearly half have received financial support from their Baby Boomer parents in the past year, and 69% received financial support specifically for their own young children.(1) Another poll found that 3 in 4 parents with adult children have helped them pay both debts and living expenses.(2)

Clearly, it is common practice nowadays for parents to provide financially for both their adult children and their grandchildren. Many Baby Boomers are at a place where they are financially secure and have the desire to give their kids a leg up from where they were at the same age. For 2019, up to $15,000 can be gifted from one individual to another without having any tax effects. Many parents are reaching that limit with their gifts to their adult children for their own expenses and gifts to their grandchildren to fund their education and contribute towards their future well-being.

When Your Parents Give You Money

One-Time Gifts

The first thing you have to do is decide what to do with the money. Whether or not it is a one-time gift or will be ongoing will greatly influence your decision. If it is a one-time gift, it likely cannot be used to enhance your current lifestyle. Rather, you could use it to strengthen your current position by paying down debt. You could also use it for a one-time luxury, such as a vacation. Another good use would be to invest it to prepare for the future.

Of course, what you choose to do with the money will depend greatly upon your current financial situation and goals. If you decide to save it for the future, that brings up another set of questions. Where should you put the money? What kind of investment opportunities are available? How soon do you plan on needing it? The answer to each of those questions will determine what you do with the money, whether you put it in a money market account, invest in a brokerage account, or use it to fund your retirement accounts.

Ongoing Gifts

Though they are usually more beneficial, ongoing gifts are actually harder to plan for. You have to ask the same questions as above, but you also have many more options. If it will be a regular gift, you could use it to enhance your lifestyle instead of merely paying down debt or taking a vacation. Or you could use it to take advantage of a business opportunity that wouldn’t be feasible otherwise.

The hard part about ongoing gifts is knowing how safe it is to depend on them. If you make decisions based on the gift, what happens if it doesn’t come or is given sporadically? Many people fear sounding greedy or ungrateful if they ask their parents about money that they expected to receive but didn’t. The dependability of the gift money and the kind of relationship you have with your parents should be taken into account when planning for ongoing gifts.

One thing to be careful of, especially with ongoing gifts, is to not let it affect the stewardship of your own money. It is easy to change good habits and loosen the reins on your spending when you have extra money coming in. But is that wise?

Your parents are giving you money because they want to help you. Are they really helping you if you are simply becoming more careless? You should apply the same careful money habits as you would without the gift, even if it creates enough margin where you wouldn’t have to. Remember, what your parents give you is a gift. It is not required nor guaranteed, and you should manage it with that in mind.

When Your Parents Give Your Children Money

A lot of the same issues apply when your parents gift your children money or give it directly to you but for their benefit, especially when you aren’t sure if the gift will be regular and are not comfortable asking.

First, you need to decide if you should use it to meet current needs or future ones. If you save the money for your children’s college education, it could help them pay for a better school, get a better job, and avoid student debt. But if the money is spent today, it could pay for their childcare and thereby enable you to save more for retirement or get a house in a better school district, which could lead to a better education, admission to better colleges, and scholarships to avoid debt. There is no one right answer and it requires careful consideration of your family’s own unique circumstances and priorities.

College Funding

If you do decide to save the money for your children’s future, that brings up another host of questions. Where is the best place to put the money until you need it? A savings account? A 529 Plan? An UTMA? The answer will depend on a number of factors, including how liquid you want the money to be without penalties and how much control you want to maintain over the money. There are a number of options available to you, each with its advantages and disadvantages.

When saving for college, you need to have a target goal in mind. It is important to estimate the cost of college for your child in order to measure how much you need to be investing, the types of investments you should use, and to monitor your progress. Another reason to have a set goal is to avoid overfunding a college account. There should be a stopping point where you no longer invest in a 529 but rather divert the funds elsewhere. While leftover 529 accounts can be transferred to family members or have the funds removed with penalties, it may be better to simply avoid overfunding them in the first place.

Multiple Children

Having multiple children makes things even more complex because it can be hard to keep things fair and equitable. What happens when your parents, who gave a lot towards your firstborn, begin to taper off the gifts with subsequent children? Or perhaps the same amount was given, but it was divided by more and more children? What can you do so that the later children are not at a disadvantage?

Also, what happens when the gifts begin after you already have more than one child? If your parents start funding a college account when your first child is 5 and your second is 1, then the second may end up with a much higher balance upon entrance to college. What can you do and what should you do to help balance things out?

How I Can Help

These are some of the questions that arise when parents gift money to their adult children and grandchildren. Depending on the scenario, things can quickly become complex. Not only do you have to decide what to do with the money, weighing the benefits and opportunity costs, but you have to decide the best way to accomplish your goals with that money.

This is a common situation that my clients find themselves in when they turn to me for help. Together, we first determine the circumstances in which the money was given and the intent behind it. If your parents had a specific purpose in giving you the money, it is often best to honor that purpose.

Next, we discuss how you can use the money in a way that doesn’t distract you from your goals or cause you to become financially irresponsible. We talk through different scenarios in advance and address the “what-ifs” that could occur in each in order to develop a solid plan. My clients really enjoy having me there as a sounding board to bounce ideas off of, as well as to hear my insights based on the experience that I have had myself and with other clients.

If you’ve found yourself the recipient of financial gifts from your parents, or just need someone to help you sort through your own finances, call me at (949) 221-8105 x 2128 or email me at michael.loo@lpl.com. I would love to partner with you so that you can make wise financial decisions to build a secure future for you and your family.

(1) https://s1.q4cdn.com/959385532/files/doc_downloads/research/2017/Millennial-Parents-Survey-Key-Findings.pdf

(2) https://www.creditcards.com/credit-card-news/pay-adult-childrens-debt-poll.php

By
Jeff Motske, CFP®
March 12, 2019

A generation or so ago, the path to financial freedom was pretty direct for most. You found a job and saved for a home and a rainy day. When it was time to retire, you collected from a pension and enjoyed your remaining twilight years. Over time, things have drifted away from womb-to-tomb employment and gotten a lot more complicated. Today’s Americans have to be much more proactive with their finances. In this day and age, saving isn’t enough. Make sure your money is working as hard as you work for it.

There are a lot of concerns for the future. Buying a home. Sending kids to college. Making sure that your current career will be around to see you to retirement. People are living longer, so their retirement money has to go farther. Many high costs associated with medical care aren’t covered by Medicare, such as many prescriptions and long-term care. Pensions are no longer viable option for most Americans, and Social Security, a program that was never intended to replace income, no longer provides the level of security people need for their future. There’s a lot to prepare for.

Due to these concerns on the path to financial independence, people need to be mindful of their money. Even the most conservative Americans need to do more than contribute to a standard savings account, which can’t keep up with the rate of inflation. Investing your money will grow it exponentially faster than simply saving due to the power of compound interest. Yet, preparing for the future can be very emotional work. Today’s retirement planning relies far more on the decisions made by an individual rather than a company or organization, which can be a lot of pressure. Fears of not having enough money, a very common concern, can cloud decisions and can prompt people to react rather than plan. This is why an objective third party is necessary. Financial advisors can see past the emotions and help you plan your path to your financial freedom.

In this day and age, there are real and unique concerns that can derail you from the path to your financial independence. Trilogy Financial is here to help you establish your goals and invest your money to help get you where you want to go. It is our mission to ensure that every American, from Main Street to Wall Street, has access to great planning and the tools to establish their financial independence.

Get Started on Your Financial Life Plan Today