Street$marts: 6 common problems we help our wealth management clients address


Sarah Swan, Certified Financial Planner and Wealth Manager at Howe & Rusling, covers some very common issues we often see when it comes to clients' investments or finances generally.

Hi everyone! I’m Sarah Swan, Certified Financial Planner and Wealth Manager at Howe & Rusling. We realize sometimes that prospective clients or people who don’t currently work with an investment advisor don’t know what they don’t know—they have great intentions and have done a good job saving for their future, but there are some very common issues we see when it comes to their investments or finances generally. I thought I’d cover them today in case any might apply to you so that you can get an idea of things we aim to clean up right away when our new clients come on board with us at Howe & Rusling. 

First up: Investments that are not properly diversified or imprudent allocation-wise for a person’s risk tolerance 

Look, I can’t tell you how often we see that a person has a portfolio with no strategy around what it’s invested in and why—they may be under-diversified…meaning, for example, 20% of their portfolio is in one company’s stock that has been growing over the past 20 years and they haven’t touched it, or they may even be overdiversified…they own 100 mutual funds, all of which have expensive underlying fees associated with them, and there are so many in one portfolio that their impact is diluted and the whole approach is just clunky. Maybe they’re a 75-year-old on a fixed income believing they own bonds as a safer relative investment, and yet in reality what they own are extremely risky junk bonds at risk of defaulting on their repayments. Or maybe they’re a younger person in their accumulation phase with no imminent needs for cash and yet not nearly enough stock exposure to be able to take advantage of the long-term risk premium that stocks offer to people with a long horizon in front of them. In summary, we help our clients diversify their investments to spread risk and potentially enhance returns, and it’s not a formula purely based on a person’s age. A proper investment allocation policy should take into account risk tolerance, time horizon, liquidity needs, growth requirements, tax considerations, and any other unique preferences or restrictions. 

Another common issue we see is a lack of consolidation across lots of different accounts out there 

This one isn’t surprising—it makes sense that people have money at different institutions or banks. For instance, anyone who has ever switched jobs has also switched 401k plans—therefore they are likely to have old accounts hanging out there, maybe a couple 401ks, a Roth IRA they set up when they were young, a brokerage account at Vanguard, and an IRA at Fidelity. There’s nothing wrong with that, per se, but inherent in that is that it’s very hard to have a global view of the overall picture: how is all of it invested, how does it all fit together? Consolidation not only helps with asset allocation, or how much a person has in stocks versus bonds versus cash overall, but it also helps from an estate planning perspective. Any of us who’ve ever had a parent or sibling pass away understands the complexity of unwinding their estate, and the more streamlined and efficient that process is, the better for all involved from a psychological and financial perspective. 

Now switching gears, it is alarming to us how often people do not have beneficiaries on their accounts, or have outdated beneficiaries listed. 

All investment accounts should have individual beneficiaries selected on them, whether 401ks or IRAs or brokerage accounts—which means that if you die, those accounts automatically and immediately become the property of the individuals you’ve named, without having to be subject to probate. The excuse of being unsure about who to pick is not an acceptable one in our opinion—you can select more than one, you can select primary and contingent beneficiaries, and you can change them at any time for free. Not electing beneficiaries results in too many potential negative outcomes—they can ultimately lose value from the expense of the probate process and also face harsher rules from the IRS about timeframes for distributing the funds which often increases a beneficiary’s tax liability. Beyond making sure you have beneficiaries on your accounts, we help our clients pursue an estate plan that includes a will, power of attorney, and health care directives to ensure their assets are distributed according to their wishes and with minimized tax implications. 

Next up: we see lots of annuities or life insurance policies that don’t align with people’s needs or goals 

We don’t sell insurance at Howe & Rusling (we actually don’t sell any products at all, which is why we are a Fiduciary you can trust has your best interest in mind when we assess your financial picture), but many of us are Certified Financial Planners and can make an assessment of what level of life insurance coverage and disability insurance you should have, if any. And the reason I say if any is because from our standpoint, not everyone needs to pay for life insurance—and there is such thing as self-insuring at a certain point in life. People are often sold life insurance and annuities on the premise of “guarantees” and “safety” but there is a lot of complexity and expense there we like to make sure people are aware of. 

Another issue we see often is people having too much money in savings versus investments 

Remember savings and investments are not created equal—savings accumulate, are not spent, and are not subject to risk and therefore fluctuations in value, but investments are accumulated, not spent, and are subject to risk and fluctuations in value in order to have the potential to grow over the long-term. Both are important, but the goal of growing the value of your dollars to hopefully outpace inflation, or the fact things getting more expensive every year, is tremendously aided by risk investments as opposed to just zero-risk saving. We model out what we believe is an appropriate amount for a person or couple to keep in savings as an emergency fund, and what amount in excess of that would be better served by being invested for long-term growth. Investing is inherently risky because the value of your money can go down and up—but the philosophy behind such risk is that investors hope to be rewarded over the long term by taking on such risk. 

Lastly: We find that clients have a need for better budgeting in order to not outlive portfolio assets 

Some people need some coaching about not having accumulated enough to be able to afford life in retirement when they are no longer growing their wealth. People may feel they are living within their means from an income v expenses standpoint, but the piece that our financial planning helps shed additional light on is whether enough has been accumulated in savings and investments to be able to sustain life into old age, especially considering unforeseen large expenses such as long-term care. Making changes to habits when you’re still earning an income will provide better flexibility for life when you are on a fixed income—and while some would rather keep their heads buried in the sand, we find there’s nothing more motivating than future cashflow projections that show you may need to make some adjustments now to be able to afford the life you’d like to have when you’re retired. 

Alright so I could go on with more nitty-gritty examples of issues we help clean up for our new clients, but these overarching themes are the significant ones we see. If you think any of these applies to your situation, it might be worth sitting down with a fiduciary financial advisor who can weigh in with some sound advice. We’re always here to help. Thanks for tuning in, and see you next time on Street$marts with Howe & Rusling. 

Disclosures: A professional designation, certification, degree, or license, membership in any professional organization, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that the client will experience a certain level of results if the investment professional or the investment professional’s firm is engaged, or continues to be engaged, to provide investment advisory services. No professional designation should be construed as an endorsement by any past or current client of the investment professional or the investment professional’s firm. A long-term investment approach cannot guarantee a profit. While H&R believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information. This communication may include opinions and forward-looking statements.  All statements other than statements of historical fact are opinions and/ or forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. All expressions of opinion are subject to change. You are cautioned not to place undue reliance on these forward-looking statements. Any dated information is published as of its date only. Dated and forward- looking statements speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any dated or forward-looking statements.   Unless specifically stated to the contrary, H&R does not endorse the statements, services or performance of any third-party vendor or investment manager. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/ or principal. Diversification does not eliminate the risk of market loss. A long-term investment approach cannot guarantee a profit.

More Street$marts

Get the latest content from Beyond the Bell