Failure to adapt can lead to missed opportunities

In the early 1900s the railway industry dominated the transportation of people and goods over long distances. After the success of the Wright brothers in 1903 and the first successful commercial passenger flight by Tony Jannus in 1914, the train moguls did not grasp that they were in the transportation business. They were in the railway business. They hauled freight. By not really understanding the business they were in, they missed a once-in-a-lifetime business opportunity. If they had recognized their business and grasped the opportunity, the railway moguls would have controlled the skies.
IT’S NOT ABOUT INVESTMENTS
What business are you in? Many of us would reply that we are in the financial planning business, the investment business or the wealth management business. While technically correct, is this really our business? I believe our business is ensuring that junior can afford to go to college, that our clients can afford that second honeymoon, that a family business is successfully transferred to the next generation and that the paycheck does not stop at retirement. That paycheck will come from the retirement accounts that have been designed and managed diligently and are now ready to fund the next phase of our clients’ lives. Working with clients is not about investments and alpha and beta, it is personal and it is specific. Our clients are not only trusting us with their money; they are trusting us with their dreams.
A very successful adviser told me she uses the following analogy with her clients: She works hand in hand with the clients to help build their castle, and then works with other professionals to build the moat. What is this adviser telling us? She is saying it is critical to establish the financial plan that meets the clients’ goals at specific times during their lives. We are involved in short-term to long-term planning, with various stops in the middle. We are involved in cash management, investment management and planning for a comfortable retirement. That is the technical side of building the castle and is the most noticeable side of financial planning.
DREDGE THE MOAT
Now it is time to dredge the moat. It’s time to safeguard the foundation. Dredging the moat is the risk management, the protection side of financial planning. It is the proper ownership of assets to maximize creditor protection in the client’s residence state. It is income and estate tax management. The drafting of wills, trusts, powers of attorney all fall into moat dredging. It is addressing the financial needs of the client if there is a long-term care event. Other than taxes, unexpected, unfunded health care costs are one of the greatest threats to a financially secure retirement. Long-term care insurance, whatever the structure and design, is a vital retirement planning risk management tool. Planning for this event should be discussed with every client. Many of us have experienced a long-term care event personally and know that, if unfunded, the toll is not only financial; it has a significant emotional impact on the family. Finally, when the client has a fully funded long-term care insurance program, the retirement assets are not at risk.
The second risk management safeguard is life insurance. A properly designed life insurance plan that addresses family indebtedness or a financial legacy for children, grandchildren or charity is another valuable financial planning tool. Life insurance provides a specific amount of money at a specific time free from income taxes. When a life insurance plan is in place, the retirement assets are not at risk.
BUILD THE CASTLE
Building the castle and dredging the moat are two sides of the same coin. Funding our clients’ goals, dreams and aspirations and then designing the risk management plan to protect the financial and retirement plans are irrevocably linked. A successful plan must have both castle and moat.
The railroad moguls did not grasp how new technology would impact their business. Financial advisers must grasp the significance of new technology and how it will impact their business model. By adding the defensive aspect of financial planning, risk management and insurance, to their practices, savvy financial professionals will be well-equipped to incorporate new technology and continue to meet the financial goals and objectives of their clientele.
Now, what business are you in?
James T. (Jim) Swink is vice president at Raymond James Insurance Group.