NAVIGATING CHOPPY WATERS
Experience is key throughout the journey
Whitewater rafting requires an experienced guide. Without an experienced guide to prepare participants, load the raft properly, and seat people where they are most needed, a whitewater outing could quickly take a turn for the worse.
“That guide is kind of like your financial planner,” said Chad J. Karl, CFP®, founder of Chad J. Karl & Associates. “And that’s his role, to guide you through that and to give you confidence when you panic and you’re ready to jump out of the boat.”
Chad J. Karl & Associates, based in Janesville, Wisconsin, is a full-service financial planning firm that specializes in retirement and legacy planning for clients in or near retirement.
Clients generally range from 50 to 70 years old and possess $500,000 in investable assets before signing on with the firm, but Karl makes exceptions based on “fit” and often assists younger investors ready to start on the path toward financial freedom.
Just as whitewater rafting presents risks which can be managed by an experienced guide, the financial world offers a number of potential pitfalls that a strong advisor can help clients avoid. In the financial world, however, risk depends on the investor’s individual tolerance which needs to be carefully measured since many overestimate and underestimate how much they can take.
“When we actually analyze a client’s risk, we’ll often come back and say, ‘Wow, your portfolio is rather aggressive, and when the economy goes into a recession – not if, but when we do – then you’re going to have some significant negative impact and downside to that,’” Karl told Advisors Magazine during a recent interview. “It just becomes really important for people to analyze that and be more proactive, versus seeing people be reactive to what goes on in the market.”
Chad J. Karl & Associates works with investors to develop customized solutions to their unique financial problems. The process begins with an in-depth analysis of what the client needs, and Karl works from there to
develop a tailored plan. The cookiecutter approach that can be found elsewhere in the financial services industry often fails to give clients what they need, which is a plan made specifically for them and that takes into account their goals, Karl said.
Automated portfolio management tools – often called “robo-advisors” – might appear convenient, but fail to take into account clients’ unique goals, challenges, and interests. An experienced advisor can take a holistic view and assist a client, but a robo-advisor can only take into account what the developers expected.
“I don’t think a robo-advisor is going to help people with tax advising, estate planning, or capturing their digital information,” Karl said. “When we do go into a recession, I think most of the people with a robo-advisor are just going to panic. They’re just going to sell because there’s no one to hold their hand and tell them not to panic.”
An experienced advisor also is just that, experienced. Investors who dive into using a robo-advisor run the risk of not seeing their own blind spots before committing real money.
“You can perform your own surgery by Googling it, depending on what kind of surgery you need, but I typically don’t recommend it,” Karl said. “My biggest question that I ask people and ask myself all the time is, ‘How do you know what you don’t know?’ Working with a financial planner, what you’re paying for is their knowledge and level of expertise to help customize and guide you through your specific challenges.”
The specific challenges faced by investors require Karl to work closely with each client. Retirement planning takes on different dimensions depending on a number of factors, and generic tools might not be helpful. Several financial services firms use retirement readiness “scores” that allow prospective investors to gauge how prepared they are, but Karl is skeptical of how useful a tool like that could really be.
“I think this number by itself is meaningless because it really depends on the person’s lifestyle. Does someone do high-end cruises for vacations? Do they have a small house and a used car, or do they buy a brand-new car every few years?” Karl said. “We really try to engage our clients that way to find out what their lifestyle is and then also to try to find out what their risk tolerance is by asking them questions like, ‘When the market does have a correction or have a recession, what would you like to happen so that you don’t repeat the experience of the last one?’”
Investors often feel hesitant to tackle their finances. A good advisor needs to sit down with clients and explain how their money can work for them, a challenge Karl said he is up to.
“I come from a long, long family history of teachers,” Karl said. “Several, all the way back to my great-great-aunt, were teachers.”
Karl uses various analogies, aids, and examples to walk clients through their financial situation and to provide them with a snapshot of what their finances look like today, and how they might look tomorrow.
And like a good teacher must be fair with all students, Karl works to provide full disclosure to clients.
As a Certified Financial Planner (CFP®), he is a fiduciary advisor, meaning clients’ best-interests come before the bottom-line. Not all advisors are fiduciaries, however, and investors need to ask before signing on the dotted line.
“We should all come under that standard that we have to act in the clients’ best interest,” Karl said.
“It’d be great if all advisors were independent CFPs and could truly shop around for other solutions, that’d be a great world, I guess.”
It also helps that Karl has something at work that not every advisor does: he loves what he does.
“One of the reasons I’m never going to retire is because I know as other advisors retire, I’m going to have more clients to work with for the rest of my life,” Karl said. “Plus, this is my hobby, this is my passion.”
For more information on Chad J. Karl & Associates, visit: chadkarl. com