HOLISTIC AND REALISTIC
Longevity Risk Ranks High
Longevity risks ranks high in financial planning
Iask clients, ‘Which of your assets are you going to lose?’” said Marty Higgins CFP®, ChFC®, AEP, the founder and president of Family Wealth Management, LLC. “There is a 100 percent chance of death and a 70 percent chance of having a long-term care event, yet only a 03 percent chance of your home burning down and a once in every 18 years chance of getting in an auto accident. But we’ve got those things insured to the hilt. We really ought to rethink how we’re using our insurance dollars.”
Marty Higgins and his team at Family Wealth Management, based in Marlton, New Jersey, provide comprehensive financial planning for clients who usually hold $1 million or more in assets. Existing clients’ children are exempt from the minimum, however, Higgins told “Advisors Magazine” during a recent interview. Prospective investors who do not meet the minimum are welcome to work with the advisor on a transactional basis.
Our advisors seek out clients with realistic expectations and who value professional financial advice, he added.
Longevity risk presents one of the greatest financial challenges faced by investors today. According to the Institute for Health Metrics and Evaluation, in 1960, newborns were expected to live just over 71 years. As of 2015, that number stood at 79 years. As life spans increase and retirements become longer, investors need to prepare their portfolios for decades of drawdown.
“We need to make sure that we’re going to run everything out to 100,” he said, adding that he once new someone who lost almost everything to unexpected long-term care costs. “He said ‘We didn’t have a lot of money. We had about $400,000, but we had pensions, then my wife got sick. I had no idea this wasn’t covered on my health insurance.’”
The experience prompted Higgins to start Save the
Spouse, a website that offers information on long-term care. Many clients approach Higgins with the belief that they can absorb a long-term care cost themselves, without any sort of insurance, but often fail to consider the financial
Investors continue to underestimate their own life expectancy, and even many financial advisors may fail to prepare their clients for two or even three decades in retirement. “It Ain't What You don't know that gets you into trouble. It's what you know for sure that just ain't so" Mark Twain
aftermath. Higgins encourages his clients to consider all their options and develop a sustainable, tailored plan to handle longterm care.
Longevity risk leaves many investors in a position to outlive their money. Investors often underestimate this risk as a cover to justify their spending, a serious concern Higgins said that affects many. Inflation presents an oftenmisunderstood risk as well, and many clients underestimate how much of a toll it will take on their portfolios. And hoping to be in the lucky 30 percent is not a real plan, he added.
“One hundred thousand dollars income per year, you’re good for a few years but then you’ll become your grandmother when she’s talking about how a dollar isn’t worth what it used to be,” Higgins said.
Holistic financial planning
The advisors at Family Wealth Management take a comprehensive approach that looks at more than just investment options and potential returns.
Higgins’ comprehensive planning process begins with what he calls "The Discovery Dialog,” an in-depth interview with the client to determine their financial history and goals. After that Higgins builds clients a dynamic financial plan that can be updated in real-time. Unlike some other online financial tools, however, Higgins’ platform highlights today’s status versus the longterm outlook, allowing clients to see the bigger picture.
A comprehensive financial plan goes beyond stocks and returns. A holistic look at a client’s financial picture requires a proper risk assessment and management plan. The advisors at Family Wealth Management take a look the various risk factors that could derail investors’ financial plans, and encourage clients to examine their situation thoroughly.
“Some clients haven’t talked to their attorney in eight years,” Higgins said.
“We go beyond standard industry diversification by asset allocation,” and use tools from the insurance industry to understand client risks, he added.
These efforts are why
Higgins at Family Wealth Management received a “Women’s Choice Award for Financial Advisors & Firms” through the Women’s Institute for Financial Education in
2014. That award goes to those advisors that exemplify an effort to help women and provide quality service and strong commitment to their female clientele.
Information vs. Knowledge
When a person suffering from a cold goes online for more information, it only takes about 15 minutes before they start wondering whether they actually have cancer, the old joke goes. That joke could
apply to the financial world as well.
“The disconnect happens here between information and knowledge,” Higgins said. “Let’s say that your dad needed openheart surgery. You can go on the internet and find out everything you want to know about it, but when it comes time to induce him and scrub in you’re probably not involved. A lot of people read information on the internet and then think they’re financial experts.”
Higgins collected his stories, pictures, and experiences into a book, “Distribution Land,” that explains financial concepts in plain language stripped of confusing industry jargon.
The book was his effort to show that financial concepts can be explained simply, and understood by most everyone, although he believes managing that money well requires a trained professional.
“These sites work in rules of thumb, it’s basically generic,” he said. “It’s like those call-in investment shows where you listen to somebody give advice about a situation but it’s their situation it’s not your situation.”
Call-in radio shows may not take the caller’s full financial picture into account, and the possibility of second or third order effects following a decision and may not ever be, brought up. Robo-advisors, likewise, may not know the client, family, or unique financial situation in play.
“They’re stuck in that investment advisory box,” Higgins said, adding that in some cases he has worked with the same family over three generations.
A trusted advisor-client relationship is what it takes to maintain an effective financial plan over the long- term. And that is especially true for clients who need to be told hard truths or plan for significant challenges, because in today’s retirement paradigm the old allocations may no longer cut it.
For more information on
Family Wealth Management, visit: familywealthadvisory.com