Ten Things We Think We Think
With a shout out to Peter King of NBC Sports for his weekly “Ten Things I Think I Think,” following are ten things we think we think.
Wealth accumulation does not guarantee happiness. We commonly speak in terms of building wealth and accumulating money. This implies that more money equals more happiness. This is true for many people. Others see a more complicated circumstance of money v. time, stress, commitment to family and friends, sacrifice of personal dreams, etc.
Our role as financial life planners is to help clients determine what “wealth accumulation” and “happiness” mean to them. We focus on the meaning of money in each person’s life.
Wealth Management is a Three-Legged Stool. There are countless definitions of “wealth management.” We believe it consists of 1) financial life planning, 2) investment management, 3) logistics of account management. The third deserves mention. Can you imagine the malfunction of accumulating wealth and becoming incapacitated or dying without an estate plan in place? Can you imagine the failure of accumulating wealth, creating an estate plan, and becoming incapacitated or dying without having communicated the estate plan to your financial advisory team so it can ensure your accounts reflect the estate plan?
Fees Matter. Front Porch Financial is committed to providing value to its clients and recognizes the shared interest of advisor and client in keeping fees at a minimum. We are proud of our fee schedule versus other advisors’ and invite your questions about it.
Academic Diversified Portfolios Won’t Make You Extraordinarily Rich…But They Play an Important Role.
We manage well diversified portfolios rooted in Efficient Markets Theory (EMT) for our clients. These portfolios are in accordance with the financial planning we do with our clients and are an essential element of wealth accumulation and achieving financial goals. However, we also encourage our clients to consider other means of wealth accumulation depending on their overall financial picture.
Some clients build their affluence through business ownership and entrepreneurship. Unknowingly or knowingly, they violate the principle of over-concentration. Eventually they realize the need to complement their business wealth with traditional investment wealth and the benefits of employer-sponsored retirement plans in their business. Some of these clients build multi-general businesses that provide income through their retirement years. Others sell their businesses and convert to traditional investment wealth through the liquidity event. We are with all clients every step of the way.
Some clients work for companies that offer options to amass wealth through investment in the company or the company’s investments. Again, this over-concentration brings inherent risks but also provides great opportunity that we incorporate into our financial planning.
Many of our clients own real estate. We own real estate. It is not for everyone, but direct ownership of investment property can help achieve goals like a steady rental income stream or rates of return that might outperform a traditional investment portfolio return. We recognize the role of real estate in your overall wealth and goal achievement.
Investing in traditional markets is necessary for everyone, however it is important to consider a client’s entire situation to optimize personal wealth accumulation. Often this means a client will invest away from our services which of course means less revenue for Front Porch Financial. This is okay as the #1 goal is the client’s wealth.
Teach your children well (…and know they love you). Discussing finances amongst family members is a challenge. Wealthy people can be guarded about their prosperity and have a natural desire for privacy. Alternatively, others can feel embarrassed about their financial illiteracy or lack of preparedness. Regardless of situation, we commonly witness a fear of judgment.
We help moderate family financial planning conversations be they adult children with elderly parents, adults with their growing children, or spanning the generations. This is done for our clients as a part of our relationship or for families that come to us seeking it as a part of a financial planning-only engagement. Regardless of the derivation, we help families navigate the challenges of open conversation about finances.
An empowered client is a great client.
The wealth management industry has a well-deserved reputation for lack of transparency. We speak in industry jargon and acronyms. We throw around concepts and terms most people don’t encounter day to day. We retain the keys to technology that keeps us on the frontier of wealth management and maintain a hold on routine tasks to prevent us from becoming obsolete.
At Front Porch Financial we embrace technology that helps us collaborate with our clients on their planning and portfolio management needs. We educate clients about how to use the website and review reports. We teach clients how to do routine tasks that save them and us time.
Wealth Management is like a trip to the hardware store.
People’s brains work differently. Our brains love planning and implementing personal wealth management strategies. We’ve studied and trained to be financial advisors. We continue to be subject matter experts.
By contrast, trips to the hardware store can be comical for us. Despite all the ambition in the world, we will never understand all the wires that go into an electrical circuit or how home plumbing works. Like wealth management consumers, we try. Sometimes we are elated with our success at a small home project or fix-it. Other times we make costly mistakes and waste a lot of our time making those mistakes. Just call a professional!
Front Porch Financial Advisory is an insurance policy.
Our clients are smart people. As mentioned, often their talents lie outside of personal financial management. Engaging us undoubtedly provides our clients with more time to make money at what they are good at, to avoid a topic they lack proficiency in, and reserve their personal time for leisure.
In addition, engagement of Front Porch Financial is an insurance policy that someone besides the client understands the finances for him, her, or them.
Many of our clients are successful single women. They engage in our relationship to have someone to bounce ideas off and share in financial decision-making.
A lot of the couples we work with have one spouse or partner who is highly engaged in the process and the other who is not. In this situation, we educate the more financially illiterate spouse to encourage participation. We also serve as an assurance that sound financial management will continue should the more financially knowledgeable of the two die or become incapacitated.
Portfolio performance is a silly scorecard. It is understandable why clients hyper focus on rate of return. First, they are taught to do so by the reams of social media outlets, experts opining about their thoughts about the market and economy, and industry marketing machines touting the next best thing. Second, most clients pay for our services as a percentage of assets under management. Not surprisingly then, their attention is drawn to assets under management.
While logical, this is unhealthy. Investment management encompasses much of our time, but it can be where we have the least control because of the unpredictability of the economy and the market. On the contrary, planning is where we have control and can always provide value.
Planning and investing dance together. Planning is the lead. Consequently, we welcome exploring fee structures beyond the traditional asset-based approach.
Personal Finance Shepherd? We Try. In the religious vignette “Footsteps in the Sand” the primary character learns that God is always with him/her and most importantly carries him/her during personal duress. In Dante’s Inferno, Virgil shepherds Dante through his journey in Hell. All major organized religions and forms of belief or wondering contain similar stories.
George Kinder of the Kinder Institute of Financial Planning refers to Financial Life Planning as “financial planning done right” and emphasizes the role of the financial advisor as unconditional confidant similar to the instances related above. We advocate fully for George’s inspirational approach.