Annual reviews and why you need one

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Hello, and welcome to another edition of Something More with Chris Boyd. My name is Jeff Perry, and I have the privilege of co-hosting this episode with my team member, Russ Ball.

0:43 How are you doing, Russ? Pretty good, pretty good. How are you this morning, Jeff? Good. We're in a new month. It's May. That's right. That's right. I did notice the calendar this morning. May Day. For those of you who are in the Northeast or listening in other parts where you have cold weather, I can see that your hope is springing forward and saying, it's May. It's going to get warm. I know. I know. It's starting to feel like it out here, but I did check that about the next week, it's going to be raining every single day. It's a nice way to welcome in May. April and early May showers, right? Yeah, I guess so. I guess so. Well, for the listeners who listen in, they know that I'm primarily in Florida, and that's where I am today.

1:27 We're still in the dry season. We start getting rain in June, and that's our rainy season, June to September. We all have seasons of rain. Yeah, yeah. At least everyone gets it. It's not just us out here. It's been an interesting couple of months. It's just gloomy in Cape Cod. Yeah. I think spring comes. I remember I lived on the Cape for decades. Spring comes, you get that date on the calendar in March, and you get that little glimmer of hope. Then baseball season starts, and then April ends, and it still hasn't shown up.

2:09 Exactly. Don't despair. I know. I know. It's right around the corner here. You're almost there, right? Well, for this episode, Russ, I think we should talk about annual reviews. Our listeners certainly hear us talk about the need or recommendation for people to have a comprehensive financial plan. We talk about that a lot. Whenever we bring on a new client, 99 % of the new clients go through this onboarding process that revolves a few meetings and the development of a financial plan.

2:54 We've talked about it on the show. It's really at least a two-meeting process where the first meeting, we describe it as getting to know you. We're not welcome to asset management resources, AMR team, wealth enhancement group, and here's what we recommend. That's not how we run our business. You listen to talk radio, you see some shows on TV, and they give the financial plan or 15 seconds of information and they start making recommendations. That's just not possible. It's like meeting your doctor for the first time and not having any tests or not having any conversation, and it gives you a prescription.

3:42 We go through this process of developing a financial plan, two meetings, getting to know you, getting to know not only your balance sheet, not only your net worth, not only your investments, but your goals, your fears, your concerns, your unique challenges. Maybe you have some in your family, cash flows, debt. We go through the whole thing and develop the financial plan. I know you, in the months that you've been with us, you've dug right into that. You've actually been working on a lot of financial plans, right? Yep, absolutely. That's a big part of my role right now is the financial planning process and getting all the information that we gather in our initial meeting into a financial plan and trying to figure out the best ways to optimize and create a plan that works for the client.

4:36 I know you came from the financial services sector before you joined our team, but were you surprised at the amount of detail that these plans go into, or is this something you expected? No, definitely. I think, especially in the big wire house world, they're just starting to catch on to the financial planning side of things and the importance of it and what clients are looking for. They don't want to have just a purely transactional relationship with their investment managers. For me, it was coming in and right off the bat, we're right into planning mode. I really think that's in the best interest of clients because we get the whole picture.

5:18 We're not just trying to sort out what you're going to do with this X amount of dollars that you have sitting on the side. We're really trying to get a full picture and then offer our guidance and suggestions and advice. That's right. For our regular listeners, we're not convinced that you need a comprehensive financial plan by now. I don't think we're going to convince you. It's almost in every episode. At some point, it comes in. If we're talking about a problem, we say, how's it fit in the financial plan? If we talk about, did you do something? Should you do something? We talk about the comprehensive financial plan. For this segment, I thought what happens after the plan would be a good discussion.

5:59 For us, it's an annual review. That doesn't mean we don't talk to our clients more than once a year. If a client has a question or a concern or they want to model something out, they're thinking about buying a second house, downsizing, taking a trip around the world, giving $50 ,000 to their child for a down payment, wedding coming up, whatever it is, we talk to them all the time. We like to hear from them, actually. We're better planners the more we hear from our clients because we understand what they're facing, what they're thinking about. Absolutely. At least once a year, we are reaching out to our clients and saying, time to come in, time to jump on a call, whatever you prefer, remote or in person, because let's review that financial plan.

6:53 Let's go over it. If you invest on your own, if you have your own financial plan and it's working for you, no judgment at all, but I hope you're reviewing your plan. I hope you're updating it. It's not something like you don't make the plan, put it on the shelf, and walk away. If you're our client, we're going to be reviewing this with you. If you're working with another financial advisor and you don't have a plan and you don't have regular reviews, I'm not saying that person's not a good financial advisor, but it's not how we do it. If you'd like to get a second look at your plan or create a plan, that's why we're here.

7:36 We're here to help. We do complimentary reviews of people's plans or portfolios, whatever they want us to do initially. So you're welcome to give us a call. But back to the annual review. I think everyone needs an annual review, if you have an advisor or if you don't. And Russ, have you participated in some annual reviews with clients so far? Yeah. I'm involved in pretty much everyone with Chris, sort of assisting and taking some notes, but I definitely had a lot of exposure to that since I started, which has been great. I think from the start, we take a look at how the portfolio is performing, what's changed with performance, what's changed with the investments, if they haven't watched the quarterly updates from Brian and the team.

8:31 We kind of go over that. And then, like you said, we dive into the financial plan and say, all right, what's changed since the last time we saw you? Sometimes it's been more than a year since we've seen clients. And sometimes significant things have changed. It's like, oh, yeah, actually, no, that mortgage has been paid off. Or no, we don't have that credit card debt anymore. And we're thinking about buying a house. And it's interesting how right off the bat, some clients are like, no, I'm not really sure what I need to talk about. And then when we start going into it, it really starts going out like, oh, maybe my plan is a little bit different. Maybe my risk profile has changed a little bit. Maybe I'm less inclined to take more risk.

9:12 Let's dig into some of those, because there's a lot there. And I think you started at the exact right spot. It's like you haven't seen an old friend in a year. And you start out with what's new. What's new? Changes in health often come up. People who had a plan to maybe work till, say, age 65, and they have a health issue. And they're like, I had to retire this year. Or people who think they're going to retire at age 65 and say, I don't know what I'm going to do. I love my job. I'm going to keep working. Or maybe they bought a house. Maybe they bought a boat.

9:53 And if you have a boat, you definitely need to change your financial plan. Or maybe they have a child who is heading off to college. And who knows what the situation is? It's like, what's new? And by that question, we mean not just what's new today, like, oh, the Celtics won. They're going to round two. No, we're talking about changes in your life, life changes that will impact your finances, positively and negatively. Sometimes it can be kind of both. Oh, well, my mother passed away this past year. Very sorry. We talk about that. And she left me $10 million. So OK, well, both those things affect your life.

10:35 And we talk about those things. And then we go into, as you said, after we get kind of the life changes, anything significant that we need to be aware of, we review their portfolio, the assets that we have under management, review all the accounts that we have. And if they have other accounts they want us to, we can take a look at those as well. But just to make sure they understand where they're invested, make sure they understand their performance over the past, in our discussion and annual review here, over the past year or five years and so forth. We want them to have knowledge. We want them to understand how they're doing. And then the next thing that you mentioned, which I think is right along the line of where these usually go, is during the conversation about life changes and reviewing their portfolio, their investment accounts, their risk often comes up.

11:32 And it's a natural thing. I say this a lot because it comes up a lot. It's a natural thing. As people get older, they tend to get more conservative. And that's a broad statement. Think about, especially in the category of risk, think about the things that you would do when you were 18 and not even consider the risk you were taking. Whether it be a sport, whether it be an activity. There's a reason our soldiers are young, because they are willing to jump out of airplanes or they're willing to go over the hill with the M16, et cetera.

12:13 We all felt invincible when we're younger. And we are willing to take more risks just generally. I'm not specifically talking about finances and investing, but it applies there too. And as you get older, you start to think about your risk tolerance, how much risk you're willing to take. And it's even magnified, that kind of view of risk is magnified when you stop working and you don't have that ability to generate income. You may have income from a pension or Social Security or from your investments, but you don't have that kind of self-directed ability to earn income.

12:53 So you start to think about, am I taking too much risk? Can I tolerate it if we have a three-year bear market? Yeah. And it can be pretty unsettling when you're thinking like, this is my nest egg. This is what I need to live my current lifestyle. And when that comes into question where you see some fluctuation, when there's some volatility, that can be all that much more unsettling when you're near retirement or in retirement. And that's really what you've built up. So during this annual review, if we get an indication that a client is feeling like they're not in the right risk profile, they're just not comfortable, gee, I know we did good last year, but I haven't slept in the last three weeks because of volatility, which our listeners know we've been talking about a lot in this last month.

13:47 And so we have that discussion and we use a questionnaire to help guide us. And we look at the overall goal. Maybe you don't need to take that risk to stay in your plan. You and I just did this for a client, a woman who's retired, and she was concerned about the risk because of all the headline news. And she had a very solid financial plan, and she was taking a certain degree of risk. And throughout the annual review, it came to the focus that she was not comfortable taking the risk. And so the plan that I asked you to review, because you had access to the original plan, was what happens, Russ, if this client decides to reduce their risk from a certain level?

14:36 I think she was a 60% exposure to stocks. What if we reduce it to 30%? How does her outlook look for the rest of her life? Does she still have the cashflow she needs? Will she still be stable in her goals and be able to do what she wants to do as lifestyle? And the answer in this case was yes, she was fine. Yep. So she doesn't need to take the risk. You can have the same person, not the same person, you can have two people with the same circumstances, they have the same net worth, same income, same everything. It's like these two people have, they're twins financially. And one person can say, well, my plan's 100%.

15:20 I'm really solid. Therefore, I don't need to take any more risk. I feel better that way. And that's not a wrong position to have. And their financial twin could say, my plan is solid. I'm good. I can take a lot of risk, because I can afford to have down years. So I'm going to take a lot of risk and think about my legacy. Think about generation, building generational wealth. And it's the same setup free the person, but it's how they feel and what their vision is with their investment objectives. And we spend a lot of time during these annual reviews, life changes, risk profile, but also what their objectives are.

16:03 What are they trying to achieve in their financial world? Right. Yeah. What are their goals, near term, long term, cash flow needs, all that. One point related to that story you just brought up is a lot of clients will have some of their rollover IRAs with us, some taxable assets, and then have a work plan. And they're not necessarily sure. I think we've talked about this in the past as well, but they're not exactly sure how that's invested. And sometimes it's not at all in line with their risk profile. Super common, right? Yeah. And so a situation like that, where it's like, maybe their investments with us are in a more conservative preservation type strategy, but their work plan is a highly aggressive, all stock portfolio.

16:51 And they just kind of set it and forget it. They never really checked it. So that's what we've been doing a lot lately is taking a look at those 401ks, 403bs and kind of giving our suggestions and looking at it as a big picture and trying to see if it fits with their risk profile, because that could really throw a whole portfolio a little bit out of that risk alignment, I would say. But yeah, just a thought on that. No, it's very true. People spend a lot of time, like if they have their own investments or if they're working with advisors, so they're getting information from us frequently. Not only do they get the statement from Schwab and our case or Fidelity, but the custodians that we use, we send our own statements out with performance and we send out newsletters and emails and do podcasts and webinars.

17:41 So if someone's watching, they get a lot from us and other advisors certainly do these things as well. But your work plan, which for many people is their largest investment. I almost said largest investment with the exception of their house, but we see people who have 401ks and other deferred comp plans that are larger than the value of most homes, certainly. Yeah. And they just don't know what's in it or they don't change what's in it or they don't monitor what's in it. So that's an excellent point of bringing in those outside assets and seeing, here's your risk profile.

18:21 You're very clear about it. Here are your goals. We know you. How does this fit in? And if it doesn't fit in, we can make suggestions to make it consistent with your overall financial plan. You mentioned one thing that I want to dig into because it's another thing that we spend a lot of time focusing in during the financial plan, but annual reviews, cashflow. Yep. Yeah, we do. Through the financial plan, we can see a breakdown of cashflow based on goals and all the objectives and then your regular expenses, your regular needs. You can see each year broken down and I think that's pretty useful to get a big picture view.

19:04 Where's the money going? Where's the money coming from? One piece of that that's always a little bit tricky is trying to figure out what your expenses are, but not everyone has a great handle of what those monthly expenses are. In general, having that cashflow overview, I think is very helpful. When people see that, they really appreciate that. Yeah. The cashflow, getting that, how much do you spend a month on your regular? And we'll talk in a minute about non -regular, like single expenses and how we handle those. But how much do you need to maintain your house on a regular month? If you're cashflow positive, meaning you're bringing in more than you're spending, a lot of people don't know.

19:47 They're just like, I have enough. I don't know what it is. We have a couple of different methods. We can drill down independently with you and really get a solid number. For the people who don't want to do that, we have a couple of other practices to get really good estimates. Most people left on their own, underestimate how much they spend. They might know, my electric bill is this. My auto insurance is this. I spend this much on groceries, but they forget things that are regular, but not automated. They forget about entertainment. They forget about vacations.

20:28 They forget about car repairs. They think about, I pay auto insurance every month, but does your car need a repair every year? Probably. If you think brakes, tires, even if you have newer cars, you still need these maintenance issues. We help drill down on that. Then we also go into, how do you buy a car? They'll say, I pay cash or I finance or I lease. We model that out in the financial plan as well. Plan so that you do have a new car. If someone just says, I spend $5,000 a month. I look at my finances. I can withdraw $5,000 a month.

21:09 I'm all set. They're missing a lot of things. We go through that with individual questions. Some of the questions are common sense like car, but some of them really make people think, do you plan on helping your children in the future? I was going to mention that one. That's usually a big one. I'll talk about that some of the things that come up in that category because it's broader than just a gift sometimes. Yeah. Sometimes it's ongoing support for family members or helping a grandkid or even college expenses for kids, grandkids, that sort of thing. Maybe those aren't really baked into the cash flow or the cash flow needs.

21:52 It's just like, oh, well, it's family. It's a separate category. We like to include that, of course, to get a real sense of how that's going to play into the plan. Some families are extremely generous, rightfully so, to their children. But it does play a role in the plan. We want to see how that models out. Yeah. In that family category, sometimes we have a family or an individual with a special needs situation where they want to make accommodations for a child, say, who needs some support after they're gone, after the parent's gone.

22:34 It can be sometimes unexpected where you may think your children are all set and then there's a divorce or a death of a spouse. Talking about these issues and putting a placeholder for those families who think it's possible or likely gives you peace of mind in the plan because if one of those things come up and you have a placeholder, a certain amount that you might spend for family support, it makes your financial plan more accurate and it also serves as confidence that if it comes up and you want to do that, if it's helpful, you know you can without disrupting the financial plan.

23:19 That's just not for those unknown things. We put in vacations. You're just retired. Most people have some vacation goals, some travel goals, and we put those in. Other things, home repairs. How old is your roof? Oh, it's 30 years old. Well, I guess we should plan for a new roof sometime in the next five years. This is a long process, but we put them all in and it helps create a plan that when those things come up, it's almost, I call it, I haven't come up with a better word. I call it permission. A client will say, hey, I'm thinking about going on this month cruise this year.

23:59 Do you think I can afford it? Well, yeah, you've planned $15,000 a year for vacations. How much is the cruise? Oh, $50,000. Well, maybe not. Let's model the plan. Let's test the plan. We spend a lot of time on cash flows. That's a good point. It's not static. You already mentioned that. If you say, oh, there is a $20 ,000 vacation I'd really like to take. I wonder if I can afford that. We have a way to answer that to a pretty reasonable conclusion of if it's going to work or not. Just something to reach out to us about and we can put it into the plan and see how it plays out and model different kinds of scenarios.

24:47 Another topic I want to touch on about what we do in our annual reviews, we've talked about a lot, but another big thing that we do with our clients in the annual reviews is talking to them about their liquidity needs. Liquidity just means available money that's not exposed to a market that may be volatile. You could have funds in your liquidity bucket, as we call them. We call buckets, in other words, places to hold certain types of money. We want our clients to have liquidity, not only to meet their cash flow, but in the event that we have a down market. If you think if someone is spending $100 ,000 a year, for example, and they're taking it all from their investments, just to keep this simple, we'd offset it with social security or pensions or annuity or whatever they may have that's guaranteed, but we don't want that client to be having to time the market and saying, all right, I'm going to take out whatever that is, $8,000 something each month out of their investments.

25:52 We want to have a liquidity bucket. We monitor the liquidity bucket, that's money that's not exposed to the market. They can withdraw that from non-invested assets without having to worry about, the market was down 20% a couple of weeks ago. You don't want to be taking money out when you're in the middle of a correction. It's too much for this episode to go into how we do this and the breadth of liquidity buckets that we use, but just know that this is something else that comes up in the annual review. How much do you have set aside? Is it enough? How long should it be? Depends on where your income comes from and all that, but it's something else that we do during these annual reviews.

26:37 Where should that money that you need for retirement come from? In a tax-efficient manner, and where are we taking it from first? Yeah, the sequence, right? The sequence, exactly, yeah. Yep. We're scratching the surface here, but what we want to get across today is you have a financial plan. If you've done it with us, you know the process and you have confidence in your plan. We actually give you a number. We give you a grade. I love giving good grades. I think I know how teachers feel. People from students are really trying, but they don't get a good grade. You can have confidence that if you have a good grade, you can stick to your plan.

27:20 You can live that life that you've earned from your saving and investing. If you don't have a great score, there's things that we can do to help you get that score up. These annual reviews, we certainly review the score, like what's changed, all these things that we talked about. Market performance plays into it. Your health plays into it, what you do with your family, all these things we talked about today on the episode. We update your score. The score doesn't change very much. People think when you get your first score, it's there, but people think in this market turmoil where I said, oh, my score must have went 95 to 50 because we had a bad year or a bad few months.

28:02 That's why so many people, when we do the stress testing and they see, even from here, if we drop the market 20% tomorrow, that it still has a 90 plus percent chance of success, that's not too bad. They're usually very pleasantly surprised. Yeah. They're so impacted by the recent things that have happened. We use the Monte Carlo simulation. It projects a thousand different scenarios based upon market history, long periods of good markets, long periods of bad markets. We get a range of where we think you'll be at, and then we get a prediction and that's what that score is, which is zero to a hundred. Like any student, you're shooting for the hundred, but you walk out with a 95 and you say, I'll take it.

28:47 Right. Exactly. We're about out of time. I think we did a good job at covering things that we go over in annual review. There's other things, like we'll ask you, do you have your estate plan? And if you do have your estate plan, when's the last time you reviewed it? So it might be more of an accountability. We're not going to do your estate plan with you, but we're more of an accountability partner. Like, well, you have an estate plan is 20 years old. Let's put that on your to-do list to review it. First of all, read it. If it's not accurate, go back to your estate planning attorney to get it. We'll review things like life insurance. Now people think, well, I have life insurance.

29:28 Why do I need to review it? Well, maybe it's not enough because of life's changes, or maybe you don't need it anymore because of life changes. So review things like that. We help you with making your decisions on when to take social security, what your risk is to long-term care, potential needs, all these things we do in the financial plan. And we do them every year. Some of them superficially because you're all set, or we've decided that this is irrelevant to you. But this is how we serve you. And this is the way to keep you on track so that you can stay on your plan and reach your goals, live your goals, and live your dreams happily without having to worry about, am I going to run out of money?

30:13 Am I not going to be able to do something I wanted to do? And a financial plan and any reviews really give clients a peace of mind. So if you don't have one, you should have one. And if we can help you with that, please feel free to reach out to us and make an appointment where you offer a complimentary consultation. We'll help you create a financial plan if you have one, or if you have investment somewhere else, we'll certainly be willing to be a fresh set of eyes and give you our thoughts on those. To do so, you can call our office at 508-771-8900 and ask for an initial consultation. Russ, thank you for joining me today. I think we did a decent job at explaining a lot of information that happens after the financial plan during an annual review.

31:00 Yeah. We like to cover all the bases, but yes. We certainly try. Thank you for listening. I hope you'll join us next week. Until then, keep striving for something more.

32:02 Transcribed by https://otter.ai Revised by https://otter.ai