Editor’s note: This is the first installment of a new weekly column written by local certified financial planners. Readers are invited to submit questions for columnists to answer in this space each Tuesday. Send questions to email@example.com.
The most common financial planning mistake I see can be best illustrated in a story I tell clients:
Imagine you are going to build your dream home. You have the perfect piece of property and money is no object. You are free to hire the very best to construct every facet of your new home. You locate a phenomenal theater expert to design and install your ultimate home theater. You have the best custom cabinetmaker do all of the built-ins. Top-of-the-line granite and marble workers are available with the best products and processes. This excellence carries through every aspect of your project and every craftsman involved.
The problem is, they’re being asked to build your dream home without a blueprint and without ever talking to each other. Now how do you think your home will turn out?
This is what virtually every person who walks into my office has done with his or her financial life. They have typically hired the best attorneys they can find to handle business and estate planning issues. They usually have a CPA who takes care of tax issues. Other advisers include insurance agents, investment professionals, bankers and Realtors. But does the left hand know what the right hand is doing?
In my experience, there is typically very little communication between members of the client’s advisory team. The CPA might request investment information for tax-reporting purposes. The estate planning attorney might be aware of insurance policies as they relate to personal or business planning issues, but may never have spoken to the insurance agent.
The problem with this picture is that the client is left in the role of coordinating the advisory team, and they intuitively know they are not qualified for the job. After all, they hired those advisers because of their expertise. So how could they possibly discern whether all of the pieces fit together correctly?
Let me give you an example: Have you properly coordinated the beneficiary designations on your life insurance, retirement plan accounts, IRAs and annuities with your estate plan? Do you realize that these things do not pass according to your will, but according to the named beneficiaries? This is an example of where the estate planning attorney may not have spoken to the insurance agent or the investment professional to make sure all these details are properly coordinated.
What about the blueprint? You wouldn’t dream of building that home without one, and yet do you have one for your financial life? A certified financial planner is in the business of helping you construct that master financial blueprint and making sure the proper communication exists across your advisory team to maximize your chance of building that financial dream home.
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