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Jonathan Millican, CFP® featured in BBJ Table of Experts: Insight into Financial Planning

What would you say is the most important consideration when building your financial plan?

I believe it’s the answer to the question, “What does the future look like for me (and my spouse/family)?” The key to the answer is to consider both the qualitative and quantitative aspect, and really you (not an advisor) hold the answer to both parts.

Qualitatively, it is clarifying your short-term and long-term goals. What is important to you? Paint a mental picture of the future with the details of where you are living, what you are doing and who is there with you. For example, you’re in a lake house with your children and grandchildren enjoying a summer afternoon. If you need help with this aspect, a good advisor can ask the right questions to guide you.

The most important quantitative piece is what your spending will look like in the short and long term. The better understanding you have about your current spending, the better equipped you’ll be to create a plan that ensures those spending needs are met. And be cognizant that spending will change through various stages of your life. Even in retirement we see the go-go years (travel, being active), the slow-go years (often less active, downsizing a home), and the no-go years (declining health and possible long-term care expenses).

What questions should an individual ask when choosing a professional to help them with their financial plan?

I think most individuals have a short list of criteria in mind when looking for an advisor. Can I trust you? Are you qualified to help me? How much does it cost to work with you? However, asking the right questions to get to the heart of those issues can be a challenge.

To address each of those I would ask, first, “Are you a fiduciary at all times in our relationship?” The term fiduciary simply means the advisor is required to put a client’s best interest ahead of their own. Any answer other than “yes” should give you pause.

Secondly, inquire about the advisor’s qualifications and credentials. The gold standard in financial planning is a Certified Financial Planner™ professional. However, it’s also key to ask about the advisor’s experience in working with others in similar circumstances as yours. For example, if you’re a high-net-worth client, you want to work with an advisor who has experience in planning techniques applicable to you. That may be purchasing a second home, stock options or transferring wealth to your children. Likewise, a young professional would want an advisor who has experience and understands the concerns you face, such as reducing student loan debt, buying a first house or starting a college savings plan for your children.

Lastly, understand the way an advisor is compensated. Are there separate charges for asset management and for financial planning, or are those all wrapped up together? Are fees transparent and easy to understand?

How can individuals successfully plan for and balance major financial burdens of life – paying for college, retirement, supporting elderly parents, etc.?

It can be a real challenge to determine how each individual aspect of the plan intertwines with the others. In a vacuum you can calculate how much you need to save for your child’s college education, or when is the optimum time to claim Social Security benefits, or how much you should be paying on your mortgage to pay it in full by a certain time. But, when you combine all those competing goals together in one plan, that’s when things get more complicated. Most people are working with limited resources, so you have to find a compromise in order to accomplish all that you want to do. The value an advisor brings is experience in helping others do just this through developing a creative solution with a step by step instructions on how to implement it.

What effect do you think the new administration and its regulations will have on financial planning?

In general this is yet to be determined, however, healthcare reform and tax reform have garnered plenty of headlines during the first several months of President Trump’s administration and have the potential to be high impact areas to financial planning. There are long-term challenges and opportunities in both areas, but in the short-term, if you are not covered by group health insurance, or plan to retire prior to age 65 and Medicare eligibility, you and your advisor should be paying attention to healthcare reform. Likewise, if you have fluctuating income or the ability to shift income into different tax years then the tax reform topic should be on your radar in 2017.

How can individuals approaching retirement age safely plan for their financial futures in a low-interest rate environment?

Having essentially seen a zero interest rate policy by the Federal Reserve from 2009 through 2015 this has been a question for retirees for several years. The first thing I say to those with this question is you plan in a low-interest rate environment the same as a high-interest rate environment: you start with actually having a financial plan!

That financial plan should address the interest rate issue both in terms of strategies and opportunities for debt reduction, as well as focusing on expected investment returns within a portfolio. The latter is a key issue because it requires a healthy discussion of the trade-off between the need for investment growth and the risk required to achieve it. This discussion can help avoid two common scenarios: low interest rates influencing investors to take on risk beyond their comfort level by investing too heavily in stocks, and, on the flipside, investors relying too much on cash savings or fixed income investments that don’t achieve a high enough return to sustain their spending during retirement.

Are there any particular financial planning considerations for small business owners?

Absolutely. A small business owner in some ways has two plans on which to focus: the plan for the business and his/her own personal plan. While those are closely related it is important to try and separate the two, both emotionally and financially, as much as possible.

Determining how long the owner wants to continue to be involved and then planning well in advance for a succession plan (internal or external) for the company are key. Also, an overlooked aspect of the transition out of the business is making sure the owner has another endeavor, whether professional or non-profit, to direct time and passion. Often small business owners are high energy personalities that need to be “doing” and the traditional idea of retirement does not resonate with them.

What are some of the top issues/challenges facing the financial planning industry?

The age demographic of financial advisors is an issue that is becoming increasingly top of mind. A study earlier this year showed over 40% of individuals providing financial advice were over age 55. Specific to Certified Financial Planners, there are more CFPs over age 70 than under age 30. In the coming years this will be a challenge for older advisors looking for a succession plan for their practice and someone to step in as the new advisor for their clients. From a client perspective, if your advisor is the same age or older than you, inquire about who will work with you in the future when your advisor is ready to transition into retirement.

The other issues with which many firms are grappling are the fees they charge versus the services they provide. The pure investment only advisor is becoming a thing of the past. Clients expect investment management, but also want a relationship with an advisor who knows them and their goals, that can provide excellent financial planning and offer access to cutting edge technology which allows them to view their financial life anytime, anywhere.

The past few years have seen the stock market hit record heights, while interest rates have remained low. How has that impacted financial planning and what does it mean moving forward?

The good news is the rising stock market combined with low-interest rates for borrowing money has benefited most people. They’ve seen their retirement accounts grow, established mortgages at all-time low-interest rates and, in many cases, done both.

The cautionary news is, as we all know, nothing lasts forever. During its rise, the market has seen an absence of volatility over the past several years, which often corresponds to panic when even a “normal” pullback in the market occurs. We are already seeing the Federal Reserve begin to increase its short-term rate, with more increases predicted in 2017, which alone puts us in new territory versus the near zero interest rate environment we’ve lived in since late 2008.

Going forward investors should be prepared for more volatility and ensure their investments and willingness to take risk are aligned. And on the debt side, for those with variable rate loans, be prepared for a slowly increasing loan payment or discuss with an advisor the pros and cons of locking in these still-historically-low lending rates.

What role does tax strategy play in financial planning?

That is an ever-changing answer and my firm uses software that allows us to focus on taxes year by year because tax considerations change based on the stage of life, especially when you go into retirement. Taking our information and working in partnership with our clients’ accountants allows us to each use our own unique expertise to arrive at the best answer. Those strategies can range from harvesting losses in a client’s portfolio to helping manage taxable income to making charitable donations from an IRA to help avoid being bumped up to the next bracket for Medicare premiums.

How can I be sure my financial plan will help me achieve my personal financial goals?

It is so hard to truly be “sure” given so many common financial goals, such as retirement or providing for long-term care costs, are so far in the future. It can seem you have to wait a lifetime to know if you were successful! The reality is there are practical ways to ensure you meet your goals, with the starting point being your perspective. First, think of yourself as engaging in financial planning, not having a financial plan, with the emphasis being that financial planning is an ongoing process that consistently revisits progress made and adjustments needed given current circumstances. If a client is engaged in this type of relationship with his/her advisor he/she will experience the next best alternative to a “sure” thing: peace of mind.

What are some questions an individual should regularly be asking their financial planner or adviser, but often don’t?

I think the starting question is, “What actions should I be taking to accomplish my goals?” That response will tell you a couple of things. One, does your advisor know you well enough to understand your goals? Secondly, how broad and robust is that answer? Does it cover several different topic areas: savings, insurance, taxes, etc.? Ultimately your success is dependent on progressing toward and meeting your goals, so always know where you stand.

Another question to ask, which is ideal in the early stage of a relationship but worthy of being reminded of regularly, is, “What process do you use to arrive at your investment recommendations?” This answer will help you understand who makes the decisions, your advisor or an investment committee at his/her firm, and how actual investments are chosen. Many clients don’t want to know every detail of every investment they own but do need assurance the advisor or advisory firm has a defined and stringent approach to screen investment options. This is even more important in times of market volatility which naturally results in investor anxiety.

The article in its entirety can be accessed at BBJ Table of Experts: Insights Into Financial Planning.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Past performance is no guarantee of future results.

BTN # 1-626444.0717