2021 - 2022 U.S. Economic Outlook by Advisors Magazine

ADVISORS

NOVEMBER 2021

ISSUE 106

magazine

U.S. ECONOMIC

OUTLOOK Labor’s Evolving Mindset

When working just isn’t worth it

Challenges of Financial Literacy Legistlation mandates grades K-12

Life Insurance Payout - Now What? Experts advise against quick decisions

Erwin E. Kantor Michael Gordon Jude Scinta L. Guerrero

CEO & Publisher Managing Editor Editor-in-Chief Writer-at-Large

Eric Daniels

Billing

Sean Rome

Creative Director

Bobby L. Hickman Amy Armstrong Joe Innace Bill Millar Eddie Miller Harold Gonzales

Senior Feature Writer Feature Writer Senior Feature Writer Feature Writer Business Reporter Business Reporter

CONTRIBUTORS & GUESTS Steven Selengut IAR, Jeffry Weldon, Elaine Eisenman, John Lohrenz, Tim Sheehan

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U.S Economic Outlook A year jump-started with robust economic growth in the United States, 2021’s initially fast recovery shifted to lower gear as inflation worries, the persistence of the COVID-19 Delta variant, and supply chain woes emerged as speed bumps.

Labor’s Evolving Mindset When working just isn’t worth it. In broad economic terms, the good news is the unemployment rate in the United States is declining.

The Challenge of Financial Literacy

Credit bureaus like Experian talk about it. Universities like Harvard provide free online guidance. Politicians introduce legislation to mandate its teaching to kids in grades K-12.

U.S. ECONOMIC OUTLOOK

DOWNSHIFT IN 2021, MODERATE PACE IN 2022

Received a Life Insurance Payout - Now What Women and men who lose a spouse often receive substantial amounts of money as beneficiaries of a life insurance policy. Experts advise not making quick decisions

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labor’s evolving mindset

life insurance payout what’s next?

financial literacy

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Our picks from around the globe

Financial Literacy Challenges Remain Advisors help educate older Americans. Poor financial literacy continues to hamper many Americans’ quest for prosperity and security. While more schools now offer personal finance courses for younger people, the task of educating adults about managing their finances during their working and retirement years often falls to financial advisors.

easing financial anxiety

Coping With Financial Anxiety Education helps ease clients’ stress. Consumers facing rising levels of financial anxiety can often find relief by working with financial planners to improve their financial literacy.

literacy challenges into 2022

Financial Planning for Our Communities Onsite retirement plan services for public sector employers and employees. Approximately 16 million Americans—nearly 10% of the nation’s workforce— are employed in state and local governments.

Higher Taxes Ahead? Many Americans are concerned about the tax impact on retirement. They are becoming increasingly concerned that the possibility of higher taxes in the coming years will make it more difficult to plan for their future.

Referrals Drive Practice Growth Referrals from satisfied clients continue to be an effective method for financial advisors to find new prospects, add customers, and grow their business.

financial planing for government employees

preparing retirees

36 ADVISORS MAGAZINE / 5

by joe innace

LABOR’S EVOLVING MINDSET WHEN WORKING JUST ISN’T WORTH IT

In broad economic terms, the good news is the unemployment rate in the United States is declining. It was at a COVID-induced 8.1 percent in 2020, but is projected to finish at 5.5 percent in 2021, according to The Conference Board. What’s more, The Conference Board forecasts the nation’s unemployment rate to decline to 4.1 percent in 2022, and then 3.4 percent in 2023. But while low unemployment is a positive from a macro-economic standpoint, it creates challenges for employers by putting workers in the driver’s seat. In fact, employees have 6 / ADVISORS MAGAZINE

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left their employers at record rates this year. Looking ahead, a new survey’s findings indicate that this will continue for certain segments of the workforce and become more stable for others. The pandemic caused frontline, low-wage, minority and lower-level employees to consider leaving their employers at rates significantly higher than historical norms, according to a new study from Mercer titled ‘2021 Inside Employees’ Minds.’ In the United States, the pandemic has shed light on a stark divide in how different demographics experience

work, the study revealed. Mercer surveyed more than 2,000 US-based employees on what has been termed “The Great Resignation.” Mercer is a business of Marsh McLennan, which bills itself as the world’s leading professional services firm in the areas of risk, strategy, and people, with 81,000 colleagues and annual revenue of over $19 billion. “Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being,” the company states. Its latest study showed that attraction

and retention challenges are likely to continue in certain segments of the workforce, where there is a disconnect between what employees want and what employers are offering. “While the ‘Great Resignation’ implies a mass exodus of workers across demographics, a ‘Great Reckoning’ signifies that only particular groups of workers – those who feel their employers are not meeting their needs – are contemplating leaving their job,” Mercer noted in its study. Only 28 percent of respondents reported they were considering leaving their current employer, which is consistent with historical patterns. Typically, about 3 in 10 workers are considering leaving at any given moment, according to Mercer. Certain groups, however, are experiencing work much differently than others. Frontline, low-wage, minority and lower-level employees are more likely

to leave at much higher rates than usual. “In many organizations, frontline and lower-level employees have been underinvested in and not considered a priority,” said Melissa Swift, Mercer US Transformation Leader. “Wages have historically stagnated behind inflation as employers competed to hire these workers at the lowest possible cost,” she added. “But the pandemic has shown that this same group of workers not only kept business afloat, but were critical in keeping our nation running.” The upshot: “Employers now need to think differently about frontline and lower-level workers and deliver a compelling value proposition that addresses their needs,” Swift emphasized. 3 Top Concerns for Employees The survey sought to understand what employees’ top concerns are, both inside and outside of work. The findings show that, among all demographics, concerns over the Delta variant have

pushed physical health to the top of the list. Second on the list is work-life balance and workload; employees say burnout is a key reason for them to consider leaving their employer, behind pay and benefits. Mental health is the third top concern across all demographics, but it is most pronounced among younger workers, women, low wage workers and Black and African American employees. According to the survey, low-wage workers – employees making less than $60k annually – are more worried about covering monthly expenses, physical and mental health, and financial wellness (retirement and debt). Higher wage workers are most worried about their health, work/life balance, and personal fulfillment and purpose. In the survey, women were much more likely to be low-wage workers than men (61 percent vs. 39 percent). These findings demonstrate the divide in the workforce and how employees on the ADVISORS MAGAZINE / 7

lower end of the wage spectrum have quite different experiences at work and require different support to meet their individual needs. The survey also found significant differences in the concerns of workers across ethnicity groups – for Black and African American workers in particular. Black workers rated personal safety above all other concerns, well ahead of other minority groups. 4 Goals for Employers To help navigate the suddenly hypercompetitive labor market, Mercer urges employers to consider four key points: • Prioritize hourly, front-line and low-wage workforces. Employers need to focus on how they can enhance the economic stability of their workforce and make frontline/ hourly jobs more attractive. “Perks and other benefits won’t matter if these employees can’t address basic needs,” Mercer maintains. “Pay is one priority employers should consider, as well as other benefits that enhance 8 / ADVISORS MAGAZINE

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the take home pay of this workforce, such as affordable healthcare and resources to enhance their financial wellness such as retirement savings programs and budgeting tools.” • Burnout is a major issue and employees are struggling with mental health. “Offering a diverse set of wellbeing and mental health benefits will help manage a number of people risks, including employee exhaustion, rising health costs, and employee turnover,” Mercer said. • Make sure your company is a place where Black employees feel safe, accepted, and able to be their authentic selves. “Organizations must move beyond attracting diverse talent, to ensuring their systems and structures within the organization enable them to thrive,” Mercer said, adding. “Managers who can confidently identify and stand up against workplace inequities and microaggressions are in the best position to

increase levels of inclusion and safety.” • Flexibility remains critical. “With work/life balance ranking second as an employee top concern across all demographics, flexibility is a top priority and a necessity for most employees,” Mercer noted, “and employers who fail to embrace this new reality are likely to face continued challenges when it comes to attracting and retaining talent.” Swift summarized: “Given the challenges that employees have faced on the front lines of this pandemic over the summer, and through the social unrest that we saw last year – employees are saying, in many cases due to what they are paid in low wage jobs, it’s just not worth it. And they are looking for more from their employer.”

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ADVISOR INTERVIEW

by bobby l. hickman

Financial Literacy Challenges Remain

Advisors help educate older Americans

Poor financial literacy continues to hamper many Americans’ quest for prosperity and security. While more schools now offer personal finance courses for younger people, the task of educating adults about managing their finances during their working and retirement years often falls to financial advisors. “Lacking financial literacy and not knowing how to manage one’s personal finances carried a high cost in 2020,” the National Financial Educators Council stated. The Council’s survey of more than 1,500 Americans in late 2020 and early 2021 found people lost an average of $1,643 because of insufficient financial knowledge. Those losses are much higher than the NFEC’s previous survey when financial illiteracy cost people $1,279 in 2019. More U.S. high schools have added financial and economic programs in recent years, according to the Council for Economic Education. While the CEE’s biannual survey of schools for 2020 found that 70% of high school students now have the 10 / ADVISORS MAGAZINE

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option of taking a personal finance class, only 17% of those students were required to take the courses. At Legacy Wealth Management Inc., “Education is crucial part of what we do,” according to Jay Sharifi, president of the firm in Manassas, Virginia. Sharifi is also the author of Building a Better Legacy: Retirement Planning for Your Lifetime and Beyond. Sharifi said his firm takes a holistic approach to financial planning. Legacy Wealth Management follows a threemeeting process for new clients, with the first two meetings focusing on education. “Those meetings are all about understanding the clients and explaining who we are,” he said. “It’s talking about your fears, your history, and your past experiences. We want to make sure we cover all the different areas that emotionally drive a client to make decisions. Once we figure that out, then we can assist them, guide them, and protect them from what they don’t know is hurting them when they make decisions.”

Legacy Wealth Team Left to Right: Kaycee Sirstins, Mike Sharifi, Courtney Craig, Grace James, Kim Park, and Jay Sharifi

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Often client education arises from having honest and candid conversations that can sometimes be extremely uncomfortable, Sharifi said. The goal with those frank meetings is to ensure we value each other’s views and understands that he or she is looking out for the client’s best interests. Those conversations may cover such topics as longevity, inflation, taxes, and long-term care. “We help them understand that longevity can actually have two aspects,” he added. “I believe that it is actually everyone’s biggest obstacle, but through financial planning, it can also become your greatest opportunity.” One important factor when evaluating new clients in ensuring they will be open to learning and listening. Sharifi said he first tries to earn their respect and trust. Once he knows that clients will accept his guidance and suggestions, he can agree to work with them. “It’s important to make the client take responsibility if they request something unhealthy for themselves,” he said, “I also want to make sure they will take responsibility for that. Sometimes clients do not really want to work with an advisor, but rather just have the advisor be responsible for certain actions. That’s where we really draw the line: we need to work together.” The initial meetings also address terminology. The aim is to make sure that both sides understand each other clearly and are using the same vocabulary. “What does risk mean to the client? What does volatility mean? Some clients get very scared when we use certain terms. We want to be careful that the fear of those words is not holding them back 12 / ADVISORS MAGAZINE

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” ”

Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.

‑ Dave Ramsey

from understanding what we say,” said Sharifi. In every conversation with clients or colleagues, Sharifi strives to make sure he is providing value to – and connecting with – the other party. He tries to be as clear and truthful as possible. Then he takes as much responsibility as he can for each conversation and each decision. “My intention is to make that personal connection,” he said. “I need to let them know exactly what I want because, if I can’t be clear, I can’t hold them responsible either. The saying goes, ‘Only say what you can do and do exactly what you say.’ We hold ourselves to that standard by being as clear, honest, and truthful as we can with each conversation. I believe that carries a lot of weight over time.” Building strong client connections also helps generate referrals, which make up a significant portion of Legacy Wealth Management’s business. If the firm receives a referral from a client, the firm may make exceptions to the normal firm minimum of at least $250,000 in assets. “Referrals indicate that we’ve exceeded our clients’ expectations, and that the clients feel comfortable enough to put their names on the line for us,” he said. “We value that. We don’t want to lose that respect, trust, and love that they have for what we’ve done thus far.” One way to build those connections beyond face-to-face, individual conversations is through client events designed to bring the community together. Sharifi said hundreds of people attend the firm’s events. They meet other clients and share their experiences, reaffirming their progress with their ADVISORS MAGAZINE / 13

Jay receives an award for the work he has done for his clients.

Jay working hard to keep clients informed on their accounts

Jay with his parents and younger brother at a client event.

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peers. “What they find is something that helps them continue putting their names on the line and giving us referrals. That communication and connection has been tremendously important and valuable, not only for us but also for our clients. It allows the clients to sleep with ease and comfort, rather than being worried and concerned about the current state of affairs, about what’s going to happen, or whether they are going to make ends meet down the road,” he said. Sharifi said the combination of industry experience and building personal connections gives financial advisors a considerable advantage over newly emerging competition from trading platforms, robo-advisors, and other automated tools. “What those platforms can never do is make a human connection with a human being,” he said. “As we move forward and volatility increases in the market, the most valuable aspect is going to be connection. I don’t see computers being able to do that. I’m sure there are some people in our society who will count on those tools, and it will work for them. But most people prefer sitting down with someone across the table and making sure that they have someone they can trust to take care of these financial decisions for them. That’s exactly what we do here.” Sharifi said his firm helps clients by being truthful and sharing opinions on whether their current financial plans have a high probability of success. Unlike a computer program, he said, someone with real-world experience can provide insightful

perceptions about the quality of a plan. “Hopefully that experience carries some weight with the clients and helps build trust that our connection is going to protect them,” he continued. “We believe they’re going to value that opinion much more than a computer program that might have an incorrect inflation rate, or the wrong rate of return applied to their funds over the next 40 years. The tool may show them a plan that seems it would be successful, but in reality, it has no chance of succeeding. That’s the value you get from a quality advisor with experience.” He added, “I haven’t gotten to where I am over the last 18 years because I’ve worked only in good times. Although a good portion of my advisory role has been during good times, I am where I am today because I learned how to guide my clients during bad times. That’s when I really had the biggest impact – not only in my firm, but as an advisor helping my clients. Bad times are when I am needed most.” That experience is particularly relevant to retirement planning, where it is important to anticipate the ups and downs of future

”

Today the greatest single source of wealth is between your ears. ‑ Brian Tracy

economic cycles. Retirement plans must be reviewed regularly to adjust to changes in personal situations, the markets, and regulatory and tax environments. Sharifi said clients need to understand that the way their financial plans were done in the past may need adjustments to meet their future goals. For retirees in their 70s and 80s, he noted, the world is much different today than it was when they were thinking about retirement in their 50s and 60s. “Success also depends on the quality of your model,” he added. “There are hundreds of different models out there, but they are not all of equal value. One is not going to work as well as another model in a given situation.” Sharifi said Legacy Wealth Management does not necessarily aim for the highest returns. For some clients, their goal may be to reach certain alpha that exceeds the market benchmark. But other clients have other priorities. “We try to figure out exactly what would be most valuable for them and then aim for that highest value,” he explained. “Our model is to figure out what the client needs. Once we both understand what is most valuable for them, then we slowly and precisely start to move in that direction to capture future value. Of course, many clients will need small adjustments to whatever model we have, and that’s exactly what our job is: to provide the guidance and leadership needed to capture the required value. As an advisor, my job is to make small adjustments as we move forward that are personalized to each client.” The coronavirus pandemic further emphasized the importance

Kim, Jay, and Kaycee celebrating at a client event.

of the value financial advisors bring to the table, Sharifi said. The financial and health crisis brought home how much clients need advisors during unpredictable times. It also stressed the importance of advisors being available to pick up the phone when clients call, rather than sending those calls to voicemail. “It’s the little things that matter,” he continued. “It’s how important communication is throughout the year, and how important regular portfolio reviews are to ensure we stay the course. All of those things make a huge difference. Particularly during tough times, that’s when you want to be available all the time.” With each passing year, Sharifi said, he realizes he has not simply made a difference in other people’s lives; they have also made tremendous impacts on him. “It’s a two-way street,” he said. “It’s incredibly fulfilling, knowing that I’ve helped guide people who perhaps were not going to make forward progress

in their financial security. They ended up doing so because they knew they had someone they trusted who could guide them in areas where they weren’t very comfortable. Seeing them live a more comfortable life is certainly humbling and fulfilling.” Looking ahead to the immediate future, Sharifi said he intends to spend less time on the details of running his business so he can increase the focus on his clients. “My personal goal is to spend more time specifically with clients because that’s what I love. That’s where the most value is for me and for my clients: being able to help more people in our community.” For more information on Legacy Wealth Management, visit lwealthmanagement.com.

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Cover by Joe Innace

U.S. ECONOMIC OUTLOOK Swift start then downshift in 2021 Likely a moderate pace in 2022

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A year jump-started with robust economic growth in the United States, 2021’s initially fast recovery shifted to lower gear as inflation worries, the persistence of the COVID-19 Delta variant, and supply chain woes emerged as speed bumps. Some caution flags are raised for 2022—with most economic forecasts seeing around a 4 percent growth rate for real gross domestic product (GDP)— but that’s still a solid cruising pace. Real GDP increased at an annual rate of 6.7 percent in the second quarter of 2021, according to the US Bureau of Economic Analysis (BEA). In the first quarter, real GDP increased 6.3 percent. But in the third quarter, the BEA said US GDP growth slowed to just 2 percent— when 2.6 percent was expected. Many of the same concerns remain in play as the US economy wraps up its fourth quarter and heads into 2022. As such, a number of economic forecasts have been recalibrated—still strong, but somewhat lower. The Conference Board, for example, is forecasting that US real GDP growth will slow to 3.5 percent (annualized rate) in Q3 2021 and that 2021 annual growth will finish at 5.7 percent, year-overyear. “This forecast is a downgrade from our September outlook and incorporates the largerthan-expected impact that the COVID-19 Delta variant has had on the US economy,” The Conference Board noted in a mid-October statement. “Looking further ahead, we forecast that the US economy will grow by 3.8 percent (yearover-year) in 2022 and 3.0 percent (year-over-year) in 2023.” In its latest US forecast, The Conference Board said consumer spending will be a key driver of growth in Q4 2021, but recent 18 / ADVISORS MAGAZINE

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declines in consumer confidence related to a resurgence in the pandemic will mute consumption’s contribution to GDP growth in Q3 2021. “However, as the severity of the Delta wave continues to ebb, we expect spending on in-person services to reaccelerate in the final months of 2021,” the group said. Bottlenecks in global supply chains made it difficult for businesses to keep up with stronger demand for many goods earlier this year, resulting in a sharp contraction in private inventories. “We expect this trend to reverse over the coming months as the December holiday period approaches, and forecast a rebound in private inventories,” The Conference Board said. The pace of restocking, however, will be slower than previously anticipated as the Delta variant has hindered manufacturing and shipping activity in key economies around the world. Inflation seen easing in 2022 Concerns about inflation remain high as businesses and consumers continue to grapple with the impact of the pandemic, emphasized The Conference Board. It sees year-over-year inflation rates staying high through the end of 2021 and into early 2022, followed by some tapering. “Recent increases in energy prices will also keep inflation from falling more rapidly over the winter months as well,” it noted, “However, the intensity and momentum of month-over-month price increases will likely continue to moderate over the coming months.” Specifically, The Conference Board sees a year-overyear inflation rate (personal consumption expenditures) of 3.6

percent for 2021, but 3 percent in 2022—and down to 2 percent in 2023. Recoveries are never smooth, the widely respected outlook from the UCLA Anderson School of Management noted in its lateSeptember forecast. It contended that the hope for blockbuster economic growth in 2021 was dashed by the spread of the Delta variant and stagnating vaccination rates. Slightly more bullish than The Conference Board, UCLA Anderson is forecasting 2021 average annual GDP growth of 5.6 percent, down from its 7.1 percent rate predicted in June. For 2022, growth is expected to be 4.1 percent, down from the 5.0 percent rate forecast in June. Going out to 2023, the projection is now 3.1 percent, up from the 2.2 percent rate it predicted in June. “The reductions in growth for 2021 and 2022 and the increase in growth in 2023 represent a shifting of consumption and investment further into the future,” UCLA Anderson explained in a statement. What might have been “What makes this growth ‘hohum’ is the comparison to what could have been if, globally, we had gotten COVID under control and had been able to transform pent-up demand, pent-up savings and a tremendous amount of government support into faster economic growth,” wrote UCLA Anderson senior economist Leo Feler in his September forecast. According to Feler, services — not goods — are driving GDP growth. Services consumption remains 1.5 percent below its pre-COVID peak in the fourth quarter of 2019. However, it has been recovering rapidly, faster

than the rate of GDP growth, and is therefore one of the drivers powering the recovery. Although goods consumption is currently 14.2 percent above its pre-COVID peak, that percentage is shrinking, and goods consumption is no longer a principal driver of the economy. Given supply constraints and the fact that a return to public health restrictions is unlikely, Feler expects consumers to continue their shift away from goods consumption toward services.

Annual inflation, as measured by the Consumer Price Index, is expected to finish 2021 at 5.7 percent, up from the previously projected 5.4 percent, according to Fannie Mae. This is due primarily to elevated energy prices domestically and abroad. To fend off persistently higher inflation, Fannie Mae’s ESR Group expects the Federal Reserve to announce plans to begin tapering its asset purchase program by the end of the year, and it now projects the first

MORTGAGE RATES MAY RISE IN RESPONSE TO THE TIGHTER ENVIRONMENT, BUT WE EXPECT

“

amid growing inflationary and consumer-spending concerns, according to the October 2021 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. For the third consecutive month, the ESR Group revised downward its full-year 2021 real GDP growth projections from 5.4 percent to 4.9 percent due to its more pessimistic view of the speed at which current supply chain disruptions will resolve. The ESR team also upwardly revised its

THE SEVERE SHORTAGE OF HOMES FOR SALE TO REMAIN THE PRIMARY DRIVER...

DOUG DUNCAN The economy is currently down 5.3 million payroll jobs from its pre-COVID peak, and Feler notes there is little evidence to suggest that the expiration of enhanced unemployment benefits will lead to a surge in job applications. “The forecast is for more gradual gains in employment over the next several quarters,” he added. “We are no longer forecasting average monthly gains over one million. Going forward, we are forecasting average monthly gains of 330,000 in the near term, declining to 170,000 by the end of 2023.” Supply constraints cloud outlooks Global supply constraints continue to cap economic output

inflation projections and expects that services-related consumer spending will take longer to return to a more historically normal level. “While we still view the supply chain disruptions and, to a lesser extent, labor market tightness as largely transitory, we now expect both to last even longer than we’d previously forecast – and also likely longer than the Federal Reserve anticipated,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Combined with our expectation that inflation will run abovetarget over the forecast horizon, we foresee growing clamor from market participants for the Fed to begin tightening monetary policy,” Duncan added.

federal funds rate hike to take place in the fourth quarter of 2022. A cooler housing market in view The ESR Group also highlighted the ongoing impact of supply chain disruptions on housing, including on home price growth and mortgage rate expectations vis-à-vis higher inflation. Mortgage rates are forecast to average 3.3 percent in 2022, up from September’s projection of 3.1 percent, as benchmark interest rates are expected to rise due to increased inflation expectations and a projected tightening of monetary policy. ADVISORS MAGAZINE / 19

While Fannie Mae’s ESR Group expects home price growth to decelerate moving into 2022 as the housing market cools from its recent highs, it did revise upward its home price growth forecast by 1.8 points to 16.6 percent for 2021 and 2.3 points to 7.4 percent for 2022. This is as measured by the FHFA Purchase-Only Index and largely reflects persistently tight inventory levels. “New single-family home construction remains in high demand but is hindered by many of the same supply constraints, including the availability of both materials and skilled labor, both of which the ESR Group expects will remain obstacles to the delivery of new homes well into next year,” noted the Fannie Mae researchers. “Even a modest tightening of monetary policy would of course 20 / ADVISORS MAGAZINE

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impact housing, but we expect the effects to be largely muted given current market conditions,” Duncan said. “Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices.” Right now, Fannie Mae’s ESR team sees mortgage rates averaging 3.3 percent in 2022. Though slightly higher than 2020 and 2021, rates by historical standards remain extremely low and supportive of mortgage demand and affordability. CEO moods dampen, small business upbeat A couple of recently released

indicators show a slight dichotomy between the executive suite and Main Street. In collaboration with The Business Council, The Conference Board also takes the pulse of CEOs on current economic conditions. And after reaching an all-time high in Q2 2021, The Conference Board Measure of CEO Confidence™ retreated in Q3, down to 67 from 82. A reading above 50 points, however, reflects more positive than negative responses—so 67 is a solidly favorable result. In Q3, 70 percent said conditions are better compared to six months ago, down from 94 percent in Q2. CEOs’ view of conditions in their own industries also retreated, with 64 percent reporting better conditions compared to six months ago, down from 89 percent in Q2.

Looking ahead, expectations softened in Q3 compared to Q2: 60 percent of CEOs expect economic conditions to improve over the next six months, down from 88 percent. Similarly, 65 percent of CEOs anticipate short-term prospects in their own industries to improve, down from 81 percent. “CEO confidence is down from the all-time peak reached in Q2, when COVID-19 appeared on the verge of defeat,” said Dana Peterson, chief economist of The Conference Board. “A summer surge of the highly infectious Delta variant—coupled with slumping vaccination rates—has brought pandemic uncertainty back to the fore in Q3,” Peterson added. “Nevertheless, optimism remains well above pre-pandemic levels, boding well for employment and investment growth in the months ahead.” Small business owners are feeling optimistic about the nearterm future of their businesses amid increasing vaccination rates, and those who report that more than three-quarters of their workforce has been vaccinated are the most positive about their business outlook. This includes expectations for stronger demand, sales and profits than companies reporting a lower rate of employee vaccination, according to PNC Financial Services Group’s semi-annual national small business survey. Economic optimism linked to vaccine rates Data gathered through the end of August during PNC’s survey demonstrated that vaccines were top-of-mind for business owners. Some 79 percent of businesses said they have taken action to encourage employee vaccination. Nearly

half (48 percent) are requiring employee vaccinations, 44 percent are helping related to vaccinations, 26 percent are incentivizing employees to receive vaccinations, and one in four have added restrictions for employees who choose not to be vaccinated. “The survey results demonstrate that most business owners believe the vaccine can have a positive impact on their businesses,” PNC Chief Economist Gus Faucher said. “Further, business owner optimism rises as vaccination rates increase, indicating that efforts to support vaccinations broadly could strengthen the economic recovery.” Despite the optimism among small business owners, challenges remain. While more employers hope to hire – and hiring expectations have returned to pre-pandemic levels – many businesses are struggling to find employees. Among all employers surveyed, labor availability is the most frequently mentioned concern, topping sales and supply chain worries that were reported as more worrisome earlier in the year. More than four in 10 employers say they are offering increased compensation to retain or attract new employees, implementing employee health or safety improvements (46 percent) and allowing more flexible work arrangements (44 percent). Profit expectations for the next six months have doubled since PNC’s spring survey, and sales and demand have reached the highest levels in the survey’s 19year history.

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by bill millar

Solving the Challenge of

FINANCIAL LITERACY Credit bureaus like Experian talk about it. Universities like Harvard provide free online guidance. Politicians introduce legislation to mandate its teaching to kids in grades K-12. But the challenge remains. The question becomes, what more can society and more importantly, the financial planning industry, do to promote and instill financial literacy?

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Teach good habits

“Teaching teens early leads them to make smart money moves as adults,” says Dawn Santoriello, CFP® and president of DS Financial Strategies in King of Prussia, PA. “When I was a young teen my mom taught me how to use a checking account and I still use my checkbook register to balance my account even in the digital age.” Santoriello advises her 24 / ADVISORS MAGAZINE

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clients that as parents, there are many things they can do to help promote greater financial literacy. For example, emphasize that a credit card is not a free pass to spend uncontrollably. Further explain that such a tool should only be used to the extent it can be paid off by the end of the month. Extreme emergencies are the only exception, and even there, a plan needs to be developed to eliminate the debt as soon as possible. “Learning how to use credit cards is very important

for adults but especially for young adults and teenagers as they will be highly targeted when they go to college,” says Santoriello. Another good tip, “teach your kids good habits like saving 20% of every check they receive.

Avoid easy credit

Founder and CEO Jeff McDermott, CFP® of Create Wealth Financial Planning, LLC in Saint Johns, FL says that as

important as financial literacy is for soon-to-retirees, it is just as critical if not more for today’s younger generations. As financial advisors, “we understand the compounding effect of both good and bad decisions,” says McDermott. “Starting to save in your 20’s vs. your 30’s or 40’s can be the difference in hundreds of dollars of monthly cashflow required to meet your goals.” Instead, says McDermott, “too many young adults find themselves getting into debt, then digging their way out, instead of getting a head start on investing. Building the habit of living within your means and saving 15% or more of your pay is much easier earlier in life before you find yourself supporting a family, paying a mortgage, and experiencing other expenses that creep into your budget.” Savings and investments are indeed vital to financial planning. But as Alynne Zielinski CFP®, CDFA® of Marcum Wealth maintains, an especially important element of financial literacy is helping young and old better understand the responsible use of debt. As Zielinski explains, debt is so freely available and so tempting that it leads individuals to live beyond their capacity to save. “Understand that we are a debt-based society,” says Zielinski. “Financial markets take advantage of our willingness to take on debt by freely lending money to qualified borrowers forcing our decisions to be made not by what we can afford but whether our

income can support our debt. This is the antithesis of longterm financial freedom which includes saving, investing, and avoiding debt. Achieving financial literacy means you’re making sound financial decisions and that includes in relation to debt.”

Finding the opportunities

Brian Cochran, CFP®, CKA®, is a financial planner for Albuquerque, NM-based John Moore Associates. According to Cochran, “financial literacy is essential for the next generation of Americans to capitalize on the opportunities of the modern economy. Our country has never had more wealth or opportunity.” But at the same time, “today’s personal finance landscape is more complex and demanding,” says Cochran. “Young people leaving school and entering the workforce today have higher essential costs such as housing, healthcare, education, childcare and transportation. They meanwhile face more options for investing, more loan products to bury them in debt, and many community needs that require their charitable donations.” Learning to balance these competing interests requires sound principles and an understanding of money basics far greater than previous generations. As Cochran explains, the public school system doesn’t seem interested nor is it today equipped to teach financial principles. It may be up to the financial services industry to fill the gap. “In my opinion financial

literacy is just as important as high-quality education,” says Cochran. “When teens and young adults get a quality financial education, knowing how to manage their finances before they become older adults and truly need financial skills, they will be better prepared when the time comes for them to manage their finances.” “When teens understand proper money management skills, they retain those skills and use them throughout their lives,” he continued. “Early financial literacy teaches young teenagers how to have a good relationship with money. As my mother would say quoting the bible: ‘Train up a child in the way to go and when they are older, they will not depart from it.’”

Three keys to financial literacy Cochran suggests that in particular, teens, young adults and others need to be given instruction in three key areas: • Banking practices / processes • Savings and investing strategies • Interest rates and credit usage

“I have seen things falling apart for those who have no, or very little financial education,” says Cochran. “It has a systemic effect on all matters concerning an individual’s life from where they live, to how they make other life decisions. And by becoming more financially literate, teens and young adults are able to form sound financial habits leading them to an even greater financial consciousness.” So that’s how a handful of advisors address financial literacy. Care to share your ideas or concerns? Email us at editoral@ advisorsmagazine.com. ADVISORS MAGAZINE / 25

by bobby l. hickman

FINANCIAL ANXIETY TALK

INTERVIEW

COPING WITH FINANCIAL ANXIETY Education helps ease clients’ stress

Brian Carney CFP® Co-Founder

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onsumers facing rising levels of financial anxiety can often find relief by working with financial planners to improve their financial literacy. Many Americans were already feeling financial anxiety and stress even before the COVID-19 pandemic heightened economic pressures, according to a 2021 study by the Global Financial Literary Excellence Center (GFLEC) at George Washington University and FINRA. The study built on a 2018 survey that found 60 percent of Americans were anxious when thinking about personal finances, and 50 percent became stressed while discussing their economic situations. “The greatest anxiety about personal finances was expressed by single women and young adults, demographic groups that have been hit particularly hard by the current crisis,” the study stated. “Over the past year, their financial struggles have likely been further exacerbated and their anxiety and stress levels worsened.” Helping people reduce their financial anxiety is particularly important as they face major life decisions, according to Brian Carney, CFP®, co-founder of RiversEdge Advisors, LLC, in Wilmington, Delaware. Carney said clients come to the financial planning firm with such questions as, “Should I retire, or should I sell my business?” or,

NOV 2021

“When is the right time to sell my business?” These types of questions require modeling and analysis to gather enough information to help the client feel completely comfortable in their decision. “If they ask whether they can retire now, we run their financial plan,” he explained. “We may find that they cannot live on what they have now and may need to wait until they are 68. Now we can refocus our attention on that goal and devise a strategy to make sure they can retire at 68. Situations like that can really paralyze a client and give them a ton of anxiety about their overall financial situation. But once we know the facts, it’s easy for us to pivot and help them find a strategy to address their alternate goal.” The FINRA-GFLEC report found that financial stress and anxiety are often linked to a lack of financial literacy, which can be addressed by improving consumers’ financial knowledge. Carney noted client education plays a large role in the RiversEdge process. “There is no lack of information available about financial matters,” he said. “Money can be overwhelming and intimidating for people. Our ‘superpower’ is helping our clients by taking highly complicated ideas and making them very simple, straightforward, and easy to understand.” Financial advisors who are overlytechnical and speak in industry jargon can ruin a client’s experience

KEY INSIGHTS

RAT

• Helping you make educated decisions as they relate to your financial and personal well-being. • Utilizing tools and experience to prioritize your financial success. • Monitoring your financial plan to be able to make adjustments for any life changes that will inevitably happen.

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to meet their goals. “Our firm is dedicated to providing financial planning to people and helping them figure out a strategy to achieve their goals,” Carney explained. “Certainly investments plays a role in that strategy. However, we really want to focus on the financial planning aspects.” Many of the firm’s clients are business owners whose companies range from startups through longestablished enterprises. He said the firm helps owners craft strategies around lowering income taxes through retirement plans or cash balance plans. Reducing their corporate tax burden also helps owners achieve their personal goals. Retirement planning for both business owners and individuals

with the industry. Carney said he feels the top issue in financial services is using jargon and talking over a client’s head, which can be intimidating. “I think full and complete transparency of everything that’s going on in the client’s account is something that could help shift the industry as a whole to a more formal experience,” he added. “Also, the client should know exactly how much they are paying their advisors to know whether they are providing value to justify their fee.” Most clients simply want to feel empowered, he said, which results from understanding the strategies created to address their needs. His firm provides clients enough data and analysis so they feel comfortable they are making the best decisions

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ADVISORS MAGAZINE / 27

requires customized solutions tailored to meet each client’s unique circumstances, Carney said. People need different advice based on their personal situation if they will retire at age 62 versus 65, for example. A financial planner’s guidance significantly impacts their decision on when to retire, plus their future success and financial independence. Increasingly, technology plays a significant role in financial planning and investment management. Without the right technical tools, it is difficult to provide custom solutions for each client. “If a firm isn’t investing heavily in technology, they will fall behind,” said Carney. “We have a large tech budget so we can use a wide variety of different software tools to efficiently provide a customized approach for each of our clients. When you use old-school Excel spreadsheets, there can be a lot of human input issues. Being

able to build a robust technology stack helps us streamline things and integrate data from multiple technology platforms. That is huge for both providing quality advice and enhancing the client experience.” The proliferation of investment apps, financial planning tools, and robo-advisors has brought many of those capabilities to the general public. Carney said that while there a number of people who do not need to hire a financial advisor because they can manage their own money and are comfortable using those digital platforms, there are three reasons why many continue using the services of a financial advisor. “Number one, people don’t want to manage their money or their financial plan,” he explained. “Number two, they don’t know how to do it. They may read a lot of articles but they get confused about exactly what they should do, so they need a professional

to help guide them. And third, for some people, it is a combination of the other two reasons: they don’t know how and they don’t have to learn how if they work with a financial professional.” Ultimately, a successful client engagement comes down to building personal relationships. “First and foremost, we want to work with people that we like,” Carney said. “We will not work with people who we think are going to be difficult. We want to work with someone we might like to have a beer with and not even talk about business. Our personality match is really more important than any financial measures we could determine.” For more information on RiversEdge Advisors, visit riversedgeadvisors.com.

From R/L: Sean DeBarberie, Brooke Kuhlman, Shiv Patel, Lindsey McCaffery, Michael Levy, Brian Carney, Jarrett Morris, Ryan Francella, Gary Diegert, Eric Eliason, Amira Adams, Mike Hendrickson

28 / ADVISORS MAGAZINE

NOV 2021

erest Consulting Everest Consulting is a management is a management and growth and growth ategy strategy consulting consulting companycompany that focuses that on focuses on vising consumer advising consumer branded lifestyle brandedcompanies, lifestyle companies, m Fortune from 500 Fortune companies 500 companies to mid-sized to mid-sized anizations. organizations. With overWith 25 years over 25 of operating years of operating d management and management expertise,expertise, Everest Consulting Everest Consulting vides provides the industry the expertise industry expertise along with along the with the ategic strategic and operational and operational know howknow to help how your to help your nd achieve brand its achieve fullestits potential. fullest potential.

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Breakthrough Actionable Strategies

by joe innace

Financial Planning for

Those Who Make Our Communities Work

Onsite retirement plan services for public sector employers and employees

pproximately 16 million Americans— nearly 10% of the nation’s workforce—are employed in state and local governments.1 Most public sector employees are middleincome workers and families. “They are the people who most need financial planning, but tend to get it the least,”

towns, police and fire departments, health departments, utilities, transit authorities, housing authorities, libraries, park districts, and the people they employ—provide the core services that make our communities work. “Public employees devote their lives to public service and generally make less

of public or private sector employment, don’t have the skill set, interest, and/ or fortitude to manage their own investments, and that they tend to let emotions such as fear and greed drive their investment decisions. “The average worker generally doesn’t know how to calculate a gap analysis and determine how much money they

“Many advisors and firms gravitate toward helping the higher-net-worth individuals… What about everybody else?”

Joshua Schwartz, AIF®, President and Cofounder of Retirement Plan Advisors (RPA), told Advisors Magazine in a recent interview. Meet RPA Chicago-based RPA was established in 2000 as an independent advisory practice to serve public sector employers and employees. These governmental entities—counties, cities, 32 / ADVISORS MAGAZINE

money than those in the private sector,” Schwartz said. “The trade-off for this is that they get good benefits. But you only have good retirement benefits if you have the knowledge, skills, experience, and expertise—either yourself or available through your plan— to actually plan for a successful retirement.” He further noted that most people, regardless NOV 2021

really need to retire comfortably, let alone turn their retirement nest-egg into an income stream for 20, 30, or more years,” Schwartz said. “So, our firm is founded on the idea that we want to help the people who devoted their lives to public service have the kind of retirement they deserve.” That has been RPA’s mission for 20+ years, since its inception in 2000.

Employer & Employee Fiduciary Services RPA provides two key levels of service to the public sector. The primary service is to the employer. “Many are smaller employers with 50, 100, 200 people that are very good at providing the services their communities need, but typically don’t have the internal resources and expertise to design and implement a truly competitive, effective retirement program,” Schwartz said. RPA works directly with the employer, as a fiduciary, providing retirement plan investment advisory and consulting services, with a focus on designing, implementing, and maintaining a robust deferred compensation/ defined contribution program. “But the best retirement benefit in the world doesn’t help your employees if they don’t actually use it correctly,” Schwartz emphasized. “So we simultaneously come in and work with the employees—also in a fiduciary capacity—to help them fully maximize the benefit of their participation in voluntary retirement plans so that they can achieve a financially secure future.” Planning for a financially secure future includes planning for longevity

and health care expenses. The average retirement age in the U.S. today tends to be around age 65. For public sector employees, however, the retirement age can be much younger. Public safety personnel—police officers and firefighters— often retire in their 50s. “One big challenge is to bridge the substantial health care expenses from retirement age to Medicare eligibility at age 65,” Schwartz said. “We work with employers, police and fire unions, and other public employee unions to identify, design, create, and implement taxfree retiree health care funding solutions.” RPA’s Promise In a sense, RPA itself is the bridge between employer-sponsored retirement plans and public sector employees. Among the firm’s core commitments, according to Schwartz, are: • To provide even the smallest communities with the same high-quality retirement plans and advice found on Wall Street. • To never forget the person sitting across the table is depending on RPA to protect their hardearned retirement. • To meet in person or virtually with employees, year after year.

• To offer unbiased investment advice. As an independent firm, RPA has the freedom to design retirement solutions that are right for each individual. • To act with integrity, respect, and responsiveness to every individual. Integrity, respect, and responsiveness are also the values RPA seeks when identifying new financial advisors and partners. “Many advisors and firms gravitate toward helping the highernet-worth individuals, the person who has $1 million or more to invest,” Schwartz said. “But that’s a small percentage of the population. What about everybody else?” ‘Everybody else’ has been a successful niche for RPA. “These people want sound, independent financial help,” Schwartz stressed. “For advisors who can see themselves working with that firefighter, that librarian, or the guys who lay asphalt on your streets or repair your water main, this could be a great fit.” Growth Mode RPA’s business continues to grow, and the firm is now working with well over 500 unique employers, accounting for more than 71,000 plan participants and $5 billion in plan assets.

The company has 20+ full-time staff members, as well as 50+ financial advisors across the country. “We have clients from coast to coast, and while we’re not in every state just yet, we’re growing quickly and expanding our footprint through partnerships,” Schwartz said. “Through our recently formed partnership with Cambridge Investment Research, an

fiduciary capacity in all 50 states.” As for future goals, RPA is considering taking its public sector expertise to the private sector. The timing seems right with the expected increase in Pooled Employer Plans (PEPs) and open Multi-Employer Plans (MEPs), thanks to recent legislation making it easier for small business owners to set up retirement plans.

“Our firm is founded on the idea that we want to help the people who devoted their lives to public service have the kind of retirement they deserve.” independent financial solutions firm with over 3,600 financial professionals, we are able to provide local onsite service to public sector employers in a

For more information, visit www. retirementplanadvisors. com. 1

Public Service and the Federal Government, Brookings Institution, May 2020

ADVISORS MAGAZINE / 33

by bobby l. hickman

TAX TALK

HIGHER TAXES AHEAD?

INTERVIEW

Many Americans concerned about impact on retirement

mericans looking ahead to retirement are becoming increasingly concerned that the possibility of higher taxes in coming years will make it more difficult to plan for their future. An April 2021 Gallup survey found 57% of Americans expect their taxes will be higher during the next 12 months, with only 33% anticipating they will remain the same. Recent Harris polling on behalf of the Nationwide Retirement Institute (NRI) revealed similar trends. NRI stated, “Almost half (47%) of Americans expect their taxes to go up significantly in the next four years and the majority (62%) agree it’s more important than ever to minimize taxes now than in retirement.” “I think one of the major areas that we should all be concerned with is the possibility of rising taxes,” Michael M. Quarles, owner and president of Financial Longevity Advisory LLC in Kansas City, Missouri, told Advisors Magazine. “Taxation in retirement has always been a concern for us. There have been numerous changes in tax policies over the years with different laws, different administrations, and different perspectives impacting future results.” For several years, Quarles noted, the United States has faced rising national

34 / ADVISORS MAGAZINE

debt, higher baby boomer retirements, and record numbers of people enrolling for Medicare and Social Security benefits. On top of those pressures, he added, trillions of dollars have been spent over the past 18 months to counteract the coronavirus pandemic. Government expenditures have heightened concerns over how much taxes may rise and how the country will recover economically. “For these reasons, it is important for us to address taxes in our financial and retirement planning,” Quarles said and added that while he does not provide tax advice, he works with a client’s tax profession when requested. “Many of our strategies, educational efforts, and general information focus on that aspect. Most of our clients have a large percentage of funds in retirement accounts, where that money is taxdeferred. But at some point in the future, tax rates will be applied when those funds are distributed – and there are many different ways that taxes can increase over time.” Quarles said his niche is working with older clients who are approaching retirement, which today largely means baby boomers. He said his firm takes a holistic approach with each client that encompasses

NOV 2021

retirement planning, income planning, and financial planning. “More people have become concerned about living too long and outlasting their money,” he said. “Longevity, or the risk of living longer, has a lot to do with that. The financial risks of market downturns, long-term care costs, and taxation are also big concerns to people, and they always have been.” Education plays an important role by providing information that helps people deal with those concerns, he continued. Change is a constant challenge for long-time clients and new prospects alike. Lifestyles and family situations change, as do the

economy and the financial products available. “During the time I’ve been in business,” Quarles added, “the information aspect of our industry has really been our foundation. Most people want answers to their questions, and they want to know more about their situation. That’s how we can help: it’s all about providing the education and information that people are seeking.” For more information on Financial Longevity Advisory, LLC, visit fladvisoryllc.com.

Michael Quarles and Heather Herring offer Investment Advisory Services through Gradient Advisors, LLC (Arden Hills, MN 877-885-0508), an SEC Registered Investment Advisor. Gradient Advisors, LLC and its advisors do not render tax, legal or accounting advice. Financial Longevity Advisory LLC is not a registered investment advisor and is independent of Gradient Advisors, LLC. Insurance products and services are offered through Michael Quarles and Heather Herring, independent agents. Financial Longevity Advisory LLC , Michael Quarles, Heather Herring and Gradient Advisors, LLC are not affiliated with or endorsed by the Social Security Administration or any government agency.

ADVISORS MAGAZINE / 35

by bobby l. hickman

REFERRALS DRIVE PRACTICE GROWTH Word of Mouth Endorsements Deemed Critical Asset

Referrals from satisfied clients continue to be the most effective method for financial advisors to find new prospects, add customers, and grow their business.

he 2020 Natixis Global Survey of Financial Professionals found that 85% of financial professionals rely on referrals from current clients and contacts. “They see this word of mouth endorsement as a critical asset and an important dimension,” Natixis stated. Forty-six percent also benefitted from referrals by other professionals such as accountants and attorneys, while 39% grew by building relationships across multiple 36 / ADVISORS MAGAZINE

generations of families, the study added. Advisors found more success using approaches that rely on reputation and trust over less personal platforms such as advertising, sponsorship, social media, and email marketing. Referrals are particularly important for firms with a specific focus, or those that rely on a team approach deliver services. For instance, StoneKimbro in Los Angeles and Orange Counties, which NOV 2021

specializes in retirement planning for organizations, operates as a team rather than working through one individual advisor. “We don’t really prospect; we get referrals,” said Bruce Stone CLU® ChFC®, principal of StoneKimbro. “People are referred to us because they have a particular itch that needs to be scratched. For example, if somebody is unhappy with the service, they are getting on a retirement plan, and they contact somebody who is also one of our clients, they tell them to ‘call StoneKimbro’”. The firm is structured around serving organizations, including both for-profit and non-profit entities. StoneKimbro focuses on retirement

Bruce Stone CLU® ChFC®

plans such as Defined Benefit, Profit Sharing, 401(k) plans, or 403(b) plans (tax sheltered annuities). They also are one of the few firms with expertise in all Non Qualified Retirement Plans. The practice emphasizes the inter-related needs of employees, executives, and the owners of companies who sponsor these plans. Stone leverages his extensive background in estate and business succession planning to deal with sophisticated tax strategies for company owners. “My job is to basically work with the top 20 clients of the firm,” Stone said. “I stay involved with the top talent, while the rest of my team works with the employees, providing education as well as financial consulting for retirement plan participants.” He continued, “I know the business owners who run the company and who the key people are. I also know as much as I possibly can about the business. That allows me to be proactive and bring issues to their attention that I think need to be raised – opportunities and potential

pitfalls that I see coming their way which should be addressed.” Although StoneKimbro focuses on people associated with client organizations, the firm’s financial planners also work with individual clients, Stone said. “However, from the standpoint of looking for new sources of business, our eyes are primarily on organizations.” Stone said the firm has a number of clients who have been with StoneKimbro for more than 50 years and span three generations of family members. He said his team is careful to take on the people who listen to their advice and who fit into the same type of working relationship that existing clients follow. “We’re basically attending to people’s immediate needs when they first contact us,” he said. “That gives us the right to talk to them about all of the other needs that we can help with down the road. We’re looking to build long relationships. We’ve even done plans where we take a loss on the relationship for the first couple of years so we can develop a long-term client that we feel

will go the distance.” Education places a central role in those efforts, particularly around retirement plans in the workplace. As financial planners train employees at the worksite, those efforts trickle up through the executives and even to the owner ranks. Stone said he recently learned that one of his business owner clients attends the employee meetings to learn more about retirement planning. “We understand that it’s a jargon-rich industry and we’re sensitive to that,” he added. “We try to put things in very simple terms. We take very complex concepts and try to make them simple to understand.” Stone noted an ongoing challenge for financial advisors across the country is dealing with the large number of people who are aging but have not addressed their retirement planning needs. He said many people simply cannot afford to retire, even though they may be attempting, either voluntarily or involuntarily, to do so. “I speak to people when they’re young and try to get them thinking about putting as much money away as they possibly can,” he said. “After 46 years in the industry, I have yet to hear a client tell me that they had saved too much money for retirement. Further, I’ve yet to hear from a widow that her husband left the family with too much

life insurance.” Stone said there are multiple unique financial challenges with planning for retirement. Those components include having enough monthly income; inflation; health insurance costs; long-term care factors; and retirees trying to help their children financially. The planning process takes those factors into account to build customized plans for each individual. “We strive to keep our clients from making bad decisions,” he continued. “We’re not afraid to call people and tell them what they don’t want to hear. The one thing we always do is speak truth to anyone who wants our opinion and wants to know what to do.” Stone added he has passed on several cases where people were spending too much during retirement and would not make lifestyle changes to make their spending match their assets. “One was living off 12% of their portfolio every year and basically spending their way through all their assets. I told them I wouldn’t be their advisor until they stopped spending so much. They didn’t want to hear that advice. That’s fine, but we’re not going to be a party to that.” For more information on StoneKimbro, visit stonekimbro.com

ADVISORS MAGAZINE / 37

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6 READY.SET.VAN — MOBILE HOMES, BUILT FOR ADVENTURE Whether you are a climber, biker, festival-goer, road-tripper, weekender or lifer, we’ve got you covered. Our super comfortable, highly functional off-grid adventure vans are a perfect fit for just about any lifestyle. Ready.Set.Van’s custom adventure vans are beautiful to look at and even more beautiful to holiday in. they come with commercial-induction cooktops, 80L fridges and deep stainless sinks. Flawless interior design will have you feeling like you’ve won a free upgrade. readysetvan.com

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VION Receivable Investments 400 Interstate North Parkway Suite 800 Atlanta, GA 30339 877.845.5242 phone 678.815.1557 fax Mesquite Corporate Center 14646 N. Kierland Blvd. Suite 122 Scottsdale, AZ 85254 480.729.6419 phone 866.260.1826 fax 123 North College Avenue Suite 210B Fort Collins, CO 80524 877.845.5242 phone 970.672.8714 fax 11921 Freedom Drive Suite 550 Reston,VA 20190 703.736.8336 phone VION Advisory Services 18017 Chatsworth Street Suite 28 Granada Hills, CA 91344 818.216.9882 phone 818.891.8738 fax VION Europa Paseo de la Castellana 95-15 (Torre Europa) Madrid 28046 Espanha +34 91 418 50 88 phone www.vioneuropa.es

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I N V E S T M E N T S

by bobby l. hickman

YOURECEIVEDALIFEINSURANCEPAYOUTæNOWWHAT?

Experts advise not making quick decisions

omen and men who lose a spouse often receive substantial amounts of money as beneficiaries of a life insurance policy. If the couple previously engaged in financial and estate planning, the surviving spouse probably already has a roadmap of how the funds were intended to be used. But families who had not already planned ahead for the death of a spouse – or other relatives who were not expecting to receive an insurance payout – may not be prepared for the unanticipated windfall. Life insurance policies give the surviving family members the ability to deal with the stress of losing a loved one without having to worry about their financial situation, including the loss of the deceased’s paycheck. However, a large payout means the widow 40 / ADVISORS MAGAZINE

NOV 2021

or widower will eventually have to decide whether to spend, save, or invest the funds they receive. The choices can be overwhelming as one considers what to do with the proceeds from a life insurance policy (or an annuity, savings account, or investment portfolio). While most beneficiaries receive a lump sum from the insurance company, most carriers have options that can provide a cash flow for years to you. You can typically receive the death benefit in installments; convert it to an annuity; or take a hybrid approach, such as taking part of the money as an annuity and the remainder as a lump sum. The first priority is making sure you can take care of your living expenses for the foreseeable future. If you cannot meet your monthly expenses, keeping cash

on hand becomes the main order of business. Other considerations while weighing your options include: Taxes: Life insurance proceeds are typically not taxable. However, if you invest the funds in an investment vehicle such as stocks that pay dividends or annuities that accumulate interest, you will be taxed on the income generated and any capital gains. Also, you cannot directly roll life insurance payouts over to an IRA, 401(k), or similar retirement fund. Pay off debt: The Federal Reserve Bank of New York reported that total household debt had risen to $14.96 trillion in June 2021. COVID-19 has hastened that increase, with a September 2021 Bankrate survey finding 42

percent of consumers adding to their credit card debt since the pandemic began. Using life insurance proceeds to pay off credit cards and other high-interest debt will reduce your expenses and put more money in your pocket. However, you should weigh which debts to pay and when to achieve for maximum effectiveness.

going to do now?’ When you’re faced with an OMG moment, the best choice is to do nothing just yet. If you don’t have to make a decision, don’t make the decision; hold off until you get to a calm place in your mind. You don’t want to jump into something just yet. You want to be cool, calm, and collected in you approach.”

Bank the money: Most people do not have an emergency fund to cover three to six months of expenses. A high-yield savings account or a low-risk investment will protect your principal until you decide how you should spend it.

Deciding How to Move Forward Babjak said there are five basic steps he follows when helping clients to decide what to do with the proceeds of a life insurance policy after the loss of a spouse, parent, or other loved one. This same approach can also be followed by other people who have received an unexpected windfall.

Create a legacy: Establish a fund to finance your children’s or grandchildren’s education, or contribute to a worthwhile charity. Experts interviewed by Advisors Magazine said that the first thing beneficiaries should do after receiving life insurance benefits is to take plenty of time to think and heal before you act. “I would caution people not to jump into any big investments right away,” said financial advisor Richard Babjak, ChFc, of Midway Wealth Partners in Arlington Heights, Illinois. “Take a step back before you make a decision too quickly.” That approach is particularly important when considering how to use life insurance proceeds after the death of a spouse, added Usha Rackliffe, professor of accounting at Goizueta Business School at Emory University in Atlanta. Periods of sadness and bereavement are not the best time to jump into major decisions. “Sometimes decisions paralyze people,” Rackliffe added. “They think, ‘Oh my God, what am I

1. Step back: “This period of time can be a very emotional time for most people,” he said. “A surviving spouse should avoid making big financial decisions too soon, such as downsizing their house or making a major investment.” He added, “How long it takes depends on the individual. Sometimes it can be a few months; sometimes longer.” 2. Create a financial plan: Even if the deceased had already put a financial roadmap in place, the surviving spouse should revisit those details. Some advisors spend more time with the spouse who mainly takes care of the finances, rather than engaging with both spouses equally, Babjak said. Things work more smoothly when advisors build relationships with both spouses. People who already have a relationship with a financial advisor find it easier to relate to and work with them during uncertain times. 3. Assess financial needs: This also becomes easier when there is an existing financial plan in place.

Typical questions to consider include whether the survivor needs monthly income or can invest the proceeds for future growth. Babjak said looking at cash flow is the first priority before addressing other needs. Many decisions are driven by the spouse’s stage of life. Is the surviving spouse retired? Are there children who will need money to go to college? These factors help determine the appropriate investments needed. 4. Update your risk profile: “The original client may have had a high-risk tolerance, but the surviving spouse could have a different perspective,” he said. “Often when money is inherited, the survivor thinks, “I can’t touch that money” or “They wanted me to do something specific with it.’ Emotions come into play when they think about how they will use the money. However, you will proceed, the risk you can tolerate must match your personality, not that of the deceased.” 5. Allocating the money: What types of investments are needed? Should they be liquid assets, or should one invest for the long term? Should the plan provide regular income? Will you pay off debt? Babjak added some clients may need to scale back their lifestyles, while others receive enough money that their lifestyle will improve. “Over the years, as my client base has aged, I’ve lost several clients each year,” Babjak added. “There is a lot of administrative work to be done, such as retitling assets. It’s also helpful for them to have someone who can show them that everything will be okay.” The ABCD Approach Rackliffe, who teaches a personal financial planning course at Emory, ADVISORS MAGAZINE / 41

said that when people consider how to use proceeds from a life insurance policy or an unexpected windfall, she recommends making a list of relevant factors by following an ABCD model. “The A, B, C, and D approach covers your assets, bucket list, cash flow, and debt,” Rackliffe said. “You have to look at things through all four lenses to figure out what use of the proceeds is right and appropriate.” Those factors are: A. Assets: What assets do you

Setting Priorities Make lists that cover all four ABCD factors. To evaluate how you should allocate your life insurance proceeds, Rackliffe recommends starting from the bottom of the list and working your way to the top. Begin with debt; then

The A,B,C, and D approach covers your ASSETS, BUCKET LIST, CASH FLOW and DEBT.

“

Rackliffe noted. “There is good debt and there is debt that is not so good. Most people have a home mortgage, a car loan, credit card debt, and other types of debt. Go down the list and decide which is good and which is not.”

already have? A house? A car? Investments? A 401(k)? Put all your assets on the list. B. Bucket list. “What do you want to do in your life?” she asks. “What are the big things that you think will make your life complete, and the things you feel good about wanting to do. There’s never a better time for someone to think about their bucket list than when they face mortality.” C. Cash flow: Write down how much cash you have coming in and how much is going out. Do you have enough cash flow? Too little? Too much? Where does the money come from and where is the money going? D. Debt: “Not all debt is bad,” 42 / ADVISORS MAGAZINE

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address cash flow, the bucket list, and finally, assets. Debt: “This is the easiest one to go down the list and say what you should pay off,” she said. “In general, not-so-good debt is where you owe a high interest rate. If you owe a high interest rate on anything, that one is begging us to pay it off.” For example, assume someone owes $10,000 on a credit card that carries a15.9 percent annual interest rate. It makes sense to pay off this credit card because retiring the debt means you are essentially earning a 15.9 percent return. “It is hard to earn that return anywhere else,” Rackliffe noted. “If you have a windfall, this is the first place to look. I believe some-

thing with high interest always takes priority because it will free up immediate cash, as you were presumably paying something every month.” Some people may wonder whether they should pay off their mortgage. Rackliffe said mortgages are usually “good debt” that provide several benefits. Since interest rates are low, people will not save a lot of money paying off their house. Many people would also lose the income tax break they get from the mortgage interest deduction. Mortgages are

Usha Rackliffe

also tied to a sound underlying asset: homes whose values tend to appreciate over time. She added, “Peace of mind is different things for different people. For me, peace of mind is having access to cash. For some people, it’s paying off the mortgage. You just have to think through what brings you pleasure in life.” A student loan can also be good debt, she added, depending on the interest rate. She considers a high interest rate to be one higher than nine to ten percent. Cash Flow: After debt, the next priority is making sure you have enough cash flow to meet your expenses, Rackliffe said. People should list all their sources of

income (such as paychecks, dividends, or pensions) and all their expenditures, and then compare the two totals. “Some people live paycheck to paycheck, and others have more cash available than their paycheck,” she said. “This helps you decide whether you are in a good place for cash flow. The question is: how close together are those inflows and outflows? If you find yourself short of money each month, that’s a problem. Then you have to ask yourself, where’s the money going?” If you find yourself pinched, she added, you need to generate more cash flow. You can either increase your inflow (income) or reduce the outflow (expenses). For example, paying off credit card

debt with a life insurance payout will improve your cash position and reduce outflow. Investing those proceeds in an index fund can generate income that provides you a regular stream of money. Bucket List: Different things are important to different people, Rackliffe said. Some people want to take a trip around the world; others might want to create a legacy for their grandchildren or the favorite causes. Put your list in priority order that emphasizes the things that would make you the happiest. Everything on your bucket list will cost money, she added, so decide what is most important from a big picture perspective. Assets: Finally, look at what kind of assets you own, both short-

term and long-term. Consider how liquid those assets are in case you need to access the funds on short notice. People at older ages may also need to consider assets that would fund their future long-term medical care expenses. The more assets you have, she added, the more flexibility and choices you have. “It doesn’t have to be crazy complicated,” Rackliffe concluded. “I tell people to approach this in a simple way. ABCD shines the light on every part of what a well-lived life is meant to be, both now and in the future.”

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