Industry Standard: Sell the Planning, but Miss on the Execution

By Alan Ebright

When you’re thinking about hiring a financial advisor, you might be in the process of reconciling all your various investment accounts. After several decades of work, and perhaps a few different employers, one might have many accounts spread across several different financial firms. Add- in, finding all the passwords to access your statements might take a little digging as well.

Once all the statements are gathered, and the interview process begins for who should handle your finances, you might be swayed by the buzzword, “planning.” Seems like the perfect progression. Gather up my statements, take an account of their values, and hire someone to put together the perfect plan.

Financial Planning, Tax Planning, and Legacy Planning are important, and conversations about all of them will come into play at some point in our lives. However, I feel the financial advice industry uses “planning” as a shiny hook for winning new clients rather than as an inclusive service in the normal course of business. I also feel that it’s one of those terms so frequently used, that perhaps its true definition has become misinterpreted.

Alright, then what is it?

Conceptually, it’s putting together a savings and investing budget so that you have a high probability of achieving a level of wealth from which you can enjoy retirement on your terms. In simple terms, how am I going to turn X dollars into a much larger amount. While later in life it becomes a function of how I live off my savings, minimize my taxes, transfer money to my heirs, while simultaneously not becoming a financial burden to my children. Tax planning and legacy planning are essentially subsets of one’s overall financial plan.

Mathematically, it involves using a software program to input certain assumptions. Savings rates, hypothetical investment returns, retirement age, income sources, withdrawal rates, tax rates, etc. The software then will generate the results of any scenario that you input. There are many different software offerings available, some more robust than others, but all of them basically use the same algorithm. No company or advisory group has cornered the market in better financial planning software; it’s a commodity.

All of this sounds important, so why would I not put this at the top of my list? It is important, but don’t forget about the execution. Huh? Yes, the execution of the plan is probably more important than the plan itself, for the plan is just a roadmap. Comparatively, you could go out and purchase the best mapping software, but you still must drive yourself to the destination. The plan’s outcome is directly linked to the investment strategy one receives.

So, if the shortest distance between A and B is the proverbial straight line, then tell me, what is that straight line? I would tell you that it would be to have your money invested as efficiently as possible. The way we accomplish this at Check Capital is by doing our own research and investing our clients directly into a portfolio of stocks, bonds, or options. As a contrast, many advisors outsource the money management to mutual funds, exchange traded funds (ETFs), or into other financial products. We feel that this is less efficient.

There is nothing wrong with owning mutual funds. They’re great investment vehicles when you have smaller sums of money and are in the accumulation phase of your investment life. However, if you own too many, you might end up spreading yourself too thin. If the average fund owns around 100 stocks, and you own 5, 10, maybe even 15 funds, you are probably the proud owner of fractional bits of 500 or more stocks all in the name of diversification. This is a prime example of diversification overkill, and it may have the unintended consequences of compromising your results.

In fact, several times a year we meet with prospects who have had their money managed in this fashion not knowing that a different approach is available. Many of them tell us that they were sold on the planning, and when we dissect their investment strategy with them, they can easily see what transpired.

If this sounds like your current portfolio, we believe there is a much more efficient way to handle your portfolio that is both transparent and potentially more tax efficient and profitable.

To learn more contact Check Capital at (714) 641-3579 or info@checkcapital.com.