By: Ryan Dolan
It happens often. In my experience, far too often.
I started working with a couple earlier in the year: late 30s, three kids (6, 4 and 1). The husband, an architect, had left a high-paying position as a partner at a reputable local firm 5 years ago, to go out on his own. The wife left her own successful career in corporate HR a few years ago to focus on raising the kids. The couple were, simply put, impressive. Smart, articulate, clearly competent.
I had them walk me through their backstories, the experiences and events that had helped form them into who they are today. The couple had successfully traversed that often tumultuous, post-college period of their 20s and early 30s. They had matured, started to understand themselves, and began to gain traction in their lives and careers. Having met in their late 20s (blind date), they got married in their early 30s, and started having kids shortly thereafter. Though they grew up in very different economic environments (him: east coast affluence, her: a single, struggling, working mother), they were strongly aligned financially. Both conservative and conscientious, they scraped and saved to pay off her student loans early. They also built a nest egg for a sizable downpayment on their first home, which they purchased in their mid 30s in a very expensive housing market.
This couple was going places, chock full of human capital, tons of potential and a long timeline. I love working with younger clients: the earlier you start, the more difference you can make-and the more mistakes you can help prevent. Like many couples their age (and very much unlike older generations), they viewed decision-making as a collaborative process among equals. There would be no dominant financial spouse making all the decisions, with the other passive and without a voice.
Together, these partners had built an impressive financial foundation, and were looking forward to their future. They instinctively knew the importance of taking calculated risks and betting on themselves. They also knew that a strong financial base provided the stability and foundation from which you could take those risks. Their financial conservatism had allowed the husband to fulfill his long-time ambition of starting his own firm.
The firm’s (and the family’s) first few years were, unsurprisingly, a time of struggle and not a little anxiety and sleepless nights. But now the business was gaining traction, and the family, after a few lean years, were back to saving aggressively. The future, indeed, looked very bright. We talked about what success, a life well lived, looked like to them. We started to identify the couple’s core goals and values, priorities and transitions. We talked about paying for the kids’ college, paying down the mortgage, retirement, charitable giving, maybe at some point a second home in Tahoe.
I then transitioned into identifying the key risks the couple faced and their current protections against those risks. Risk control is always at the front-end of the process. The reason is simple: while it’s absolutely appropriate to plan for decades in the future, we want to make sure we are fully cognizant of the risks that could derail long-term financial plans today. While its impractical (and impossible) to eliminate risk, we want to identify and protect against the truly existential risks that clients face. Those rare events that could devastate them, perhaps irreperably, financially.
And then, as so often happens, I saw that this couple-otherwise so diligent and on-the-ball, had unconsciously retained a handful of unacceptable risk that could, potentially, unhinge decades of hard work, delayed gratification, prudent risk seeking, and good financial decision making. Without going into the specific details, the clients had large, gaping exposure related to life insurance, business liability insurance and estate planning. Some they were conscious of (they acknowledged that they knew they should have addressed a couple of them, but had never gotten around to it). Others they were completely unconscious of.
Fast forward to today. We’ve worked through securing all the suitable protections to address these risks. The couple is far more conscious of all the risks they are consciously retaining and those that they have secured against. We will continually reassess how theses protections should be tweaked as they grow older and their lives and needs change. They’ve admitted that they feel a tangible peace knowing that they’ve worked to secure what they’ve built to this point and have protected themselves and those they love.
In my career, I can’t think of one new client who didn’t have at least massive, unprotected risk exposure. Make sure you work with an advisor who is a true fiduciary: one who deeply understands your life and your ambitions, the risks you face, and the solutions available.
Dolan Partners LLC