By Haddon Libby
If you are a regular reader of this column, you will know that my day job is as the Founder and Chief Investment Officer of a local investment management firm. This means that I serve in a Chief Financial Officer type of role for many of my clients.
One of my clients was divorced by her spouse after 35 years of marriage. Her ex forced the sale of all assets including their long-time home. In return, they both took two big piles of cash. Of her share, a lot goes to the tax man due to the long-term gain on the house and investments accumulated over decades. Of the rest, she now must buy a home with the rest to support her for the rest of her life. Being that she is only a few years from retirement, this is a scary situation given her spouse always controlled the finances.
Why am I telling you this? If it is not you, there is someone that you know who is facing or will face a similar challenge. Save this article and share it with them.
Following a divorce or death, many spouses are left with the daunting task of figuring out their finances for the first time.
This is where it is most helpful to have an experienced financial advisor. Ideally, you want one with the ability to prepare a cashflow table that you can adjust. I personally like to build cashflow models that I leave with folks to use on their computer. In this way, they have a simple way to test several potential situations that they may be most concerned about. The client can change their estimated life span, investment, and spending rates. There are also many phone apps, websites and online programs that do a good job of this as well. The goal is to learn how to manage one’s finances given finite resources.
A good accountant or financial advisor will guide you through the process. Ideally, you want your financial advisor and accountant to work together as a team. If either of these professionals start trying to sell products like an annuity, an illiquid private investment or some other high commission product, run away. I cannot tell you how many times I have gained new clients after a financial advisor has done their client wrong with investments that serve the advisor more than the client. The same goes for many attorneys who lead clients into lifetime annuities when this may not be the best option for that person.
Registered Investment Advisors (RIA) who perform to the Fiduciary Standard of Care are your best folks to work with on investments. Advisors who perform to this standard must put your interests first or they can get in big trouble with regulators. Between 7-10% of advisors perform to this standard. I am one.
The rest are Brokers who also can be called Financial Advisors. The difference here is that a broker may serve the needs of their firm and themselves before thinking of you. Brokers can also charge hidden fees. This means that they can put you in an investment where they get paid by the investment for directing you to it. This happens most when advisors use Mutual funds – the investment type used in many 401k plans.
With any advisor, get it IN WRITING on firm stationery that the advisor, their firm, or any associated company do not take a fee or expense reimbursement from any of the investments that they are using with you. If the advisor starts putting most of your bond investments into long-dated bonds, there is a fair chance that they are doing this to make a larger commission on the purchase of the bond for you.
If you are ever unsure about anything related to money, find someone trustworthy to help. Always get a second opinion until you are certain your trust is not mistaken. When it comes to money, be careful of the wolves posing in sheepdog clothing.
Haddon Libby is the Chief Investment Officer of Winslow Drake Investment Management. For Haddon’s bio or more information on our services, please visit www.WinslowDrake.com.