“Risk is what’s left when you think you’ve thought of everything. Our assumptions about the future are almost always wrong. We can never think of everything—but we can take sensible steps to protect ourselves from life’s inevitable surprises.” – Carl Richards
Risk management is about accounting for life’s risk - above and beyond investment risks. It’s a critical part of planning a family’s financial life and requires a separate section from financial planning so appropriate attention can be paid to these risks.
Protect your goals, dreams, treasure, and personal well-being from those “what ifs” before they become “what nows.”
Address each of these four broad categories of risk with your client:
1. Income risks. Invest in securities portfolios to fulfill the client’s goals and dreams after their current income stream ceases.
Clients are counting on you to minimize the risk of not being able to afford their dreams. Goals and dreams often include: a comfortable retirement, college for children, caring for a spouse and others as needed, vacation homes, travel, and “toys”, and legacy desires.
If income stops prematurely due to death, disability, long-term illness, or loss of job, the individual and family may be left to cope without enough income to pay debts and living expenses, no less dreams. Plans should be made to handle such potential calamities. These situations can be addressed through insurance of many kinds. Discuss these risks with your clients, and document how the situation was addressed.
2. Expense risks. Spending via budget management, as well as income and emergency spending, should all be tracked and kept in line with the financial plan. The latter needs to be part of the plan as well and can be monitored by the client and/or the advisory team.
In many cases, offering budget planning and management tools can be both a family educational offering as well as an added value service for those who need it and are interested.
3. Assets and investment risks. Portfolio risks are discussed as part of your investment planning process. Savings, investments, and other assets also need to be tracked to plans. As Carl Richards says, “While making wise decisions about how you invest your money is important, it doesn’t have nearly the impact of working hard and saving more—let alone starting a business, going back to school, or reinventing yourself in any number of ways.”
Of course, you are tracking investments and return on investments as well as inflation and changes to real and personal property values if they are part of the plan.
4. Credit and debt risks. Debt and any other items that are part of the plan also need to have attention focused on them.
Annual to biannual plan reviews are likely necessary and are part of managing the plan that you developed with the client. Obviously, the more effort, the more time and cost - and that is part of the value of your services (whether charged separately or as part of your asset fees). We are not suggesting the details of tracking and monitoring are done by the advisor, but rather by part of your team, real or virtual. These services can be separately billed if required and appropriate.
David I. Leo, Your Risk Management Process Snippet 8
David Leo is Founder of Street Smart Research Group LLC. He is an author, speaker, coach, consultant, and trainer to financial professionals. David is an experienced business manager who works solely with Financial Advisors, Planners and firms who want to organize, structure & grow their businesses by attracting, servicing, and retaining affluent clients.
If you have questions or would like assistance in personalizing and implementing approaches from The Financial Advisor’s Success Manual, schedule a free 45 Minute Strategy Session at https://calendly.com/davidileo or contact me at David@CoachDavidLeo.com or visit my website at www.CoachDavidLeo.com
My book is available at Amazon at https://www.amazon.com/Financial-Advisors-Success-Manual-Structure/dp/0814439136