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If I Saved a Client $1.3 Million, Is That Value?


Like most people, I am not one who likes to bring attention to myself.  I certainly don’t like writing on topics that appear to be tooting my own horn.  However, I thought it was important to share this hypothetical story because sometimes it isn’t obvious how as a flat-fee CFP® I bring value to my clients.  Please bear with me.

 

Hypothetically, last month during a semi-annual review with a client he handed me a one-page sheet and asked me to look at it.  It was about new investment choices within his work’s 401k plan.  Unfortunately, the document had been through so many compliance reviews it was as clear as mud.  I asked him what he knew about it and he said his plan administrator just told him this was now available.  Even when he asked the partner in charge of the plan what it meant the response was – “I don’t know.”  Fortunately, my client tracked down a phone number so I could go to work and solve the mystery.

 

I took the number and made multiple phone calls to get clarity on what this new investment option meant for him.  The short version is the plan was now allowing participants to select from a new menu of investment choices.  Unfortunately, it wasn’t as simple as looking at a short list of new choices available.  One document listing some of the choices was 86 pages in length.  A few hundred more choices were listed only on the custodian’s website.  Then, depending on the fund family (Fidelity vs. American Funds vs. Vanguard and more), there could be transaction expenses or maybe it could be done with no cost.  Finally, depending if you made choices online or via phone affected expenses incurred to the plan participant.  About as straightforward as the Cuyahoga River (Cuyahoga means crooked river – FYI), right?

 

After quite a few phone calls and time dedicated, I was able to create a new portfolio for his 401k account.  The big difference was we were able to drop the expense by over .50%.  You may not think this matters, however, the compound effect of reducing his investment expenses by .52% over 30 years is dramatic.  Remember, reducing his expenses increases his return as more of his money is staying in his account compounding.  I ran a simple analysis with baseline returns of 7% and 7.52%.  Then I incorporated advisor fees (an average asset-based vs my flat-fee), maxing out 401k contributions until retirement, and withdrawing 4% annually in retirement.  The difference was at the end of 30 years this small move we made will save him over $1.3 million.  So, by talking regularly to my clients, spending some time on the phone, and digging through documents we were able to keep a significant portion of his money in his account for his retirement instead of buying a yacht for someone in NYC.

 

Listen, I am not a rocket surgeon and everything I do you are more than capable of doing.  It is simply over the years of being in this industry I have learned some of the most effective and efficient ways to improve a client’s financial picture.  Often it involves in keeping fees as low as possible, which is completely within your control.

 

As a flat-fee CFP® I always look at the whole picture and have conversations with my clients their previous advisors never did (I spoke recently with a client who now lives in a cold climate and gave him advice on how to prepare for a real winter).  Also, I know my value and my goal is to make sure this value is being shared with my clients.  So, the next time someone asks this client what value his advisor brings, well, he can point to well over 1.3 million reasons.  At least, hypothetically…right.