Financial Planning For Financial Planners

By Joseph Conroy

Everyone is familiar with the adage about the cobbler’s children who had no shoes. It is ironic, but common, that financial planners provide quality advice to clients but often don’t think enough about their own finances.

After spending 40, 50 or more hours every week advocating for clients, it’s tough to carve out time to look within, and work on our financial house. Even though we financial advisors are not out doing some type of physically demanding work, the work we do is mentally exhausting. So, it’s easy to understand why we mechanics don’t get around to working on our own cars.

On the other hand, it’s a shame because financial advisors do face some difficult challenges when it comes to managing our own finances.

One of the biggest challenges is managing cash flow. Most financial advisors are tied in some way to the performance of the market. Generally, as the markets drop, so does the income. I have found the stress of the job is inversely related to the markets so our income falls. The workload and stress increase dramatically, but that’s a story for a different day.

This cash flow uncertainty increases the need for cash reserves to weather the storm. Since the financial meltdown of 2008 was more than 10 years ago, many clients as well as advisors have really forgotten what a meltdown feels like. It’s too easy to say we won’t let that happen again, but history is doomed to repeat itself at some point.

We should run the fire drills of what we would do, not if but when, the market has another 20-40% drop and what our business and personal financial situations would look like. Many advisors do not keep enough cash on hand. While the markets are up, that is a good time to prepare for the next downturn.

That brings the second personal financial challenge advisors face. Advisors tend to be overly aggressive. It could be partly due to the type of personality that is prevalent in this profession and the overconfidence we can sometimes have in picking investments.

Advisors tend to buy investments that have extraordinary amounts of risk. They likely own things that they would never let into their clients’ portfolios. This mix of ego and overconfidence should be considered when weighing current and future investment decisions.

If advisors are self-employed, and not W-2 employees, that also means an added layer of tax complexity. I have seen many advisors do the “April tax scramble.” That’s where they did not set aside enough to pay taxes throughout the year or pay enough quarterly estimated payments and they need to come up with the balance before April 15.

The good thing about this challenge is that there’s a simple fix. Create an escrow account somewhere that’s easy enough to add money to, but difficult enough to access that you won’t find other uses for it. Then get in the habit of diverting a percentage of revenue each month to this account so that the money is there when you need to write your estimated quarterly payments and the final check in April.

Who do financial advisors turn to when they need help with their personal finances?  There are reasons that surgeons don’t do surgery on themselves or their family members, but it is extremely rare that financial advisors seek opinions on their situation from their peers.

It should be OK to ask for help, and I have several clients who are licensed and practicing financial advisors. My relationship with them is different than the relationship I have with my typical client, but it is extremely beneficial to the advisors I help.

Finally, advisors tend to be spenders more than savers. When you take a bias toward overspending and add in unpredictable income, the result is that saving for retirement often doesn’t happen.  Advisors may have less than the recommended amounts saved in their retirement accounts.

We tell ourselves we will sell our practice for some huge windfall in the future. That isn’t guaranteed, and the amount we think our business is worth is usually much higher than what the market will pay us.

Use this as an opportunity to run your own situation through the lens of a prospect sitting across the table from you, and make the changes you would recommend. Consider working with a respected peer, and keep each other accountable for accomplishing various savings and retirement planning goals. We frequently offer second opinions to clients; it would be good practice to take our own advice from time to time.

 Joseph Conroy, CFP, is a financial advisor at Synergy Financial Group in Towson, Md., and the author of Decades & Decisions: Financial Planning At Any Age. Joseph may be contacted at [email protected].

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