Why Your Financial Goals Must Drive Your Planning

Wealth can bring worry, but goals should drive your actions

When I sit down with my clients for both current wealth and legacy wealth planning, I always start by asking them this question: What’s important to you?
 
I want their financial goals to drive our planning, not the other way around.
 

 
What usually happens is we start with amorphous goals and work together to create specific outcomes from these ideas. One way I like to do this is by asking if my clients have any “bucket list” experiences they want to have in their lifetime, such as climbing Mount Everest, funding a movie, or living in an exotic island home.
 
We’ll move to legacy wealth planning once we’ve dialed in goals for their current wealth. This is what my clients want their wealth to accomplish beyond their lifetime. My clients have created legacy goals ranging from the purchase of a vacation compound for grandkids to enjoy to funding college scholarships for underprivileged students.

I like to define specific goals with my clients at the outset because cloudy and imprecise goals can lead to unpleasant surprises for them and their family later in life. An unclear plan for using your wealth in your lifetime could lead to you taking on more risks than necessary or dialing up the spending of your current wealth.
 
After you pass, your family may have difficulty dealing with your legacy wealth if you haven’t created a plan for how it’s to be used and communicated that plan to them.
 
Goals drive financial planning because they allow your advisors to organize and manage your wealth efficiently, from investments to estate planning structures. When it comes to investing, having clear goals makes it easier to analyze the wide range of available options and make the best decisions possible in terms of liquidity, transparency, and yield because your advisor knows what you need.
 
For instance, if one of your goals is to pay for your grandkids’ college degrees in twenty years, your advisor can assign a pool of assets to cover that. Since you’ll have twenty years before those funds are needed, short-term liquidity is less important.
 
On the other hand, if one of your goals is to provide short-term income to cover your living expenses, then liquidity and yield will be much more important.
 
In the industry, this is known as goals-based investing.One trap I steer clients away from is making decisions based on worries, not goals. When you let worry steer the ship, it can lead you into less than ideal investments.
 
For example, many wealthy individuals are worried about having a set income for life, so they purchase the lifetime cash flow of annuities to ease those concerns.

Annuities aren’t terrible. They generate a yield, are fairly transparent, and have liquid cash flows. They have a place in certain portfolios in certain circumstances.
 
However, annuities generally aren’t tax efficient and the underlying investment itself is not liquid. Furthermore, that investment is expensive to unwind in an emergency.
 
Do you really want to be locked into that income stream when your life circumstances could change? A predictable income stream is valuable, but I favor the flexibility and liquidity of a standard portfolio over the inflexibility and illiquidity of annuities.
 
I understand that wealth can bring worry, but goals should drive your actions. If you’re planning to meet with an advisor, take time to think about what you need now, what you would like to have later, and what you want to provide for the future.
 
As an advisor, when clients come to me and communicate specific goals, I know we’re on the road to a well-thought-out and flexible plan for their wealth.
   

Author Bio

Frazer Rice is a leading private wealth manager, with fifteen years’ experience advising millionaire and billionaire families on finances, including fiduciary and estate matters. He has been featured in outlets like the New York Times, the Daily Telegraph, and the Journal News. Connect Frazer Rice Follow @frazerrice Book Wealth, Actually.