How financial planning entails far more than just your investments Featured

9:01pm EDT August 31, 2011
How financial planning entails far more than just your investments

When people talk about financial planning, they often think first about their investments. But there is much more to consider when planning your financial future, says Norman M. Boone, founder and president of Mosaic Financial Partners Inc.

“Investments are important, but investments on their own leave the picture short,” says Boone. “The biggest mistake people make is they don’t start with the big picture.”

Smart Business spoke with Boone about how risk management, tax planning and employee benefits fit into the big picture of financial planning, and what you should do now to ensure that you don’t outlive your money.

How does risk management play into the big picture?

Risk management for almost everyone should include consideration of possible insurance needs for life, disability, medical, homeowners’, auto, umbrella, liability and long-term care insurance. For many professionals, it can also include errors and omissions insurance, directors’ and officers’ insurance, business interruption and similar coverages.

Homeowners’ insurance is something that virtually all homeowners have, but, too often, it’s not given much attention. People buy a house, they get insurance and 10 years later, most still have the same contract. But a lot of things have probably changed, and the coverage is no longer applicable. It’s important to keep it current and relevant.

If someone has accumulated wealth over the years, he or she should seek out an insurance company that is experienced in handling the issues of wealth, like having multiple homes, or unique aspects such as insuring antiques or an art collection. Insurance needs change as circumstances change and all too often people fail to keep coverages current.

Part of the problem with insurance is that it’s complex and hard to understand. It can be critical to have someone you trust and who can help you stay on top of these issues and, if needed, advocate for you.


What do people need to think about in the realm of employee benefits?

Employee benefits vary widely from one company to another. The higher up you get on the company ladder, usually the more benefits you have available. While companies generally make a good effort to educate you, executives are often so busy they don’t take the time to understand their choices and they often fail to take full advantage. Whether it is making sure that you are fully getting the 401(k) employer match, determining if and how much to participate in deferred comp, or utilizing the stock option programs, it’s important to not only make the right initial choices, but also to monitor the program so that you make sure you maximize your personal benefits. Many people don’t have the time or interest to do this for themselves.

Many seniors may have moved on from their companies, but they still have decisions to make about government benefit programs, like Social Security and Medicare and how to effectively withdraw money from their IRA. Making optimal choices involves a number of complex considerations. Having an experienced adviser can provide important help with those decisions.

How does tax planning fit into the big picture?

Taxes have an impact on almost all financial decisions. It becomes especially intricate when you own a business or two, you have rental properties, you have timing decisions about stock options or income recognition, or you are considering moving money from an IRA to a Roth IRA, as just a few examples. Taxes impact investment decisions, not just whether to own muni bonds, but in other areas, like how to allocate each asset type among your taxable or tax-deferred accounts, since those choices can have important tax implications. Similarly, when you are withdrawing money, which account should it come from?

CPAs are good at preparing tax returns, but not every CPA is well informed about each client’s overall circumstances and not every CPA is good about planning ahead for such decisions. We believe that financial advisers who offer financial planning as a central service are often best positioned to help with the kinds of decisions identified here.

How important are investment management and investment strategies to overall financial planning?

Investments are really important, of course, but it’s a mistake to start by worrying about what investments you are going to buy when the big picture is much more important. For example, how much of your portfolio do you want exposed to the risk of stocks, or to the lower income but typically lower volatility of bonds, or the time-consuming demands of owning real estate? How much cash should you keep on hand? How should ‘alternatives’ fit into the mix? Do you want to do the investing yourself or hire someone who presumably has that expertise? Do you want to invest in individual stocks and bonds or do mutual funds or exchange traded funds suit you better? Do you think the prospects for growth are better in the U.S. or overseas, and what does that suggest about your geographic allocation? Finally, it’s important for you to assess whether you are trying to beat the market (an ideal goal, but one which many argue is highly unlikely), or are you willing to just get market rates and returns and keep expenses (the one thing you can control) as low as possible?

Many investors hire more than one manager to help them with the management of their assets. One of the problems that often arises in this situation is ‘overlap’ — when two or more managers are investing in the same things at the same time, undoing the very diversification that you were trying to gain. When they are buying or selling the same security at different times, potential tax benefits can also be lost. It’s critical that there be one party responsible for oversight to help you avoid the problems of managing multiple managers. Having an investment policy statement that sets out your expectations and the different roles for each manager and how those will be coordinated can be extraordinarily helpful.

Norman M. Boone is founder and president of Mosaic Financial Partners Inc. Reach him at (415) 788-1951 or