Friday, 30 November 2012 20:34

Is your vision 20/20?

Here we are in December approaching the end of another year. My parents were correct when they told me that time goes by faster the older we get. It’s funny how time just slips by, and I often struggle with the passage of time. However, as I get my hands around the concept of time, it is not time I want to control; it’s controlling how I spend my time that’s most important. We start the New Year with a list of resolutions hoping that 2013 will bring a different outcome, streamline our goals and aspirations, and free up our time. Ironically, we believe that by making resolutions, these changes will automatically occur.

How does one affect some meaningful changes in the New Year? To get prepared, make a list and identify items in these general categories:

  • What do you want to stop doing?

  • What do you want to start doing?

  • What do you want to continue doing?

Leave yourself room in each category, and then narrow down the choices to a few that you can successfully manage. Now that you have these entries on the lists in front of you, ask yourself what would you do with your time if you only had seven years left to live? What items are important? What items are imperative?

As you look at those items on your lists and you contemplate these questions thoroughly, do you feel your items on the lists coincide with the central core of your life’s purpose for the next seven years? Will the items on your lists achieve your purpose or are you just creating more items for your “to-do” list?

This illustration merely touches the surface of the inner work each one of you needs to pursue to make financial and life planning a thoroughly meaningful experience. Most people have only experienced the transactional dimension and walk away with no long-term meaningful solution. The transaction may have been only a temporary Band-Aid to the problem. The root of the problem needs to be addressed to complement your inner emotions, attitudes, values and purpose beneath that surface transaction. When those underlying emotions and purposes are identified and vocalized, the purpose then clarifies the choices.

In my definition of the world of personal financial and life planning, the transaction side of the equation overshadows the client-adviser conversation. The transaction driven-process is akin to where the adviser draws his convenient “arrow” from his quiver to solve your current problem. In today’s vernacular “I have an app for that.”

The purpose-side and value-side of the conversation is rarely entertained. The purpose-side involves the qualitative components of your wealth management journey. Wealth management and life planning is much more than just dollars and cents. Typically, people expect dollars and cents to dominate conversations they have with a wealth adviser, but when it comes to life planning, topics of discussion extend to matters far more personal than money, addressing your deepest life dreams and goals — and how to make them a reality through sound financial planning.

When developing a life plan with your RAV adviser, there are a few key factors that must come into alignment: mutual trust, understanding and working with a wealth adviser who has the integrity to tell you whether your current reality can support your future dreams. But you, as a client, also bear a large responsibility in the life-planning process — particularly if you long for a future that looks very different from your current reality. Investing time and energy in the discovery of your purpose and intention will make the journey more relevant and more powerful.

Vision and purpose go hand-in-hand. Vision is the definition of your tangible and intangible goals. Purpose drives your outcome, interrelated within your goals and objectives. So where do you want to be in 2020? Decide today to embark upon an experience where your purpose and vision are at the heart of your life-planning journey.

It is interesting in this age of technology that we want and can have immediate access to all types of information. Access to your innermost purpose takes a little longer to uncover, and it is essential to the personal and business financial and life-planning experience. Only then will you feel fulfilled in the outcomes of your decisions and choices.

So make a decision that by January 2020, your personal and family vision will be clearly 20/20. Hopefully, this will give you a time frame to unearth your inner destiny, so that a strategic financial and life plan will incorporate your unique values into its outcome.

You don’t have to wait to find a financial and life-planning firm. For more than 30 years, RAV Financial Services has been working in partnership with those individuals and families who understand that the road from success to significance is achieved by interweaving purpose, values, and intention into their financial and life-planning experience.

Wishing you a happy holiday and a healthy and prosperous New Year.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at (216) 831-4900 or rav@ravfinancial.com.

Insights Wealth Management is brought to you by RAV Financial Services LLC

Published in Cleveland
Thursday, 01 November 2012 18:32

The financial realities of end-of-life planning

Let’s face it, financial planning is really about life planning, and life planning encompasses many facets, including financial, legal, retirement, and qualitative life-style decisions. One of the most delicate subjects arises around age 50. This milestone often presents a greater need to consider end-of-life plans for you, your spouse or significant other, and your parents. So before you explore the realm of taking care of parents or aging relatives, let’s make sure that you have your own plan in place.

Baby-boomers have been referred to as the sandwich generation. Boomers are caught in the middle taking care of their children and their aging relatives, leaving limited time to devote to completing all of the items on their wish lists.

Know what’s been done

Given the sensitive nature of end-of-life conversations, Virginia Morris, author of How to Care for Aging Parents, suggests integrating your own life planning checklist when broaching end-of-life plans with aging parents and relatives. Be forthright with your parents and explain that you are creating your own financial plan and want to ensure that their needs are accounted for as well. Initiating the mortality conversation is sometimes difficult, so look to outside resources as a primer for the discussion. One of the websites I have found helpful is that of the Hospice of the Western Reserve in Cleveland, Ohio. Go to www.hospicewr.org/planning and read the booklet, Courage in Conversation: A Personal Guide.

Discuss the status and whereabouts of wills, durable powers of attorney, living wills and directives for end-of-life care, life insurance, long-term care policies, and investments or bank accounts that they have earmarked for health care and end-of-life needs. Further, make certain you know where to find your parents’ recordkeeping system for financial accounts, insurance cards, Social Security cards, care providers, accountants and attorneys.   

Budget for the cost of care

It is possible to account for your own end-of-life care, and that of your parents, in your life plan, but you’ll need to project potential expenses to determine the best strategy. According to the American Association for Long-Term Care Insurance, only about 8 million Americans have long-term care insurance coverage, and high costs are typically the prohibitive factor. The earlier you initiate a policy, the more affordable premiums become. Marion Somers, author of Elder Care Made Easier, says that waiting until you are over the age of 60 to secure long-term care insurance may indeed make it too costly. You’ll secure a much better rate if you buy a policy in your 40s or 50s. There may be a need to maintain income replacement coverage while at the same time incorporating a long-term care policy in your monthly cash flow. So how do you plan for your own long-term care needs and still provide financial support to an elderly relative? What pressure will that place on your investment portfolio to generate the additional income to care for your parents? Are your siblings willing and able to provide financial and physical support to relieve you of the major responsibility in caring for your relative? Not only is a detailed cash flow analysis a necessity prior to your amending the strategic life plan at this midlife juncture, but you may need to call a family meeting to decide whether the responsibility can be absorbed by other family members.

Deal with parents

Work with your wealth adviser to determine how much you can truly afford to help your parents without derailing your own financial health. According to MetLife Mature Market Institute, 10 million adult children contribute an average of $3,500 a month to the cost of a parent’s assisted-living care. Although Medicaid program criteria varies by state, your parents may qualify for home or day-care assistance based on their income and condition, but may first need to exhaust their own financial resources. Remember to budget for the costs of burial, as well. Somers says that a run-of-the-mill funeral generally costs between $10,000 and $15,000.

As you focus your energy on your parents or elderly relatives, make sure to heed your own advice. Prepare yourselves and your immediate family for putting in motion those tools that will provide peace of mind to all when an emergency arises. As Americans live longer and the future of government-sponsored insurance plans is uncertain, there’s greater need to assume the costs of end-of-life realities in your life plan. But with the proper strategy and amount of time, your RAV Financial wealth advisor and life planner can guide you to develop a plan that will deliver your optimal financial life both now and at its end. Often a successful life plan becomes a family affair.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rav@ravfinancial.com or call us at 216-831-4900.

Insights Wealth Management is brought to you by RAV Financial Services LLC

Published in Cleveland
Sunday, 30 September 2012 21:01

The power of character

In last month’s article I discussed getting rejuvenated as you revisit your journey of personal wealth management and life planning. So let’s assume that you have your data updated and you have a rough draft of your goals, passions and purpose in life. As you review with your significant other and family members what you compiled, ask yourself a question: How important is it to achieve these goals? And how do you make this goal setting/goal achieving experience enjoyable?

Will this be another task you have to add to your “to-do” list? Is it going to interfere with anything else that is going on in your life, and do you have time right now to do this? Do you have a profound passion to get this journey started? Let’s look and listen for the language that you use to describe your interest in personal and/or business financial planning. Is it another process? Is it another task to do? Or is it a journey? Many years ago I heard Paul J. Meyer, motivational speaker and author, define success. “Success is the progressive realization toward a worthwhile pre-determined goal.” Mr. Meyer was extremely direct in his precise use of key words to define such an esoteric term as success.

Personal and business financial planning is a journey as well as a destination. The journey may never end because as you progress through the many phases of the strategic process, new destinations may be identified and clarified. So, in this beginning stage of your decision to do a financial plan (integrating it with your business plan), what thoughts and words will you use to describe your involvement with your wealth manager and life planner? How important is the outcome to you, and will you take joint responsibility with your life planner to create the highest probability for success?

If you compare financial planning to a diet for example, you realize that weight-loss is a lifestyle change, not a quick fix. Financial planning is identical. To get to a new life plan, you cannot keep doing the same things that have not worked in the past, and just buying products doesn’t fix it long term. You cannot keep doing the same thing over and over again and expect different results.

Wealth management and life planning at RAV is much more than just dollars and cents. Typically, people expect dollars and cents to dominate conversations they have with a wealth adviser, but when it comes to life planning topics of discussion extend to matters far more personal than money, addressing your deepest life dreams and goals — and how to make them a reality through sound financial planning. When developing a life plan with your RAV adviser, there are a few key factors that must come into alignment — mutual trust, understanding, and a wealth adviser who has the courage and honesty to tell you whether your current reality can support your future dreams. If it can’t, our wealth manager has the risk management know-how to assess what, if any, adjustments can be made to your current lifestyle and wealth strategy to help you achieve the life plan you’ve outlined. But you as a client also bear a large responsibility in the life planning process — particularly if you long for a future that looks very different from your current reality. Like all strategies, the more time you have to take risks and plan, the better your odds are of achieving long-term success.

Start out with a clean slate in your mind as to the experience you are undertaking. Refrain from beating yourself up that you have waited so long to get started. Embrace the co-responsibility that you and your wealth manager will commit to, being mindful that it is your financial plan. You are in charge of its destiny. Know that there are distractions and other ingrained attitudes and beliefs that may attempt to undermine your tenacity in staying on the journey. Keep two words always in mind — character and persistence.

I remember in the 1970s listening to a personal development record. Not a CD or cassette tape, but a 78 rpm vinyl record. The motivational instructor, whose name I have forgotten, defined the word character. “Character is the ability to carry out a decision long after the enthusiasm in which it was made has left you.”

Ray Kroc, the late founder of McDonalds, put it best when he said (and I paraphrase): “Nothing in this world can take the place of persistence …… persistence, determination and love are omnipotent.” All successful people persist at accomplishing their objectives. The greater the passion for the outcome, the easier it is to persist. So keep in mind a visual of what that end result will be. In dieting, you may hang up a picture of yourself on the refrigerator of the new you. Compare this experience to putting together a jigsaw puzzle. Rather than focus on how many pieces, colors, corners or edges are in the box, concentrate on the picture on the box top. That picture is the joyful outcome as the pieces come together. Your financial and business plan will also be the outcome of your journey with your wealth manager and life planner as you both use art and science to assemble all of its components.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rav@ravfinancial.com.

Insights Wealth Management is brought to you by RAV Financial Services LLC

Published in Cleveland
Saturday, 01 September 2012 10:38

Getting refocused for financial success

The road to financial success is paved with good intentions. We all know intellectually and appreciate how Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results.” We create goals and objectives, but habits and attitudes get in the way.

Think back when you were a child and you were about to go to your first day of school. How did you feel? You may have been filled with angst and fear as to what would actually transpire. So there may be fear of the unknown that comes with new experiences. How we kept our room, did our school work, kept track of records and information all set the stage for our adult financial planning habits. Even your annual April income tax pilgrimage of collecting your financial data reminds you of those acquired habits of dealing with financial matters. This tax preparation scenario may exacerbate your sense of frustration and angst by adding the dimension of fear of missing the deadline.

So what is all of this preliminary conversation leading to? What does this have to do with September? It appears that our lives are in sync with the school calendar. Summer has been a time to vacation away from responsibility, so September is charged with a get-back-to-work mentality. Rather than dread this, embrace this time of year. Incorporate a new habit of fiscal responsibility into your life now without applying pressure to your daily routine. Understand that there are obstacles that are physically, behaviorally and inherently in the way, but you can choose a financial partner/coach to make the journey an integrated life-planning experience.

Meet with a bona fide wealth manager. Who is that and what is the process? Wealth management is an investment advisory discipline that incorporates financial planning, investment-portfolio management and a number of aggregated financial services. High-net-worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate estate planning, legal resources, tax professionals and investment management. Ideally, you are looking for an all-inclusive and objective wealth management company.

Financial planner, broker, wealth advisor … they all sound the same. How do you choose?

Look for an individual or firm that agrees to work in a fiduciary capacity. A fiduciary agrees not to put his interests before the duty to serve you. The fiduciary duty is the ultimate standard of care, and a fiduciary agrees to eliminate potential conflicts of interest in the relationship. This standard is in opposition to the suitability standard used generally in the brokerage and financial services industry. Suitability obligation by members of the broker/dealer community dictates the representative has to reasonably believe that any recommendations made to you are suitable to you in regard to your financial situation. The representative’s loyalty is to his or her firm, and that person is not obligated to disclose conflicts of interest.

Uncover how the professional is compensated. When it comes to compensation, there are basically two groups: fee-only and all others. Innovative firms have introduced an annual flat fee retainer working agreement in response to the age-old ambiguity that has prevailed in the financial industry relative to how advisors are paid. These new pioneering wealth management companies have eliminated from their vocabulary all of the jargon about percentage of assets under management (AUM) charges and commissions charged on implementation. The retainer is achieved by determining the client’s desired scope of services, complexity of personal and/or business situations, and other qualitative and quantitative data. Transparency and disclosure are at the root of their relationship with you.

Be prepared for that visit with your wealth manager. Begin to identify and accumulate two types of data — quantitative and qualitative. The quantitative data can be easier to retrieve, such as assets, liabilities, cash flow, employee benefit statements, estate documents, buy-sell agreements and the like. You may experience some angst if your personal filing system is not quite up to date.

The qualitative data resides in our intellect and our hearts. What is your personal purpose, passion and legacy goals? You as a client also bear a responsibility in the life planning process — particularly if you long for a future that looks very different from your current reality. Like all strategic goals, the more time you have to take risks and plan, the better your odds are of achieving long-term success.

The wealth management process is really a life-planning passage. Answers to these qualitative questions will help identify the drivers in your financial life-plan. Wealth management and life planning are much more than just dollars and cents. Typically, people expect dollars and cents to dominate conversations they have with a wealth advisor, but when it comes to life planning, topics of discussion extend to matters far more personal than money, addressing your deepest life dreams and goals — and how to make them a reality through sound financial planning.

The life-planning experience takes you to new dimensions of goal accomplishment. We have focused so much on goal-setting; the life-planning process focuses on goal accomplishment.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rave@ravfinancial.com.

Insights Wealth Management is brought to you by RAV Financial Services LLC.

Published in Cleveland

I have discussed the retirement process in my two previous articles and have given them the tag-line of a “retirement dress rehearsal.” Too often, the concept of retirement is so esoteric that most people refuse to identify with it early on. They wait until retirement happens to them. My hope by using the terminology “dress rehearsal” is that I would persuade you to immerse yourself in that role now. I liken it to attending a live theatre performance. There are actors who “act” the part, and then there are actors who “are” the part. I’m sure you’ll agree the actor who “owns” that role gives a much more commanding performance and better outcome to the evening.

So “own” that role for the time being, and let’s explore a third facet of retirement preparedness:  legacy planning. There are by no means only three phases to retirement preparedness. I will assume that you have identified the purpose, values, passion and strategic direction of your life-plan as you integrate these thoughts into your conversation with your wealth manager and life-planner. Research has shown that the graying baby boomers are starting to worry about the kind of legacy they will leave, and in what ways they can best influence the well-being of their families, friends and even the world beyond their own lives. In other words, they are seeking to plan their legacies. Legacies are too often trivialized to being re-defined as inheritance. Today, legacy is becoming more complex than just assets and financial transfers.

A recent study by Across Generations showed that 72 percent of parents said they would like help from their financial advisor in speaking with their children about legacy issues. Furthermore, 89 percent of high-net-worth respondents said that a financial advisor would be important to help manage the assets for the surviving spouse.

In 2007, The Allianz American Legacies study was released. The opinion then and today is that the convergence of two dynamic forces will have resounding personal and financial implications during the next several decades — the largest intergenerational wealth transfer in history and the unprecedented longevity of Americans. With a wealth transfer of approximately $25 trillion, complex family structures, and an expanding retiree segment, only 25 percent of boomers have discussed legacy and inheritance transfer with their parents.

This landmark survey commissioned by Allianz Life Insurance Company of North America (Allianz Life®), in conjunction with Dr. Ken Dychtwald, president of AgeWave, found that there is a huge generational gap on views of inheritance and legacy. The lack of communication or the "legacy gap" between boomers and their parents are among the key findings in The Allianz American Legacies study.

The key findings of the study included:

  • There are significant gaps in what baby boomers and their parents expect from and define as inheritance.
  • Nonfinancial items that parents leave behind — such as ethics, morals, faith, and religion — are 10 times more important to both boomers and their parents than the financial aspects of inheritance.
  • Legacy gaps exist because boomers and their parents are not having the in-depth conversations about legacy and inheritance in any truly productive and meaningful ways — even though they say they are having such conversations.

  • Thorough discussions about legacy planning should include talking about the "four pillars" that are the core of a true legacy: values and life lessons, fulfilling final wishes and instructions, personal possessions of emotional value, and financial assets and real estate.

What is legacy planning? In a recent article by Mark Colgan, Legacy Planning: An Emerging Industry Niche," Colgan described legacy planning as the soft side of estate planning. It is the process of helping individuals articulate, create and implement an end-of-life plan that is consistent with their values and final wishes.

Addressing these issues as part of a comprehensive financial plan may give your family and heirs peace of mind that extends far beyond the benefits of a will, life insurance and health care medical directives. Taking the steps to incorporate a legacy plan within your retirement preparedness plan puts you in charge of how you want to be remembered and gives you the opportunity to express your wishes, prevent family feuds, share precious memories and pass along family values.

The legacy component of a retirement strategy is driven by your qualitative goals: your purpose, passions and values that you intend to fulfill and transfer to future generations. As we age and enter the golden years of our life, we are faced with different uncertainties. A legacy plan can alleviate some of the stresses that accompany physical changes, psychological and emotional concerns, and end-of-life realities.

If you have personally faced a premature death or incompetency issue within your immediate family, you are very aware of how ill-prepared you may have been. My experience has demonstrated that people are often unprepared for all the decisions they must make when a loved one needs critical care or dies. We need more formal ways to document our final wishes, as well as the memories and personal values we want passed on to future generations.

Wealth management is a life-plan strategic process, incorporating the legacy planning dimension. Shakespeare said it best in "As You Like It," that "All the world’s a stage, and all the men and women merely players."

Begin your retirement “dress rehearsal” now. Don’t just play the part. Be the part. Be part of your legacy and life plan.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rav@ravfinancial.com.

Published in Cleveland

Last month I introduced the concept of a “dress rehearsal.” So here is where the dress rehearsal comes in. If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income need. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

So as you begin to determine the actual monthly income need for your eventual retirement, you may stumble across insurance expenses for life, disability, long-term care and other insurance needs. What will you need to maintain and eliminate in retirement? Hopefully your children will be financially responsible and living on their own, minimizing your responsibility to cover their liabilities and commitments. However, if you have made assurances to your family to cover any of the shortfalls in their future, consider how these promises will affect your overall retirement income needs.

Having a conversation with your property and casualty agent is a good starting point to determine what coverage is needed on your homeowner’s, auto and excess liability exposure. Hopefully you have had the conversation with your wealth manager/life planner as to where you plan on retiring. Your residence location will definitely impact your decisions. Determining where you will live during retirement and what risks you will need to cover will give your agent an idea as to what proposals to prepare.

As you begin to address your future property and casualty insurance needs, you’ll need to evaluate the other insurances that you have previously budgeted during your earning years. Begin by reviewing the needs, purposes and future status of these policies by creating a spreadsheet of all of your life, disability, long-term care, personal, and business policies. Identify the date of issue, premium amount, length of coverage, portability, and the ability to maintain coverage, and its importance in your overall strategic estate plan.

Some of the policies, e.g. disability insurance, may terminate at a specific time or event (such as at age 65 or when you are no longer gainfully employed due to retirement, etc.). There may be some insurance policies that you will have no control over whether they continue  in your portfolio. Other policies, such as long-term care and life insurance, may provide you more flexibility with incorporating them into your new legacy plan. However, applying for any improvements into these policies may be dependent upon your current health and other factors. Once the spreadsheet is completed, identifying the various polices owned, your wealth manager can help you determine the relevance of each policy and how it fits in with your strategic estate and legacy plan.

With the increasing expenses of health care costs, a long-term care insurance policy should be a fundamental building block as you create the foundation for the preservation and transfer of your family legacy. As you receive proposals from your insurance agent, share this information with your wealth manager. Together you will determine which plan might best accomplish your overall strategic estate vision. Reviewing your LTC policy during this dress rehearsal phase pre-determines the budget allocation in your retirement expense projection.

Another way to protect, preserve, and/or provide heirs with liquidity of your legacy is through life insurance. What policies have you listed on your spreadsheet, and how are they owned? Are the policies personal or business? Which one(s) can you maintain or will you want to keep? Which ones are scheduled to terminate prior to or during your retirement? Remember, your health situation may limit your ability to purchase additional coverage or replace obsolescent contracts. So don’t cancel anything prematurely until you have your estate plan review with your wealth manager. Your discussion with your life planner will determine the policies or techniques to include in your strategic direction.

Initially, you are attempting to get a handle on your insurance expenses during this dress rehearsal phase. This in-depth discussion on estate planning and budgeting will now better prepare you for your discussion with your estate planning attorney to begin changes or amendments to your existing documents.

The focus of a wealth manager/life planner is to help you develop an ultimate legacy strategy. Once the vision is clear, then the techniques and products can more easily be assimilated to create your desired outcome. Many clients agree that they have been blessed with abundance, and they are concerned for the welfare of their children, grandchildren and other heirs. Long-term care insurance and life insurance can be great tools for wealth replacement or wealth preservation. Insurance may also perpetuate your commitment to your philanthropic institutions, ensuring your contributions continue assisting the non-profit(s) in accomplishing their mission. I am not advocating a one-size-fits all rule for all individuals and families. An objective discussion and analysis about insurance’s relevance to your family’s situation is necessary. Exploring your desires, passions, values and purpose drives the decisions as to whether insurances play a major or minor role in completing your strategic estate plan. Again, during this dress rehearsal phase, we are also attempting to determine the extent of your retirement income needs.

Make this dress rehearsal a powerful experience. You are preparing for the next phase of your life: a successful retirement.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rav@ravfinancial.com.

Insights Wealth Management is brought to you by RAV Financial Services LLC.

Published in Cleveland

February 29 is a date that usually occurs every four years, and is called leap day. So you have one more day available in 2012. How many times have you said, “If I had just had one more day in a week, month, I would do (blank)”? The opportunity is available to you during this month of February. So what could you do?

Let’s look around to see if you’re ignoring any basic principles that can maximize your business value and your personal net worth. The objective in strategic wealth management is to integrate your business plan with your personal financial plan together to arrive at your life-plan goal. Too often, business executives and owners treat their personal goals separate from their business goals, operating each in a vacuum. Different sets of criteria are used to evaluate achievements in both business and personal arenas, and this further polarizes the strategies, causing a disconnect in achieving your ultimate financial and life-plan objectives. What risks are inherent in your personal and business portfolios? Do you take risk in business and therefore choose not to take personal risk in your portfolio?

Rather than obsess and concentrate on more ways to reduce taxes, are you “missing the mark” in utilizing key financial metrics to measure the financial success of your businesses?

Let me introduce the financial metric use of excess cash. When is too much cash a problem?

How a company's cash is managed is a critical job that most business owners do from an emotional perspective rather than a rational financial one. Poor cash management can harm the company's performance in subtle ways as well as more obvious serious ways. It is not having too little or no cash — it is also having too much cash as well. It lowers the return on assets and it increases the cost of capital (just like increasing the cost of goods without an offsetting increase in the customer pricing).

Holding excess cash lowers return on assets, increases the cost of capital, increases overall risk by destroying business value, and commonly produces overly confident management. When the cash balance exceeds the actual working capital cash balance need, you have excess cash. This cash is not necessary to the firm's financial operations. Increasing or decreasing excess cash balances is a leading indicator of future good or bad times for the company. When there is too much negative excess and decreasing cash generation, cash needs to be accumulated, but when there is excess cash balances and increasing cash generation, the excess cash needs to be invested or distributed. Let’s take the effects of excess cash one item at a time.

Let’s look first at the effect of excess cash on the return on assets (ROA). Assume a business has total assets of $1 million with cash making up 15 percent of the total assets or $150,000. Further, assume that the business has an annual after tax net income on an adjusted debt free basis of $100,000. That would result in the business having an overall ROA of 10 percent. If the business is only earning 2 percent annual interest on its portion of the total assets then the real effect of cash can be determined. In this example it is assumed that all of the cash is excess in order to illustrate without too much complication.

If the return on the cash is only 2 percent and the overall ROA is 10 percent then one would have to assume that the ROA would be higher if the cash could be eliminated from the total assets. When the cash is eliminated the total assets go from $1 million to $850,000. One more thing to look at: the interest income on the cash is now eliminated so the net after tax income needs to be removed. This would be around a net after tax interest income of $2,000. The total net income after tax now comes to $98,000 and that amount divided by $850,000 results in a new ROA of 11.53 percent, which is 15 percent higher than the original ROA.

Warren Buffet strives for a 15 percent return on his businesses — 15 percent on what? He is striving for a net 15 percent book value return on his equity. The remainder above the 15 percent, he distributes to shareholders. So if you had your financials analyzed, and you had excess cash flow, what would you do with the distribution? What about funding a pension/profit sharing plan, deferred comp for you, defined benefit plan, or other plans that now directly link to your retirement objective? Interestingly, the less excess cash retained in your business the greater the value you are building within your company. The greater the value you build, the closer your retirement goals come to being a reality.

Our Business Ferret report provides substantive numbers to lenders, shareholders, and the like to perpetuate the strategic growth. Bankers/lenders now will receive specific numbers assisting you in the process of properly using excess cash. Other stakeholders are now receiving distributions that incent them to drive value and company performance. For more information about the Business Ferret report please visit the business owners section on our website at www.ravfinancial.com.

Happy Leap Year.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rvalente@ravfinancial.com.

Published in Cleveland

During your lifetime, a succession plan can be as simple as a merger or acquisition, or it can be your retirement from the business. In either scenario, the preparation should be the same. Business succession plans are triggered by your untimely death, or they can be created during your lifetime through well-written strategic and tactical continuation plans and agreements.

Let’s discuss briefly five basic ingredients in a successful transition:

  • Creating and implementing the vision
  • Good planning
  • Effective communication
  • Trust and confidence in your professional partners and advisors (e.g. attorney, CPA, financial advisor, insurance expert, business valuation expert, banker, others) and having the right team in place
  • Maintaining a work-life balance

Let’s begin with Vision

Vision is defined as an image or concept in your imagination. Your vision and your ability to see clearly in the future guide you in the succession planning process. One of the roles the business owner undertakes is that of the Chief Visionary Officer. The clearer that visualization is, the clearer your direction and behavior, regardless of whether your goal is a merger, retirement, or sale of the business interest.

Next, consider some excellent planning considerations.

Because of our mortality, let’s look at it from the worst perspective first: death. So, what is the first thing to do? If you had a magic wand, what would you want to have happen right now?

Let’s start with your “business” estate plan (write your continuity plan or the company’s succession plan) in a rough draft form. Cross-check it with your “personal” estate plan’s content and provisions.

I suggest you examine your shortfalls in your current financial and business plan.

For example, how would your plan continue tomorrow if your health changed or you died unexpectedly? A discussion about business interruption insurance with your insurance advisor may be apropos. Life insurance, disability insurance, long-term care insurance and key-person insurance coverage may be some of the additional topics of conversation.

Let’s talk about life now. Your personal and business estate plan should create a foundation of permanence. So what needs to be done during your lifetime?

Effective communication

Keep your employees in the loop regarding marketing, business development and succession issues. Continue to share with them your vision for the company, and assist them in perpetuating the business mission.

Keep in mind, when you are considering a merger or acquisition, confidentiality and non-disclosure agreements will dictate the amount of information that is made public. Your legal counsel will provide you with the appropriate advice to keep the conversations going, while at the same time keeping employees aware. For example, many firms are introducing business succession planning as part of the overall organic and non-organic (i.e. merger/acquisition) business development process. The introduction of non-organic growth may ease employees in the concept that “change will be constant as you grow.” In change, business owners, principals and culture will evolve. So begin planning for that transition early on in the marketing discussion. Each company today is being challenged to reinvent itself continually. Make “change” an acceptable word within your conversations.

Assemble the right team of advisors

It is important to have the right team in place (e.g. attorney, CPA, financial advisor, insurance expert, business valuation expert, banker, others). Good advisors will be important in business succession planning throughout your business career.

Continue to re-evaluate your professional team as your business needs evolve.

Keep in mind that when you eventually sell the firm, you may need to choose a different combination of advisors to effect the ultimate disposition of the company. For example, what if you want a portion of the sale of your interest in your business to go directly to a charitable organization or to your own donor-advised fund? This type of transaction may minimize the taxes on the transaction and support a personal philanthropic purpose. You may need to recruit a new member to your team who is well-versed in philanthropy and using charitable techniques to transfer more wealth to your intended beneficiaries.

Your life-work balance

Continually revisit your personal plan for manifesting your life’s purpose in non-business ways. As you exit the company, how does your business and personal financial plan perpetuate your life’s purpose? Have you identified ways to re-direct your enormous talent and manifest it into another purpose? As you look around your city and community, would volunteering satisfy your goal to make an impact on your city or the community and fit into your life’s purpose definition of the transition from success to significance?

These are elements that you need to address with your wealth management and life-planning coach. I look forward to your comments and questions.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at rvalente@ravfinancial.com.

Published in Cleveland

I began these series of Online Insights articles addressing the process of your writing a personal financial and business plan. My objective was to uncover the “source” — the purpose — of this planning process. I was hopeful that examining the purpose of your financial and business plan would lead to the personal question as to what is your life’s purpose. Identifying your life’s purpose should have moved the business and personal financial plan writing to a different dimension.

To further help illuminate that inner purpose and destiny, I asked you to consider two questions. The first question was intended to allow you to explore the possibilities of living life without the fear of not having enough money and think about what you would do with your money. Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.

The second question added a new “wrinkle” to your financial and business journey — your own mortality. I asked you to consider an approximate 10-year remaining timeframe to your life. Your next decade would continue as it is now. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life and how will you do it?

This second question drew you closer to defining a life with purpose. Remember, our compelling theme throughout these articles is about your creating the experiences to manifest your current life of success into a life of significance. There are many paths you can take to become significant. Your own creativity and inner soul-searching will provide you with numerous ideas that equate with significance.

What adjustments would you make to your current definitions of purpose if I introduce the third question? All three questions are intended to “drill-down” to the “why” of what you do and “who” you are.  So here it is:

This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or done? What did I miss? [i]

So as we do goal planning, is today just a means to an end? All the things we chart out and itemize, does that minutia allow us to “smell the roses along the way?” Are we actually living each day to the fullest? Or, as Eckhart Tolle suggests in his book “The Power of Now,” are we living in the Now? Take the time to reflect upon the questions within this third question. Even though we plan, we are only guaranteed the present moment. How are we using each moment to create our journey of significance?

Previously we used “making an impact on people’s lives” as one example of purpose. Our prior discussion in previous articles progressed from pleasure and passion to purpose.  Philanthropy may be one of the ways to demonstrate a sense of purpose in impacting people’s lives. But what does the third question evoke in you? One question provided you with a 10-year timeframe to plan accordingly. Now, your time frame is 24 hours. In addition to all of the emotions that consume your every thought, the word “legacy” may pop into your thoughts. What legacy is created at my death, and how will that impact people’s lives?

This last question has a tendency to question all those trivial things that you once thought were so relevant and important. You have left a succession plan at death for your family (either by choice or through the intestacy rules within the state/county in which you reside). The long and short of it is whatever you have documented will transfer to your heirs and the next generation of family and employees. Hopefully planning, and not chance, will determine the future disposition of your estate. Legacy refers to the inheritance or bequests that will be created at your death.

So “piggy-backing” upon the discussion with your family and employees about philanthropic planning, what other content can be include in your “open” discussion with family and staff? Have you discussed your business succession plan? What relevant discussions have you had with the disposition of both your personal assets and your business interests? Are your heirs informed to the extent that they feel comfortable with your wishes, and are your employees comfortable with the continuation of their jobs as well as the future of the company? You’ve empowered your staff and made them ambassadors of your business’s purpose. Where do you start with finding the right successors? How do you document your transition?

So in the next few articles, let’s explore the many ways of transferring assets and purpose to our intended beneficiaries.

Robert A. Valente, CFP®, AEP®, CEO & Managing Member of RAV Financial Services LLC, can be reached at rvalente@ravfinancial.com


[i] These questions are taken from the book “Lighting the Torch: "The Kinder Method(TM) of Life Planning” by George Kinder and Susan E Galvan.

Published in Cleveland

In last month’s article I explored several intangibles that are part of a successful business and personal life.

What is your definition of a business and personal financial plan? Are they two separate entities? One integrated plan with two parts? However you define them, are both plans in sync with each other? More importantly, is the purpose in both blueprints originating from the same source?

You have a passion about your business, and that passion should catapult you to success. Is that passion contrived or real? Differentiate enthusiasm from passion. The comparison is likened to watching a live performance at the theatre. Is the actor playing the part or is the actor the part?

A business can give us the success and pleasure we desire on a tangible level and enthusiasm can be a fantastic “package” in which to deliver that message. What the client ultimately buys, however, is the manifested purpose of the individual and the company. The business professional must convey his or her own purpose and that purpose should be acknowledged by the customer.

So as you embark upon this path of success to significance, how do you impact people’s lives along the way? How do you impact your client’s and your employees’ lives?

As you reviewed your reactions to last month’s article, what were your answers to Question #1?

Let’s assume you agreed with “making an impact on people’s lives.” How does your purpose permeate the lives of your employees? Too often the business professional assumes that the purpose of the business and its core values of its owners are obvious to its employees. You may assume and expect your employees to know “what’s in your head.” Good companies schedule regular meetings with staff to discuss the details of the day-to-day business activities. Smart companies use this opportunity to educate employees on the why and the purpose of the business and how your values and your company’s purpose will impact the lives of your customers. Interestingly, by explaining how your work impacts the lives of your clients you now begin to impact the lives of your employees. Your employees are and will be your ambassadors for your company and your beliefs.

I learned a long time ago that the job of the business owner boiled down to three functions [1]:

  • Coach your team
  • Create the opportunities
  • Create the vision

Your vision, which is allied to your purpose, needs to be shared with your people. By sharing that purpose with your team, you position them on the same-page with you. Now your employees are empowered by the foundation of “why you are in this business.”

So after you have identified the purpose of your life and your life’s work, the next step is to convey that message to your employees. Employees are your substitutes for you in your business both now and in the future. Smart businesses instill daily the culture of the owner(s) and founder into the lives and habits of their employees.

Smart businesses on their way to significance understand the need to refine each day the KASH [1] of its employees:

  • knowledge
  • attitudes
  • skills
  • habits

This KASH not only entails the pieces needed by employees to do their job correctly, but it is also important for you, as a business owner, to work daily on your employees’ KASH relative to your business and life’s purpose. Even though your life is finite, the business should continue beyond you, if the purpose and vision by which it was created is transferred to everyone in your circle. Teaching your employees in such a way that they begin to “own” the purpose experienced from you, it’s a very dramatic way to make an impact on people’s lives.

Here is your homework for next month. Ask yourself this and ponder your reactions.

Question #2:

This time, you visit your doctor who tells you that you have five to 10 years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life and how will you do it? [1]

I look forward to your comments. 

Robert A. Valente, CFP®, AEP®, CEO & Managing Member of RAV Financial Services LLC, can be reached at rvalente@ravfinancial.com.

[1] Lighting the Torch: The Kinder Method(TM) of Life Planning by George Kinder and Susan E. Galvan.


Published in Cleveland
Page 1 of 2