Many Floridians, baby boomers in particular, are turning to professional financial planners who set up and monitor programs that combine savings, investment and tax strategies to help clients meet short-term needs and long-range goals, including a comfortable retirement. Corporate executives, managers and business owners in their 40s or 50s who've worked their way to six-figure incomes and net worths realize that it's time to take a longer view, with a focus on preserving assets as well as accumulating them. Planners also say they are starting to see some clients in their 30s, many paying for a review of a savings and investment plan they've put together through Internet research and some looking for full financial plans. "They're not counting on Social Security being there," says Margery Schiller, financial planning manager at accounting firm Goar, Endriss & Walker in Sarasota.
Are Florida's financial planners up to the task? "Florida attracts a lot of retirees who have big, stable asset bases, and they tend to attract many of the best planners," says Harold Evensky, a principal in Evensky, Brown, Katz & Levitt, a fee-only planning firm in Coral Gables. The rest of Florida's client base is served by planners with a variety of skill levels, he adds.
Florida's list of financial planners includes many of the state's largest financial companies - banks, brokerages, accounting firms and insurance companies - as well as independent advisory firms. At major companies in all of those fields, planners usually have securities and/or brokerage or insurance licenses. A growing number have planning credentials, including the Certified Financial Planner designation that requires a series of academic courses and a 10-hour written examination (see story, page 66).
Barton Francis, West Palm Beach-based financial planning director for Ernst & Young in Florida, expects that many planners will start recognizing the growing asset pools and long-term potential of working-age Floridians, including entrepreneurs who are passing their businesses onto the next generation.
Indeed, the number of potential clients in Florida is growing significantly. According to Northern Trust Bank of Florida, the number of Florida households with investible assets of $500,000 or more grew from 172,239 in 1996 to 197,471 in 1998 - a 15% increase. Within that group, the number of households with investible assets totaling $1 million or more grew a whopping 27%, from 72,694 to 92,288. The University of Florida's Bureau of Economic and Business Research estimates that the number of Floridians in the prime-planning age range of 45 to 59 will jump 37% between 1997 and 2005 - from about 2.5 million to roughly 3.4 million.
For financial planners, a client's age is less important than his or her wealth. Most companies require financial-planning clients to have minimum incomes or asset levels. Common cut-off points are annual incomes of $250,000 and/or net worths of $500,000 for two-income families. Some firms have targets of $500,000 or even $1 million in investible assets, which do not include homes, cars or boats.
For anyone shopping for a financial planner, it's also important to look at the individual or firm's fee structure. Many banks, independent planners and accounting firms charge an annual fee based on percentage of assets under management - often in the 1% range for clients with less than $1 million. Some independent planners and accounting firms charge by the hour. Brokerage firms and insurance firms may charge an annual fee and also collect commissions on trades of securities and mutual funds.
Schiller, the Sarasota planner with Goar, Endriss & Walker, bills by the hour instead of charging an annual fee. A financial planner since the 1970s, the majority of Schiller's business involves full financial plans, but she also does one-time projects, such as reviewing a trust set up by an attorney. "We can serve as an extra set of eyes and ears, and can crunch some numbers that some attorneys won't," she says.
Schiller charges $300 for a two-hour meeting where she reviews detailed financial information provided by the client and, together, they determine most details of the plan. Often, several other meetings follow the initial consultation. Unlike many financial planning operations, Goar, Endriss & Walker doesn't take assets under management. In fact, in many cases, it won't recommend major changes in asset allocation or suggest that clients switch brokerage firms or money managers. If something is working, Schiller says, she has no proprietary reason to change it.
Although Schiller encourages clients to come in at least once per year, she feels there is no need for extensive meetings and phone conversations if a plan is working well. But she suggests that clients call her before they call their investment manager to buy or sell a stock or mutual fund.
Linda Lubitz, a CFP, former banker and a partner in Miami-based financial advisory firm Woolf, Lubitz & Foldes since 1993, takes a different approach in her planning and fee structure. Clients put large chunks of their investible assets under supervision with the planning firm, and Lubitz says that the under-one-roof approach enables her to coordinate any stock purchases or other decisions as part of a big-picture plan that includes tax and retirement-related issues.
With new clients, Lubitz begins with several brief meetings, at which she advises a prospective client on how to prepare a detailed report on present and expected income, tax records, investments and insurance policies, and savings and retirement plans. Next she sets up a series of three meetings totaling 10 hours and costing $1,750. At the first, lasting six hours, Lubitz and the client review the package and begin discussions on reaching specific financial targets. The second meeting "can be painful because I may have run numbers and the future may not look rosy," she says. That's when she prods clients toward additional savings. At the third meeting, the client agrees to details of a plan.
After the initial meetings, clients may stop there or continue with Lubitz' planning services, which include quarterly meetings and written reports on investments and the client's overall plan. Lubitz, who has 90 clients and $90 million under her supervision, requires that new clients place at least $500,000 under management. Her annual fee is 1% of assets for the first $1 million, with lower scales for larger amounts. And she requires new clients to save at least 10% of gross income in a company-sponsored or individual retirement plan.
Floridians with more modest amounts of investible assets often turn to stock brokerage firms for financial planning advice. Margaret Starner, vice president and head of financial planning at Raymond James & Associates' Coral Gables office, is one of 80 financial planners who work at 30 of Raymond James' Florida offices. They use the company's research services and planning software to judge how changes in inflation and other economic factors, such as a stumbling stock market, could impact client plans. Then, the planners allocate assets into stocks, bonds and cash-like investments and put clients' investments in the hands of either a Raymond James Eagle Asset Management manager or with outside money managers. Starner's clients pay an annual fee that generally is at least 1% of assets.
To illustrate how she works, Starner paints a picture of one of her clients: He is a 47-year-old family man and business owner. With an annual income of $300,000 and savings of $400,000, he and his wife don't have to worry about meeting the mortgage or affording college for their two children. His goal, though, is to sell the business when he reaches age 55, then consult part-time until he reaches his early 60s when he'll retire with, he hopes, an after-tax income of $7,000 per month.
Two weeks after an initial 90-minute meeting with the business owner and his wife, Starner told the couple that unless they changed their savings and investment patterns, things would probably have to be "picture perfect," with inflation remaining below 4% and the business fetching his asking price, for them to reach their goal. Starner advised him to start a pension plan, invest part of his portfolio more aggressively and increase his savings. After three additional meetings, the business owner began taking the investing and pension steps. The couple hasn't increased its savings rate, but his company's strong performance is filling the gap. Starner's plan calls for him to scale back at age 55, as he had wanted, but he now realizes he might have to accept monthly income of less than $7,000 or spend several additional years consulting.
As the experience of Starner's client shows, professional financial planners can provide information, direction and an overall strategy for meeting financial goals. But planners can only do so much. Unless individuals have the discipline to save, spend and invest wisely, the best plan in the world won't help reach those dreams of the good life.
a change of plans
As Retirement Nears
It's a question Larry Colby gets every week: "What should I do differently with my investments, which are almost all in stocks, now that I'm nearing 60?" His response: "Keep your portfolio allocated for its maximum growth objective until retirement is just a year or two away."
Colby, a vice president, personal financial services in Northern Trust's Miami office, says that in most cases clients with 80% or more of assets in stocks should keep at least half in that category after retirement. Generally, the biggest change he recommends is switching to a 50-50 mix of stocks and bonds. If a client suggests a major pre-retirement shift, Colby points out that if U.S. stock markets match their historical annual return rate of 10%, most investors' equity portfolios will nearly double in value between the ages of 60 and 65. So, he says, it's fine to start planning for retirement a decade or more in advance, but unwise to rearrange a portfolio until changes in lifestyle and income are imminent.
Colby, an attorney whose background is largely in tax and estate planning, gives almost the same answer when clients in their 50s ask about estate planning. It's okay to start setting objectives now, but unwise to act until after retirement. For example, he recommends that clients with holdings above the estate tax cutoff of $600,000 can set up trusts to reduce their heirs' tax liability. But that involves transfers of money, and Colby always reminds clients with company-funded and self-funded retirement accounts that they will owe taxes if they make such moves prior to retirement. "(Clients') ability to transfer assets to their children is limited while their assets are in 401(k) plans or IRAs."
Colby's last bit of advice: The focus of retirement planning should not be on dying but on setting up a process for generating investment income. After all, the premise of a financial plan is that you plan to keep on living.
consumer advice
Licensed ...
The state of Florida does not regulate "financial planners," per se, but under Florida Statute 517, any company that has personnel in Florida and receives compensation for "advising others as to the value of securities or as to the advisability of investments" must register with the Florida Comptroller's Division of Securities. As of late August, the division listed 1,834 licensed investment advisory services firms, including 1,175 that also had to register with the Securities and Exchange Commission (SEC) because they have $25 million or more in assets. At licensed Florida firms, 3,167 individuals are registered as "investment advisers." (The term "independent planner" usually refers to individuals at smaller companies that offer advice but do not actively manage client assets.)
Both the Division of Securities and the SEC require an advisory firm's registered advisers to demonstrate competency, such as several years' experience in financial services or having a National Association of Securities Dealers Series 65 investment adviser license. Also would-be advisers must file disclosures that give details of their business history, including any disciplinary activity. Division officials say there are always a few non-licensed firms providing investment advice, and consumers can protect themselves by asking "planners" who are seeking their business to produce disclosure forms and state or SEC registration forms.
The division often denies or revokes a license if an applicant has had several serious fines or reprimands, and the division can impose restrictions and fines or refer a matter to law enforcement agencies. It also can provide information that clients can use to seek recision of money through arbitration or lawsuits. Individuals can obtain information about advisers or file complaints by calling the Florida Division of Securities' hotline - 800/848-3792 in Florida or 850/414-0430. To find out if an investment adviser is registered with the SEC, call 800/732-0330.
... and Certified
Harold Evensky, a partner in Coral Gables financial planning firm Evensky, Brown, Katz & Levitt, says the Certified Financial Planner (CFP) credential designates specialized training and experience beyond the requirements for an investment adviser license. In the fast-expanding field of financial planning, a growing number of professionals want the Certified Financial Planner (CFP) designation, including stock brokers, private bankers, accountants and insurance agents.
To become a CFP, one must first complete a four-hour review of financial planning issues and then pass a 10-hour comprehensive written exam. Prerequisites include a combination of professional experience, generally a minimum of two years, and college-level courses in fundamentals of financial planning, insurance, investments, income taxes, retirement and employee benefits, and estate planning.
Eight Florida colleges and universities offer programs approved by the Denver-based CFP Board of Standards, and many financial companies reimburse employees for taking CFP-related courses. Between Dec. 31, 1996, and June 30, 1998, the number of CFPs based in Florida grew from 1,756 to 1,976, a 12.5% increase; nationally, the number grew 9% from 30,129 to 32,831. The CFP Board can provide a list of Florida CFPs. Call 303/830-7500 or check its Web site (www.CFP-Board.org).
Many CFPs and other planners are members of the International Association for Financial Planning (IAFP), an Atlanta-based organization that requires members to be registered as investment advisers in their home states. As of last August, the IAFP had 844 members in Florida. Upon request, the organization provides free of charge two brochures explaining the financial planning process and an interview sheet that serves as a fact-gathering guide. Also, callers can receive information on up to five advisers, including experience, services offered, education, and professional licenses and designations. The IAFP has a Web site (www.planningpayoffs.org) or call 888/806-7526.