Creating a Financial Plan
For more than a decade as an investment counselor at Capital Group Private Client Services, Lynne Knox has specialized in catering to the specific financial needs of women. Because our recent Wisdom of Experience survey focuses on women investors, we asked Knox to share her insights.
Our recent study found that women are powerful, confident investors. However, more than 80% report being negatively stereotyped about their knowledge of money-related topics. Do you perceive differences between male and female investors?
Industry professionals can sometimes misinterpret women and fail to give them due credit. Financial advisors often try to reach out to women by mistakenly treating them as if they’re somehow different from the general population.
I do generally find that, when it comes to something as important as their financial affairs, women want to be involved and listened to. They want to be part of the process and feel that the advisor is taking their unique needs into account. All of this helps them feel comfortable and trust the advice they’re getting. They can get frustrated if someone just jumps in to try to fix everything without fully understanding, before they’ve told the whole story and conveyed the big picture.
Who is your typical client, and how do you work with them?
Many of my female clients came to me during a major life transition. They were in the midst of a divorce, they’d lost a spouse, or they were handling a parent’s legacy. While I work with women who have professional careers, others come from marriages where the wife didn’t work outside the home and didn’t handle the family’s finances. The monumental task of dividing assets or settling an estate can be daunting for anyone, but perhaps especially for someone who’s feeling vulnerable or unprepared. Then they need to move forward — revising their own estate plans, changing beneficiaries, possibly buying or selling a home. It requires a lot of time and knowledge — all while they are going through a personally challenging time. A common concern is being taken advantage of by someone who wants to sell them a product that doesn’t align with their objectives.
So you focus on their financial objectives overall, not individual investments?
Yes, my clients often want someone who is able to understand their big-picture financial needs and help them develop a thorough long-term strategy in which all the pieces fit together logically. Once that is in place, we speak throughout the year about specific strategies for cash flow, emergency reserves, tax planning, gifting to their children or grandchildren, philanthropy and estate planning.
Among the concerns that came up in our study were caring for aging parents and supporting children. Do your clients have these worries?
Yes, they do. I see a number of clients in their 50s taking care of aging parents. They may be helping them pay bills or secure retirement living. Some have had their parents move in with them. At the same time, they may be juggling their own careers and the needs of their children. A high percentage of my female clients want to gift or loan their children money for education, a home purchase, or even a business venture. While they may feel obligated to financially support their family, it’s important that they take care of themselves as well.
Women do seem to have considerable influence in how money is spent — with 63% of those surveyed saying they have a great deal of consumer purchasing power. And 52% specifically mentioned home buying.
Yes, many of my clients have had influence over big-ticket items, such as charitable donations or home purchases. My clients are often looking for a new living situation. I help them understand what they can afford and how much of it should be financed so they can manage their expectations. But some haven’t been accustomed to focusing on essentials like cash flow, budgeting and estimating the full cost of their lifestyles. I help them with these important elements of financial planning. Clients sometimes want to maintain a certain lifestyle, but aren’t familiar with how much return they’ll need on their investments and how much risk they must assume to meet their long-term goals. There can be a temptation to try to finance a lifestyle by investing aggressively. I’m a proponent of taking only as much risk as you need to get the job done.
When it comes to risk, our survey found that women are generally focused on long-term results and downside resilience, with baby boomers being more concerned than millennials about reducing losses during downturns. Have you seen that with your clients, and how do you help them stay focused?
Younger people in general, both men and women, tend not to worry as much about a market downturn. People who are closer to retirement age or who are already in retirement naturally worry more about losing money that they may be unable to recoup. They are concerned about protecting their principal. Women in the workforce tend to feel more confident that they can keep earning. So while a divorce may divide assets in half, it doesn’t diminish their earning power.
I’ve also found that my female clients understand the importance of sticking with a pre-determined financial plan during turbulent periods in the stock market. Following the 2008 financial crisis, my female clients tended to follow my advice and stay the course. They understood how their plan was put together. They recognized that it shouldn’t be abandoned in a market decline.
My female clients like to track their progress in terms of their goals, rather than how their investments have done against a benchmark. Outpacing the S&P 500 by a percentage point or two is not as important as being on track toward your goals. You can’t control the markets, but you can control what you spend, what you save, how much risk you assume and how efficient you are with your taxes. Focus on what you can control.
What steps can you recommend to help women take control of their finances?
First, understand your total financial picture. Know each account, asset and debt — that includes your home, car, credit cards — everything. That’s really important. Too many people have just a nebulous idea of their worth.
Next, know the cost of your lifestyle. Start monitoring your credit card statements and your checking account until you have a sense of what you’re spending on a monthly and annual basis.
An advisor can then evaluate your situation and help you determine what steps to take to maintain the lifestyle you desire. All of this involves developing a well-conceived plan with a financial advisor.
Sometimes the very big decisions can seem ominous, so begin with a simple framework and take small steps. For example, you could start by taking inventory of your assets. Then understand your cash flow. Next, review and update your estate plan and beneficiaries. Completing each step will increase your confidence. Then you can say, “My financial house is in order. I have a sense of where I need to be, and I know how much I need to save each year to get there.”
Then it’s a matter of how to allocate those investable assets. If you’re hesitant to invest all at once, start slowly. Some have experience, but others want to observe and learn about market risk and the importance of diversification. Once you’ve created and steadily implemented your plan, you can look back and realize how much you’ve accomplished.
Once my clients feel secure about their investments, they can go on to live their best lives. Everyone needs to be financially responsible. Hope is not a good strategy.
Lynne Knox is a senior vice president and investment counselor for Capital Group Private Client Services. She works directly with high net worth individuals and families to create customized plans for protecting and growing their wealth, with a particular focus on providing guidance to women during transitional phases of their lives.
Lynne has more than 36 years of experience advising high net worth families, foundations and endowments. Prior to joining our organization in 2006, Lynne was a vice president and wealth strategist at Northern Trust. She previously was a partner at a family office, where her responsibilities included the management of family business operations, including tax and financial consulting.
Lynne earned a BS in economics from the University of California at Los Angeles and is a Certified Public Accountant.
Source: Society of Actuaries (SOA)
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