Click below to listen to Episode 22 – Top 15 Client Questions

Top 15 Client Questions

Bob & Mary Jo answer some of the most common client questions that they get asked.

Here at Christian Financial Advisors, we get a lot of great questions on a daily basis from clients, and many of these questions are the one and the same. Bob and Mary Jo decided to record a program based on the most common questions that we receive as financial advisors. This includes questions like:

  • How are you paid?
  • Why do clients leave?
  • And what is a fiduciary?

HOSTED BY: Bob Barber, CWS® and Mary Jo Lyons, CFP®

Mentioned In This Episode

Christian Financial Advisors
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Bob Barber, CWS®, CKA®
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Mary Jo Lyons, CFP®, CKA®

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EPISODE TRANSCRIPT

[INTRODUCTION]

Bob: Welcome to Christian Financial Perspectives, a weekly podcast where we talk about ways to integrate your faith with your finances. This is Bob Barber.

Mary Jo: And I’m Mary Jo Lyons.

Bob: Are you ready to learn how to apply biblical wisdom to everyday financial decisions?

Mary Jo: Join us as we look at integrating your faith with your finances. If it’s your first time listening, welcome to our podcast, and if you’re a returning listener, welcome back.

[EPISODE]

Bob:
Romans 12:6-8, “We all have different gifts according to the grace given to each of us. If your gift is prophesying, then prophesy in accordance with your faith. If it is serving, then serve. If it is teaching, then teach. If it is to encourage, then give encouragement. If it is giving, then give generously. If it is to lead, do it diligently. If it is to show mercy, do it cheerfully.” Today, we’re going to talk about many of the top questions we get as financial advisors on a daily basis. I picked this scripture to start off today’s program because Mary Jo and I, we seem to have the gift of teaching. Would you not agree, Mary Jo?

Mary Jo:
Well, I’ve heard that more than once, Bob. Yes, I think that’s true.

Bob:
I don’t know about your side, Mary Jo, but on my side, my mom was a teacher and her dad, my grandfather, was a superintendent of schools and also a teacher. So, I think that comes naturally. It’s in my genetic makeup.

Mary Jo:
Same is true for me, Bob. My dad was a teacher as well. And for many years, it seems like in the financial services industry and even in my other life before that, it seems like every role I get into, I end up morphing it into a training role. And so I’ve spent a lot of time as a classroom trainer and teaching advisors. It’s in my blood. And that’s one of the things that clients like, because I kind of take my time with them to explain things to them in my teaching mode.

Bob:
As we mentioned, this scripture is such a beautiful scripture because it talks about how each one of us has different kinds of gifts. I want to challenge those that are listening today. Have you thought about what spiritual gift that is that God has given you?

Mary Jo:
Oh, that’s great, Bob. And on that note as we think about the questions that clients ask us. So often the answer is, well, that depends because everyone’s situation is different. Their situation is unique, and the answer could be different for you versus your neighbor. Sometimes, there’s just not always one answer to a lot of these questions. We’re going to go through some of those questions and share our thoughts on their answers. But again, it all depends on their situation.

Bob:
Well, Mary Jo, let’s get into some of these questions. The first one is one that was just asked of me yesterday. So what would that one be?

Mary Jo:
Do we have enough to last us through retirement? Well, that depends. So one of the things we want to look at is our legacy goals. What are your goals and objectives for your retirement and your resources? What do you want them to do for you? What kind of life do you want to create for yourself? Another big one right now is longevity, risk, the cost of longevity, and how that’s going to impact your resources. Retirement. That used to be 10, 15 years. Now, we’re living much longer. If we’re retiring early and living longer, we have a longer time horizon. We have longer life expectancies.

Bob:
The longevity risk. It’s a risk, but it’s not a bad risk.

Mary Jo:
No, it does imply life. And that’s a good thing, but it can be expensive. That’s a very good point. You’ve got your fixed expenses, your living expenses, and then discretionary spending. If you plan to travel, if you want to give generously, if you have other things that you want to do with your legacy goals, and then you’ve got family needs. A lot of people want to be generous with their family. Kids with young families, they have financial needs, and parents want to be able to help out. Those are all some of the things that you have to plan for. So with financial planning, we can crunch those numbers, and then we can answer that question for you more specifically. What else would you add, Bob?

Bob:
On this, I’m going to go ahead and go to the next question that we get a lot of. This is kind of a totally different idea, but it still goes with that longevity risk and how are we going to spend our money during retirement. And that is, should I pay off my home mortgage or continue to save and invest? I’m going to say, kind of like you, Mary Jo. Well, that depends. I think on a lot of this, we’re going to say, well, that depends. Am I right?

Mary Jo:
That’s right. And it’s definitely unique for everyone’s situation.

Bob:
One of the things that I’ve noticed, Mary Jo, in listening to many of the radio programs where they talk about debt is no one ever thinks about mortgage interests in the mindset that it’s de-compounding. Do you know what I mean when I say that word de-compounding?

Mary Jo:
I think I do, but why don’t you explain it so that we make sure that our listeners understand.

Bob:
Well, as you’re paying a mortgage down, de-compounding is you’re paying less and less and less interest over the years where when you’re saving, you’re making more and more interest over the years. So you’ve got to put it on paper and look at this logically. I’m not against paying off a mortgage, but many times, we’ll have a client that will come in and say, I want to pay off my mortgage, but I want to take it all out of my 401k or my IRA to do so, which creates an enormous tax problem.

Mary Jo:
Right. I definitely would not encourage that because you’ve got longterm tax deferred compounding available, and it becomes income when you take it out. I always look at it as about the cost of the money.

Bob:
That’s exactly right. Yeah.

Mary Jo:
We’re looking at historically low rates. Even though we are in a rising interest rate environment, mortgage rates are still lower than they’ve been for the majority of my life, which has been pretty long. And so I think that that’s important. If you can keep it invested and make more money than what it’s costing you on the mortgage, that’s something to look at. I think that’s true about any kind of debt. The Bible says to avoid the use of debt. And so that’s something we want to think about as well. How do you feel about maintaining the debt? And when we talk about mortgage debt, I look at that a little bit differently. I always think of that as there’s an asset behind it. So, it’s an asset based debt and it’s something you could sell if there was ever any need for that money. Whereas revolving debt, you usually don’t know what you bought to accomplish that data or to accumulate that debt. I don’t see that those are the same kinds of debt with the same kinds of burdens, if that makes sense.

Bob:
It does. Let me tell you, Mary Jo, we’ve got a situation right now with a client that they want to take money out of their IRA to go pay off their mortgage. We’re talking about $150,000 to go pay that off. We looked at what the interest was going to be if he paid all the interest, the entire loan, and the interest itself is going to be less than the tax is going to be if he pulls out of his IRA. Plus like you said, he’s not making money in the IRA then. And even when I put this at a reasonable rate of return, so let’s say the mortgage interest rate is 4% or 4.5%, and then we put on the other side, the money that they’re going to use to pay it off is only making 3%. Maybe even making less, just a real conservative rate of return. You still make more interest than you pay interest on the mortgage, again, because it’s de-compounding, and no one ever thinks of that phrase de-compounding.

Mary Jo:
Well, that’s true, Bob. Also, is that client under 59.5, or are they over 59.5? So, if you took money out of your IRA prior to 59.5, you also may be looking at a 10% penalty. So that’s a big difference maker there.

Bob:
Even this client that I was talking about, he’s above 60. So he wouldn’t have to pay the 10%, but the taxes would still be more than the interest. Really, it doesn’t make sense in that situation. So this third question we get a lot of is how much can I expect to retire on? I know we have a general rule of thumb there.

Mary Jo:
Yes. And that’s a 4% spend down rate. If you look at all of the experts in planning, they’ll all generally say that if you’re withdrawing less than 4%, that you should be fine.

Bob:
Mary Jo, I call this the rule of 25 because take a four percent spin down rate. 25 times 4 is a 100%. By taking what you want to retire on and multiplying it by 25, it gives you the number you can withdraw at a 4% spend down rate. Here’s an example. If you wanted a $50,000 retirement income from your 401k, your investments, in addition to any social security or pensions you might get, you’re going to need $1,250,000 when you retire. The way I get this is my multiplying that $50,000 times 25.

Mary Jo:
Bob, that’s one of those overall, general calculations that work for most people, but I also encourage to do some ongoing financial planning where we can actually crunch these numbers for you and model what scenarios. That can really help clients understand. I think it’s a little more scientific, a little more exact, but it can give them peace of mind because one of the things that goes into ongoing planning is Monte Carlo analysis. What that does is hundreds or even thousands of iterations of the numbers and can calculate it. So you can get a pretty good feeling for what your odds are. And that’s very helpful.

Bob:
Also, through financial planning, things that we can do is we can look at different points in time and say, okay, when are you going to need a new car? When do you want to take that European cruise? Or maybe you would have an unforeseen medical need that goes back to detailed financial planning.

Mary Jo:
Exactly. New roof. Have you given thought to those big expenses that aren’t part of your everyday spending? I love that, Bob.

Bob:
The financial planning software we have is so amazing today that you can change that around, and it’s a living, breathing document.

Mary Jo:
That’s right. Every time we meet with clients as their situation changes or they have a life altering event, we can continually manipulate those numbers and refresh that and have an ongoing discussion about what’s changing in their financial situation. Well, that leads us to the next question, Bob, that I get a lot. I think this stems from a lot of what’s happening in the news media. The clients will ask, are you a fiduciary? And what exactly does that mean to me? And it’s a great question. From a financial sense, a fiduciary is someone who manages other people’s money in the beneficiary or the client’s best interest rather than serving their own interest. They’re not just pushing product that they have to offer. They’re actually finding solutions that are in the client’s best interest.

Bob:
Mary Jo, it’s interesting that we’re getting that question now, are you a fiduciary? Five years ago, I never got that question. But like you say, because of the news and the media, and it’s a good question because you need to be asking whoever’s going to be helping you with your financial planning and your financial advice if they’re a fiduciary. A few years ago, the government attempted to rule on this and make it a requirement of all advisors, brokers, product salesman, et cetera, but then this rule was struck down by the current administration.

Mary Jo:
Well, and here at CIS, we are registered investment advisors. Bob and I are both investment advisor representatives of the firm. The firm is the registered investment advisor. Also, as a CFP, I’m required to serve in this capacity as part of my designation. So as a certified financial planner, we are always charged with acting as a fiduciary, as you and I are Bob. I wouldn’t have it any other way. It just seems like the right way to do business.

Bob:
I will point out here, and not to throw arrows at anybody in our industry, but as an example, if your advisor only sells annuities, and the annuity is just paying him or her commission, they’re not in the fiduciary roll. Another question we get that comes along these lines is how are we compensated and how do we pay you? Like Mary Jo was just saying, we’re primarily fee based advisors. So what we do is we charge a fee that you pay us for our services, and usually this is a stated percentage for investment management. It’s gonna vary depending on how much you have under management, somewhere between a 0.5%, and it could be as high as 1.5% depending on the amount. The higher the investment managed amount, of course the lower the percentage fee is, or there’s also a flat fee for just financial planning services if done outside the scope of an investment advisor relationship. In other words, if we’re not managing anything for you, but you just want financial planning, then that’s done on strictly a fee basis. That usually is by the hour. It could have a minimal amount of hours. On our website on CISwealth.com, we specify a lot of what can be included. You can pick even different packages, and I’ll let you chime in on this a little bit.

Mary Jo:
Yes. So we can customize that financial planning for whatever your situation is, whatever your needs. A lot of clients don’t need comprehensive financial planning, but they do have a few questions. So we can do that on an hourly basis. I think that’s a great way to approach it. Bob, I just also wanted to add that we do provide protection solutions or product solutions such as liability insurance, longterm care insurance, other types of insurance products, and we may receive a commission for these products. And then that commission is paid by the issuer of the product, but it’s also provided as a service to our clients. It’s not our primary focus of our business. We have access to it. You and I are both insurance licensed, but the primary business is advice. And for that, we do get a fee.

Bob:
If we do sell something to you, like a life insurance policy, while we say it’s commission-based, we have no problem with letting you know up front what that commission is. We’re not going to hide anything. Okay. So here’s another question we seem to get is have you heard the terms active management and passive management. What’s the difference between these and what do these mean? I know you have some good things to share here.

Mary Jo:
Well, we’re hearing about that lately. At least I have been, and these approaches differ in how the investment manager utilizes investments that are held in the portfolio over time. Not to get too deep, but I think it does merit an explanation. Active portfolio management focuses on outperforming the market compared to a specific benchmark, while passive portfolio management aims to mimic the investment holdings of a particular index.

Bob:
That kind of comes back to all these index funds that are available to everyone out in the marketplace now, and just really understanding that those indexes are not managed. They’re just strictly investing in a group, a basket of stocks, or a basket of bonds. And it’s a buy and hold through all market cycles. It doesn’t matter which company it is. If it fits in that basket, it’s going in that basket. Is that a good way to put it, you think?

Mary Jo:
Absolutely.

Bob:
See, the other side of this is active management, and this is like through a portfolio manager, and they’re engaged in actively managing the holdings that they put into the portfolio. They pay very close attention to things like market trends, shifts in the economy, changes to the political landscape, and factors that may affect specific companies. So this data is used to time the purchase or sale of investments in an effort to take advantage of these price irregularities that we have. Active managers claim that these processes boost the potential for greater returns than those achieved simply by mimicking the overall stock index or other securities listed on a particular index.

Mary Jo:
I think it would be helpful to share an example of that. Passive management is also referred to as index fund management, which Bob referred to, and this involves the creation of a portfolio that’s intended to track the returns of a particular market index or benchmark. So, let’s look at one that’s very popular. For example, the S&P 500, this is a common index that’s made up of the 500 largest, publicly traded companies and the amount of ownership of each company in the fund is proportionate to their market weight or the size of that company. So managers select stocks and other securities that are listed on an index and apply the same weighting. The index basically just mimics the S&P 500 or the 500 largest publicly traded companies. So the purpose of passive management portfolio is to generate a return that’s the same as the index instead of outperforming.

Bob:
Now, Mary Jo, if I’m driving a car and I’m listening to this right now, I think I got all that, but it made my head spin a little bit.

Mary Jo:
So in summary…

Bob:
Okay. In summary, active managers buy and sell frequently, and they’re really trying to beat the overall market. And they’re trying to beat other fund managers as well. There’s just a real big difference between active and passive management.

Mary Jo:
Another point – you might’ve heard the term alpha. When a fund manager outperforms the market, that difference is referred to as alpha. So an active manager, their goal is to provide alpha for their clients.

Bob:
I believe there’s different strategies for different scenarios. And Mary Jo, as you know, we use both of these strategies. We use both the index strategy, and we use a biblically responsible index, and there are several to choose from now and more coming online it seems like monthly and yearly. Well, I remember when I first started doing this many, many years ago, and wanting to be biblically responsible investing. Again, that’s really looking at what companies are we investing in and are those companies involved in immoral agendas that would violate biblical principles. And when we first started with biblically responsible investing 20, 25 years ago, there were very few choices, but today there’s choices across the full spectrum of an asset allocation model.

Mary Jo:
Absolutely. And so there are indexes that track small companies, mid companies, international, even emerging markets. So, there’s an index – an even bond index – for every sector in the market, you can track an index. So Bob, our next question I’ve gotten from clients. I want to save money outside of my retirement accounts, but I’m concerned about tax consequences. Is there a way to do this tax efficiently? So how do you advise clients on this?

Bob:
Well, there’s a couple ways. One is using a manager that has a tax efficient approach. The second way is using an ETF like an exchange traded fund. Again, we like to use a biblically responsible one because these are much more tax efficient than the traditional funds out there that are constantly buying and selling. The nice thing is there’s those choices. We can build an individual portfolio too, as well as we can do the tax loss harvesting at the end of the year. So, we can look at our winners. We can look at our losers and we can sell our losers to offset the gains in the winners and go into the same type of asset class before the 31 day period, which gets into tax planning.

Mary Jo:
That’s great. That’s awesome.

Bob:
So another question we get, this is a big one, is what types of clients do you serve best? So I’m gonna let you get into that some, and then I’m going to chime in.

Mary Jo:
Well, that is a great question. One of the things is we have clients that are looking to work with a trusted advocate and they’re looking for a longterm relationship with an advisor, those people that are willing to delegate their day to day investment decisions. Bob, I have found that most people, they just don’t have the time. They don’t have the interest, and they don’t have the knowledge to do it themselves. So they’re open to delegating. They hire out their lawn. They take their car to the car wash. They have a maid come in and clean their house. So your investment portfolio is no different. Your time may be better spent doing something else that you enjoy.

Bob:
Another thing is we get the question, “Do you have a minimum?” We do and we don’t Mary Jo. I mean, we best serve clients that have investments between $500,000 to 2 million, but we can serve those with a lower amount. But then we have a flat fee that we have to charge on an annual basis just to stay in business. And that’s all written out on our website and described in detail. So the main thing is is those of you that are looking for help with financial planning decisions we want to help you and we’ll figure out a way.

Mary Jo:
Another question I get quite frequently is what lessons have I learned as an advisor over the course of working with clients? And that’s a good one. You have any thoughts on that?

Bob:
One thing I always say is, look at my hair, you see the gray?

Mary Jo:
I see less of it now, Bob.

Bob:
Well, there’s a lot that has been going on lately. The one constant is change and the market’s gonna go up and the market’s going to go down at some point. We had such a long bull market this last time around when we’ve had some of these downturns recently. People have forgotten that the markets can go down. So that is the one thing I’ve learned as an advisor is helping people get through those times because they can be very emotional

Mary Jo:
They can. All money decisions are emotional decisions. One of the things that I’ve learned is that we really have to ask the right questions as an advisor. And we have to really, really listen to the answers and really kind of dig deep to get the emotion. What’s behind that question and there’s always some level of emotion, especially for most clients. When it comes to money, a lot of time it’s fear. And so we really need to explore that and really understand what’s driving the client. One of the other things that I have found is discipline. I think discipline is the difference maker. When working with an advisor, you’ve got the discipline of regular meetings and ongoing focus on your finances. When you do it yourself, it’s kind of like cleaning your closet. Oh, I’ll get to it later, and later never comes. And those accounts will sit idle for years without you ever even lifting the hood and seeing what’s going on.

Bob:
Some other things, over the years, Mary Jo, in working with an advisor is we’ve helped people with spending decisions and even decisions about buying possibly a rental home and is that a good decision? Many times, those spending decisions that we have helped people with have resulted in a $6,000, $10,000 savings versus if they’d have made that decision otherwise. Does that make sense to you when I say that?

Mary Jo:
Absolutely. Looking at both sides of it.

Bob:
Another question we get as a financial future, what are you most concerned about regarding the future? I know you have a comment there and then I’ve got one too.

Mary Jo:
For me, it really is about the increasing cost of longevity and the longevity economy. And we’re living longer. Healthcare costs are increasing at an alarming rate. And what does that do to people’s planning? That’s a big one for me.

Bob:
Big one for me, Mary Jo, is our current political environment that we’re in and the resulting regulatory environment. And when I say political, I know that there are some representatives that are even talking about a huge tax increase. I’ve heard as high as 70%. That really concerns me that that would even be mentioned in the political environment.

Mary Jo:
I know, but we could go on for hours about that one. Bob, another great question that we get from clients are, have you lost any clients in the last year? And if so, why? And I think that’s a very fair question. How would you respond to that one?

Bob:
I think it is a fair question. The way I’m going to answer this, I wrote this down, because I wanted to make sure I got this one right. And it is natural in the financial industry business to lose clients on an annual basis. And CIS wealth management group is no exception, but the ones that we do lose, it seems to be because of these reasons that I found over the years. Well, the first one is death. I mean, you can’t do anything about that one. Like we just had the death of a recent client. When that happens, we do want to be able to help the family members and who that money is going to. We can help them like we helped their parent or maybe the aunt or the uncle that left them funds. Another thing that we’ll lose clients over occasionally, but this is more in the past, is when they move to another state and they want an advisor that they could sit across the desk from, but that’s not happening near as much as it used to because of technology today and how we can do online meetings. Boy, the third one, this is a big one – chasing investment returns. They hear about a relative or a friend doing better than they are at the time. Then, Mary Jo, there’s what we call the seven year itch, which is very similar to thinking you need to move somewhere after seven years and the philosophy that the grass is always green on the other side. But many times we say class return after finding out they didn’t.

Mary Jo:
That’s true. The grass is always greener and that applies to so many situations and it doesn’t really pan out.

Bob:
We’ve got personality differences. And then the last one, I’ve noticed a few times, is a close relative or close friend has decided to be a financial advisor. They want to go help them out.

Mary Jo:
That’s true. And Bob, the next question, and this one is a very easy one. Clients ask us, how can I check your background? Put another way, have you had any securities violations or been charged with any unethical business practices? And it’s a question that all clients should ask their advisor. And the simple answer is brokercheck.com. That’s where you can see all regulatory disclosures.

Bob:
And we’re down to these last couple of questions. One is we seem to be moving into an of rising interest rates. How is this going to impact my future goals.

Mary Jo:
Really, rising interest rates shouldn’t have an impact on our clients. We manage our investment allocations accordingly. We typically look at bonds and other types of investments that pay interest, and they tend to be more sensitive to rising rates. So, we will pick and select types of bonds that are not going to be that sensitive in those environments. We’ll look for shorter term bonds during these periods. Short term bonds are not as interest rate sensitive. So that’s one of the fixes, if you will.

Bob:
Another question we’ll get, and this is our last one for today, is on your website we talk about integrating faith and finance. So what exactly do we mean by this?

Mary Jo:
The advice that we provide is based on biblical wisdom. The Bible has so much to say about money and wisdom.

Bob:
Some additional training that equips and empowers us as disciples of Christ is the training that we get through Kingdom Advisors, which is an organization nationwide that brings together Christian advisors and trains us on biblical financial stewardship.

Mary Jo:
And we’ve gotten so much from that. There are several great examples of scriptures that support this. What are some of your favorite ones?

Bob:
Psalms 24:1 that says, “The earth is the Lord’s and everything in it.” I believe that God owns it all, and he lays it out in his word how we can manage the resources that he has given us.

Mary Jo:
I think we covered it all. God owns it all. What more can you say?

Bob:
I believe we have.

[DISCLOSURES]

Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA Christian Financial Advisors, a registered investment advisor. Monte Carlo simulations generates thousands of probable performance outcomes called scenarios, which might occur in the future. An Investment simulation incorporates economic data, such as a range of potential interest rates, inflation rates, tax rates, and so on combined in random order. As a result it’s designed to account for the uncertainty and performance variations that are always present in financial markets. Many factors determine the actual return on your investment and your actual investment return may vary greatly from the results offered by this simulation. The guarantees of any insurance contract, including fixed returns, payouts, and death benefit guarantees are contingent on the claims paying ability of the issuing company. Working with a financial advisor is not a guarantee of investment success or that one’s financial goals will be achieved. Investing in certain securities may help to hedge against certain risk, but does not imply any guarantee from loss. There are no guarantees any investment or strategy will meet its intended objective. To determine which investment may be appropriate for you, consult with your financial, tax, or legal professional.