Asset Protection, Finances, Insurance, Small Business, Wealth Management

Expert Interview Series: Matthew R. Etzler of Etzler Financial Advisors About Effective Wealth Management With the Goal of a Worry-Free Retirement

Financial Advisior

Matthew R. Etzler is an independent fiduciary advisor that helps people make smart decisions to live a more meaningful life and avoid costly mistakes along the way. We had a chance to speak with Matthew about the importance of financial planning and its role in helping Americans retire comfortably.

Tell us a bit about your background. Why did you choose to start a financial planning company?

I live by the quote, “Find a job you love and you’ll never work a day in your life.” I’m passionate about helping people improve their quality of life and realize their dreams.

There’s a lot of noise in the financial world today. Things can be complex, and far too often, people don’t know where to turn for competent, objective advice they can understand and apply to achieve their goals.

I saw a critical need for people to obtain expert financial advice without the widespread conflicts of interest that exist in the financial world. Our independent, conflict-free approach is designed to help us serve clients better, helping them to build, protect, and carry on what’s important today, tomorrow, and for years to come. We call it commitment. Our clients call it peace of mind.

Since you are a “fee-only” financial advisor, could you tell us what that means exactly?

How would you feel if your doctor received compensation or perks for recommending one procedure or drug over another to treat you? What if your doctor’s income was dependent on the products he/she recommended? What if your doctor sold you one drug even though a better-performing, the lower-cost solution was available?

If your doctor’s compensation was contingent on selling you products, you might not trust their advice and question whether your doctor really has your best interests at heart. Fortunately, doctors have a fiduciary responsibility to their patients – the duty to act in good faith and in their patients’ best interest. Fee-only advisors are a lot like doctors.

Unlike most financial advisors, we do not sell financial products, nor do we receive any forms of commissions or third-party compensation. Like your doctor, we are fiduciaries – we work for you, not some brokerage, bank, or insurance company. As true, fee-only financial advisors, we only accept compensation directly from our clients, which allows us to provide truly objective and conflict-free financial advice and services. It’s always about putting the clients’ interests first – the way that it should be.

Unfortunately, the “advice” that most financial advisors provide is paired with the sale of products from the financial firm they work for. Most financial advisors receive commissions and sales incentives (i.e. production bonuses, vacations, etc.) for the products they sell. As a result, there’s an incentive for these advisors to sell products that may be more beneficial to their bottom line, even though a better-performing, a lower-cost alternative may be available. How do you trust an advisor to help you save for retirement, invest wisely, and make other critical decisions about your family’s money when they have a financial stake in the product you purchase?

According to Cerulli & Associates, only 9% of all financial advisors in the U.S. act exclusively as fee‐only fiduciary. We are proud to be included in this select group of professionals that put client interests first.

How do you determine the fees you assess your clients?

Our primary fee arrangement is a retainer-based advisory agreement. Most of our client engagements begin with comprehensive financial planning. We charge a flat fee for initial planning and quarterly or monthly payments thereafter for ongoing financial planning services. We address cash flow management, income taxes, investments, retirement planning, insurance analysis, estate planning, and anything else that impacts the client’s financial life. We offer services on a per-project basis for instances when a retainer-based advisory agreement is not appropriate or desired. We also offer some services on an hourly, as-needed basis.

In all situations, the financial planning fees we charge are based entirely on the complexity of the situation. We do not charge a fee based on income, assets, or ability to pay, but rather the scope of the work to be provided and time requirements of the service.

Based on what Americans frequently hear from the news media and financial companies’ advertisements, what is the biggest myth that consumers tend to have about financial planning today?

In my opinion, the biggest myth is that most consumers think “financial planning” is about purchasing products and that financial planners are the same as stockbrokers or other financial salespeople.

Financial planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life. It’s about quality of life, not the purchase of some financial product. True financial planning helps you sort through the volumes of misinformation, distortion, and confusion that clutter your path and provides you with truthful, objective, pertinent information you can use to reach your own conclusions and strategies.

The main purpose of a financial planner is to help you crystallize your goals and effectively manage your personal finances in order to achieve your goals and financial independence. A true financial planner will counsel you in many aspects of your financial life: cash flow, taxes, retirement, educational planning, business planning, investments, estate planning, and insurance, among others.

In spite of the warm, fuzzy advertisements that portray brokerage and insurance company employees as trusted advisors putting client interests first, the primary function of a stockbroker, insurance agent, or other financial salesperson is to sell financial products. According to the Consumer Federation of America, brokerage firms and insurers are misleading consumers. An organization whose primary business activity is manufacturing or distributing financial products is hardly in a position to provide objective financial planning advice. And if you don’t know enough to judge the quality of your advisor’s recommendations, you certainly don’t want your advisor to have an incentive to sell you the wrong stuff.

What are some of the biggest challenges facing high net worth individuals today?

While individuals with a high net worth may not develop the kind of money troubles that plague much of society, such as bankruptcy, foreclosure, or inability to make rent, they do deal with their own unique financial problems.

  • Overconcentration. The path to wealth for many high net worth individuals involves investing their money heavily in a single company or asset class (i.e. real estate, technology, gold, etc.). When these industries are thriving, the growth or gain can be phenomenal. However, when values decline, their entire fortune can decline with them.
  • Leverage. Debt is often used for maximizing investment gains, expanding business, and funding the lifestyle of a high net worth individual. Too much debt can multiply gains and magnify losses.
  • Spending. Often times, high net worth individuals don’t have any idea how much they are spending. Consequently, their spending can end up exceeding their cash flow and returns, leaving them one crisis away from financial collapse.
  • Family issues. Preservation of wealth is the primary concern for many high net worth individuals. Not only do they need to balance their investments, debt, and spending, they struggle with how to sustain their wealth in the event of divorce and business disputes. They also struggle with how to pass their wealth on to heirs while mitigating the effects of asset erosion due to taxes and probate costs at death.

Do you have any general advice for how to figure out the amount of money that people will need to live comfortably in retirement?

It’s not uncommon for individuals to spend more time planning their annual vacation than calculating how much money they will need for retirement. Understandably, planning for retirement is not an easy task for a variety of reasons. But the sooner you create your retirement blueprint and build the framework for your design, the better off you will be in the long run. And in retirement, the long run is all that matters.

To figure out how much money you will need in retirement, begin by following a few simple steps:

  • Identify how much money you spend today by categorizing your expenses between non-discretionary and discretionary items.
  • Identify which of your current expenses will remain and which will go away at retirement. Of the remaining expenses, identify which are likely to increase or decrease.
  • Identify what lifestyle changes you anticipate in retirement. Some expenses, such as health care, may be higher; while others, such as commuting or clothing costs, may decline. Will your anticipated lifestyle changes require more or less money than you’re spending today? If so, how much?

Once you have completed these three critical steps, you’re perfectly positioned to use a retirement calculator or consult a qualified financial advisor to help you finalize your target amount needed for retirement.

If someone were to say to you, “I would like to invest more of my money in the market, but it all seems too complicated,” how would you respond?

If you lack the confidence, knowledge, or interest to invest on your own, hire a professional. A qualified financial advisor will take the complex and simplify it into easy-to-understand concepts that help you make more informed decisions. I believe the process of hiring a qualified financial advisor that’s right for you can be much more complicated than investing.

During tumultuous financial times, at what point is it appropriate to sell off investments and/or pull out of the market?

Every bout of volatility is different and every individual’s situation is different. Consequently, the idea that individuals should universally “stay the course” and hold a portfolio of investments no matter what the market is doing is negligent advice. Bull markets tend to mask portfolio flaws, and bear markets inevitably exploit these weaknesses.

As you gauge whether to make any changes in light of market volatility, it’s really important for you to focus on risk capacity. What sorts of losses can you endure without having to rework a goal?

If you have a reasonably long time until retirement (for example, 10 years or more) you may have a fairly high-risk capacity. That means regardless of how you feel about short-term declines in value, the likelihood of recovering during the 10-year time horizon is pretty high.

On the other hand, if you are closing in on retirement or already retired and spending down your portfolio, you may have a lower risk capacity. In these situations, holding an adequate cash cushion can help ensure coverage of your household expenses without having to sell depressed assets in a depressed market.

Given that many people today worry about whether retirement is possible for them, do you think it will be easier or more difficult for future generations to be able to comfortably retire?

The retirement landscape is more challenging than ever, with longer life expectancies, low-interest rates, dwindling government benefits, and a daunting, privately-funded retirement system. These factors, combined with the challenges of everyday life, threaten the ability of future generations to retire comfortably. Consider the following:

  • U.S. life expectancy will hit 84.5 by 2050, an overwhelmingly positive trend, except for the fact that only many older adults have not saved for retirement. Increasingly, future generations will have to find ways to ensure that their money doesn’t run out before they do.
  • Over 90 percent of the over-65 population receives Social Security benefits. Nearly two-thirds of aged Social Security beneficiaries receive half or more of their total money income from Social Security. However, in 2000 nearly five workers supported each retiree; and by 2030, there will be fewer than three. Actuaries estimate that unless the Social Security system is changed, it will have insufficient income to pay full benefits. To protect the system’s solvency, Congress will have to consider far-reaching options for reform which likely will lead to benefit reductions for future generations.
  • Traditional defined benefit pension plans, which are meant to guarantee income to retired employees, continue to become more and more elusive in the private sector. The sweet security that these plans have provided for many of our parents and grandparents in their retirement are targeted for obscurity with future generations.
  • Employers have replaced defined benefit pension plans with 401(k) plans and left us to largely fund retirement on our own. This puts a tremendous savings and investment management burden on individuals.

In essence, we have about thirty or so years of our career that must not only pay to support a family but also generate enough additional wealth to fund perhaps thirty or more years of retirement. Future generations must be disciplined enough to save and invest appropriately – or working in retirement may become the expectation, not the exception.

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