planning.htm

Wealth preservation planning involves a number of related issues, including investment planning, financial planning, retirement planning and estate planning. The common element in each of these areas is the efficient use and preservation of one's assets. Financial losses threaten our financial goals and dreams. While some losses may be due to the natural fluctuations of the stock market, no one should have to suffer unnecessary losses due to the quality of investment advice they receive or to a failure to properly protect one's assets..

The old adage, "time is money," certainly holds true with regard to investment losses. The importance of avoiding unnecessary investment losses due to unsuitable investments can be seen in the chart below.

Amount of Loss	Rate of Return Required to Recover Loss	Number of Years Required to Recover Loss*	Opportunity Cost (approximate) on $100,000 investment
10%	11%	1.00	$11,000
20%	25%	2.25	$24,000
30%	43%	3.50	$43,000
40%	67%	5.50	$67,000
50%	100%	7.25	$101,000

Some investors figure that they will just make up a 30% loss by earning 30% later. As the chart shows, an investor who loses 30% due to unsuitable investments will actually need to earn 43% to fully recover their investment loss. Assuming a 10% annual rate of return, the approximate historical average return of the Standard & Poor's 500, it will take an investor almost four years to recover the original investment loss. The opportunity cost to such an investor, or the financial penalty for time spent on "catching up" for the original investment loss, would come to approximately $43,000!

To protect a client's interests, the financial advisor must exercise great care in both phases of the asset allocation process, both the creation and the implementation of such recommendations, to ensure that a client is not exposed to unnecessary risk. Many financial advisors use asset allocation/portfolio optimization software programs to produce their asset allocation advice. Most of these software programs generate recommendations in terms of broad, generic asset categories (e.g., large cap growth, small cap growth and international growth), leaving the financial advisor with the responsibility of picking specific investment products that are consistent with the software's recommendations.

If the risk and return characteristics of the investment products recommended are not consistent with the risk and return characteristics used in producing the asset allocation recommendations, the investor's actual portfolio can be far different from the original asset allocation projections. These inconsistencies, or "recommendation-implementation gaps™," often result in the client being exposed to unnecessary risk due to the inclusion of unsuitable investments in their investment portfolio. Investors who have a portfolio analysis performed are often surprised to find out that their actual investment portfolio is riskier than the original asset allocation recommendations and projections they received from their financial advisors.

An investor obviously cannot get ahead if they are spending all their time "catching up" for losses due to unsuitable investment advice. Wealth preservation planning provides a means for investors to obtain the information they need to properly protect their financial security, to focus on the three goals of wealth preservation - accumulation, preservation and distribution. The wealth preservation planning process focuses on the art of combining sound, practical investment strategies and risk management techniques with common sense to construct and maintain a suitable investment portfolio.

Wealth preservation planning focuses on the review and analysis of financial plans, investment/asset allocation recommendations, and similar financial planning documents based upon the client's actual and/or recommended investments. Wealth preservation planning utilizes our new proprietary process, forensic financial planning, to go behind the numbers to evaluate both the quality of financial advice and the suitability of the investment recommendations being provided in light of the investor's investment goals, personal investment profile and personal financial situation.

By basing analyses on an investor's actual and recommended investments, not on generic asset categories, wealth preservation planning can provide an investor with a clearer, more useful analysis of their financial situation. Wealth preservation planning also alerts an investor to any "recommendation-implementation gaps™" in their portfolio, providing an investor with the opportunity to avoid unnecessary investment risk and better protect their financial security.

Wealth preservation involves more than just portfolio management. Once one's investment portfolio has been properly addressed, simple wealth preservation techniques such as 401(k)/403(b) rollovers, IRA beneficiary designations, wills, trusts and powers of attorney should be addressed. In certain cases, an investor may also benefit from advanced wealth preservation techniques such as the use of living trusts, family trusts and family limited partnerships.