Family Ties: How Three Generations of one Family Work Together to Build a Financial Legacy

As seen on BlackEnterprise.com by  Bridget McCrea

Avery Allen isn’t your typical 12-year-old. Unlike most of his peers, he doesn’t see his parents as a limitless source of financing, nor does he assume that his own financial acumen will develop on its own.

That’s why Allen recently turned to Alfred McIntosh, a certified financial planner, for help deciding on a good investment strategy. “My parents bumped up my allowance,” says Allen, whose desire to work with McIntosh at the Los Angeles-based McIntosh Capital Advisors Inc., surfaced after the youngster completed a six-week financial course based on the book Rich Dad, Poor Dad. “With the increase I also took on more responsibility for my own money,” says the youngster.

Allen took that new role seriously. He asked the financial planner if investing in stocks and bonds was an option for a 12-year-old. He also wondered what options (beyond a traditional savings account) someone his age might have for growing his money.

In Avery’s case, says McIntosh, the key financial concern is cash flow, or the “need to make money” through sources such as allowances, gifts from relatives, and part-time jobs. “When you work with someone this young, the primary focus is on generating some income and investing it in a way that allows them to buy the things they want,” says McIntosh, who sees the pre-teen years as a transition time for most children as they begin to realize the value of fiscal responsibility. “If you can instill that understanding before they go off to college, they’ll wind up managing their finances more effectively and avoid the credit card debt that many graduates have.”

McIntosh gave Avery all the information he sought. McIntosh, who works on a fee-only basis (receiving compensation directly from clients on an hourly, percentage of assets, or flat annual fee basis) is no stranger to the Allen family. Avery’s parents, Harold, 50, and Allyson Allen, 45, have worked with McIntosh for three decades. Avery’s maternal grandparents, Tony, 70, and Vivienne Wynne, 71, are clients as well. The Allens first worked with McIntosh to get their finances in order, and have since introduced their young son and Allyson’s parents to the planner for advice on preparing for his own financial future. In this article, we’ll look at some of the lessons this multigenerational family has learned.

Starting in the Middle 

Young Avery’s consultations with the family financial planner are becoming a rite of passage in the Allen family. Harold and Allyson were first in line to sign up for McIntosh’s advice in the early 1980s. The relationship started when Allyson needed guidance on properly allocating assets within her 401(k) retirement plan. “At the time I didn’t even know the difference between a fee-only and a commission-based planner” says Allyson, a physician’s assistant, “but Alfred came highly recommended by a friend, so I set up a meeting with him.”

Allyson’s initial list of financial planning needs included retirement planning, cash management and budgeting, tax and insurance assistance, investment advice, and portfolio management. Those needs have changed somewhat over the years as the Allens had children (along with Avery, they have a 6-year-old son, Harrison) and progressed in their careers (Harold is a medical sales professional). The couple, for instance, worked with McIntosh to set up 529 college savings funds for both of their sons. As the years went by, their planning shifted away from cash flow management to retirement planning. They moved from a comprehensive planning program to a more “modular” approach wherein McIntosh provides specific services instead of a broad plan. “[Their]  focus has changed, most recently about five years ago, when they enlisted me to help with portfolio management and investments,” says McIntosh, who manages 401(k) plans for both Allyson and Harold. “Alfred now manages our entire portfolio,” explains Allyson, “which includes stocks and bonds that fit well with our plan for retirement.” The Allens and Wynnes agree that having a planner who takes a holistic approach to their finances has been beneficial, since many pieces of the puzzle (college savings, retirement planning, portfolio management, and so forth) are interrelated.

As the Allens and many other investors discovered last year, financial planners deliver more than just advice and counsel. During the recent stock market downturn, the Allens worried that the kids’ 529 accounts—which they plan to use to pay 50% of their higher education cost, says McIntosh—were shrinking. “I kept calling Alfred for reassurance,” says Allyson, who typically meets with McIntosh in person once a year and consults by phone and/or mail on an as-needed basis, for example, when her quarterly 401(k) statements arrive in the mail and need attention. “He reminded me that the same situation occurred in the 1980s, and that we came through it just fine.”

The Allens are on track to achieve their retirement goals, according to McIntosh. They are contributing at least the corporate matching percentages to their corporate 401(k) plans and are also putting money into their Roth IRAs. He predicts that the couple will need about $1.86 million in liquid assets to realize their retirement lifestyle (which includes the purchase of a beach home).

Generational Planning 
Like the Allens, the Wynnes signed up for McIntosh’s fee-only services based on a referral—from their daughter Allyson. After hearing Allyson’s glowing stories about how her planner was helping with important financial decisions, the Wynnes set up an appointment. It was the late 1980s and Vivienne, a recently retired American Airlines employee, says she needed to roll her corporate retirement account.

“Whomever American Airlines was using to allocate my retirement plan wasn’t meeting my expectations,” recalls Wynne, whose husband worked for the Los Angeles fire department for 30 years. The pair originally used the financial planner’s portfolio management capabilities, but over time have added other services. “Having successfully rolled over Vivienne’s retirement plan, the Wynnes called on me to manage other assets and handle additional financial issues for them,” says McIntosh. Take estate planning, for example. While not necessarily on the Allens’ radar screen right now, the Wynnes are taking measures to ensure that their hard-earned assets are distributed appropriately after their deaths. “We’ve reached that age where we have to start considering the tax implications and other issues involved with estate transfer,” says Vivienne, who also relies on her financial planner to help make prudent decisions regarding retirement distributions. “At age 71 you have new considerations, based on what Uncle Sam says you can and can’t do with your money.”

McIntosh says the Wynnes planned their retirement before becoming his clients, and that they have since rebalanced and reallocated their investment accounts in order to reduce overall risk, while at the same time improving their returns. “These changes protected their assets during the last two market downturns,” says McIntosh, who believes that the Wynnes are well-braced to sustain their retirement lifestyle, despite threats like inflation. “I keep them aware of the impact of inflation, and let them know that their portfolios must be managed in a way that keeps pace with it,” says McIntosh. “Because they are retired, for example, they can’t invest solely in fixed-income options. Instead, we put a percentage of their portfolio in equities, which historically provide more protection against inflation.”

According to McIntosh, the most significant difference between the Allens’ and the Wynnes’ financial situations is that the latter are focused on making sure  their portfolio carries them through retirement, and that they “don’t run out of money.” Living in the same home they raised their children in, the Wynnes are relatively debt-free, and enjoy a simple lifestyle that is characteristic of their generation.

The Allens, on the other hand, have young children who they intend to send to college, a mortgage, and other financial responsibilities that Allyson’s parents are without. Even with two full-time incomes, McIntosh says the Allens have to pay careful attention to budgeting and cash management. “When you have a four-person household in Los Angeles it’s easy to rack up a lot of expenses,” says McIntosh, who calls the Allens’ financial planning needs “much greater” than the Wynnes’. “They have to worry about meeting current household expenses, funding their kids’ college educations, saving for emergencies, and planning for retirement all at once. That can be daunting.”

The Allens may be able to learn from their parents’ generation, who paid off their homes and cars, and didn’t readily sign up for financial burdens like credit cards. McIntosh agrees, reminding consumers that mortgages alone can curtail a family’s retirement plans. “If someone has a mortgage of $2,000 a month going into retirement, they’ll need about $600,000 in retirement funds to cover that expense alone,” says McIntosh, who sees satisfied mortgage debt as a “big plus” for anyone looking to retire in the next five years. “Someone whose home is paid off needs far less at retirement than the person with a mortgage.”

Allyson credits her early decision to pay a fee-only planner for ongoing services with helping her and Harold work through life’s financial challenges. Now aware of the differences between fee-only and commission-based financial planners, both Allyson and Vivienne feel they made the right decision to go with the former. Allen expects the third generation of her family to participate once they begin investing and planning for retirement on a regular basis.

“The best thing about fee-only is that Alfred never pushes any products on us, and keeps our best interest in mind,” says Allyson. Wynne concurs, and says that she was particularly impressed with the planner’s ability to go above and beyond what her American Airlines retirement planner could provide in terms of investment choices and strategies. She advises other consumers to consider the various financial planning business models (commission-based, fee-only, or a hybrid of the two; See “How to Choose a Financial Planner,” Moneywise, December 2009) before selecting the right one. “American did what they wanted with my money,” says Vivienne, “and it wasn’t always necessarily in my best interest.”

Compare and Contrast
Within the Allen and Wynne households, there are differences in the way day-to-day finances are handled. Allyson confers with her husband on important financial decisions. “We’re on the same page” when it comes to the household, she says  “but he has a lot of financial responsibility at his job, so I handle most of the financial stuff.”
The Wynnes have a slightly different setup, as would be expected from members of the nation’s Silent Generation, that cohort of Americans born between 1925 and 1942. “I leave most of it up to Tony because he has a better knowledge of financial matters,” says Vivienne. “He’s also a bit thriftier, and wants to make sure the money is handled correctly all the time.”

The two women talk frequently and openly with each other about their families’ financial strategies—including investment opportunities, the current economic crunch, and the children’s college funds—that are sure to carry on to the third generation. According to McIntosh, the long-term plan is for the Wynnes to leave their primary residence and any remaining liquid assets (in no specific dollar amount) to their children. The Wynnes have also set aside assets for their grandchildren, and intend for that money to be used for college. However, McIntosh expects the third generation of the family to use a different financial approach. He says the recent economic crisis and the impact that it’s had on working families will go a long way in convincing someone Avery’s age of the value of saving.

“Anyone who lived through the Great Depression was forever changed by it, and came out smarter and more conservative about money,” says McIntosh, who is looking forward to helping the third generation develop a financial plan for the future, while continuing to assist  the Wynnes and Allens achieve their financial goals. “It’s very rewarding to see how solid financial planning can make a difference across generations.”

“The best thing about fee-only is that Alfred never pushes any products on us, and keeps our best interest in mind,” says Allyson. Wynne concurs, and says that she was particularly impressed with the planner’s ability to go above and beyond what her American Airlines retirement planner could provide in terms of investment choices and strategies. She advises other consumers to consider the various financial planning business models (commission-based, fee-only, or a hybrid of the two; See “How to Choose a Financial Planner,” Moneywise, December 2009) before selecting the right one. “American did what they wanted with my money,” says Vivienne, “and it wasn’t always necessarily in my best interest.”

Compare and Contrast
Within the Allen and Wynne households, there are differences in the way day-to-day finances are handled. Allyson confers with her husband on important financial decisions. “We’re on the same page” when it comes to the household, she says  “but he has a lot of financial responsibility at his job, so I handle most of the financial stuff.”
The Wynnes have a slightly different setup, as would be expected from members of the nation’s Silent Generation, that cohort of Americans born between 1925 and 1942. “I leave most of it up to Tony because he has a better knowledge of financial matters,” says Vivienne. “He’s also a bit thriftier, and wants to make sure the money is handled correctly all the time.”

The two women talk frequently and openly with each other about their families’ financial strategies—including investment opportunities, the current economic crunch, and the children’s college funds—that are sure to carry on to the third generation. According to McIntosh, the long-term plan is for the Wynnes to leave their primary residence and any remaining liquid assets (in no specific dollar amount) to their children. The Wynnes have also set aside assets for their grandchildren, and intend for that money to be used for college. However, McIntosh expects the third generation of the family to use a different financial approach. He says the recent economic crisis and the impact that it’s had on working families will go a long way in convincing someone Avery’s age of the value of saving.

“Anyone who lived through the Great Depression was forever changed by it, and came out smarter and more conservative about money,” says McIntosh, who is looking forward to helping the third generation develop a financial plan for the future, while continuing to assist  the Wynnes and Allens achieve their financial goals. “It’s very rewarding to see how solid financial planning can make a difference across generations.”

11 Signs You May Need a Financial Adviser

Families and individuals seek out financial advisers for any number of reasons. The National Association of Personal Financial Advisors has compiled a list to help you determine whether you need professional help with your finances. Here are some reasons people decide to work with an adviser:

  1.  You have a sense of confusion and “information overload” about your finances.
  2. Your financial planning has been forced to the back burner by your career and personal life. You hate having to think about finances and investing but know it is important to your family’s ongoing security.
  3. You want to clarify your personal goals as they relate to money.
  4.  You’ve reached your “middle” years, and need to plan for your last 30 years.
  5.  You’ve decided to retire from the work that’s providing most of your income, and you need help managing your savings to last through retirement.
  6. Your investments have been neglected for too long and you don’t know what to do about it.
  7. You used to enjoy taking care of your investments, but now you want to devote more time to other pursuits.
  8. You’ve been through the ”canned” investment plan programs some financial firms offer, and you now want to work with someone who’ll tailor a plan specifically to you.
  9. You’ve become instantly wealthy—whether it’s by way of the lottery, stock options, an inheritance, or a legal settlement.
  10. You want to work with someone who is not compensated by commissions so you can have a totally objective financial planning engagement.
  11. You want to work with a professional who’s skilled in all financial planning areas, such as goal-setting, taxes, retirement, investments, educational funding, risk management, and estate planning.

The Name Game
Financial advisers aren’t all created equal. They each come with their own set of credentials and areas of expertise, which you can easily determine from the combination of letter abbreviations listed on their business cards. The Allen–Wynne family’s financial adviser, Alfred McIntosh, for instance, is a certified financial planner (CFP). He also has a PFP, or personal financial planning specialist designation. These certifications often determine the direction an adviser offers you. Here are some designations you should know before hiring a financial adviser.

Certified Financial Planner (CFP):
 An expert in estate planning and investments who has at least three years of work experience and who has passed a comprehensive examination administered by the Certified Financial Planner Board of Standards.

Certified Investment Management Consultant (CIMC): An adviser with three years of consulting experience who has completed extensive coursework and been certified by the Institute for Investment Management Consultants.

Certified Public Accountant (CPA): An accounting and tax  professional who is licensed to do business by your state and who can represent taxpayers before the Internal Revenue Service. CPAs must pass rigorous exams before certification.

Chartered Financial Analyst (CFA): An investment adviser who has at least three years of investment management experience, and has passed examination by the Association for Investment Management and Research.

Chartered Financial Consultant (ChFC): An adviser who has passed an examination on the major financial planning areas (income tax, insurance, investments and estate planning) and has at least three years of experience.

Chartered Investment Counselor (CIC): An adviser who is certified by the Investment Counsel Association of America and also holds the CFA designation.

Chartered Life Underwriter (CLU): An adviser who specializes in life insurance and has at least three years of experience.

Commission-Only Planner: An adviser who is paid by way of commissions earned on financial products that you purchase.

Enrolled Agents: A tax professional who has passed a thorough examination and who is enrolled with the U.S. Department of Treasury to represent taxpayers before the Internal Revenue Service.

Fee-and-Commission Planner: An adviser who charges a fee for service but also receives commissions. This type of planner is sometimes referred to as a “fee-based” planner.

Fee-Only Planner: An adviser who charges a fixed hourly rate, a fixed fee, or a percentage of assets he or she manages for you.

Personal Financial Specialist (PFP or PFS): A designation for accountants who specialize in financial and retirement planning. The certification is given by the American Institute of Certified Public Accountants.
SOURCE: FINRA Investor Education Foundation