Written by Roger Wohlner
June 28, 2011
Beware of Financial Clutter Roger Wohlner When I work with a new client in my financial planning practice, I often come across a condition that I call “financial clutter.” This has many forms, but a common version might look like this: Husband and wife have…
Beware of Financial Clutter
When I work with a new client in my financial planning practice, I often come across a condition that I call “financial clutter.” This has many forms, but a common version might look like this:
- Husband and wife have worked at several jobs and have a number of 401(k) plans left with their former employers.
- Three Roth IRA accounts are held with various custodians.
- Four Traditional IRA accounts are scattered among several custodians.
- The husband and wife each have a 401(k) account at a current employer.
- There are two taxable brokerage accounts, an annuity, and two accounts directly held via mutual fund companies, each with a single fund holding.
- Overall, there are 53 distinct holdings among these accounts.
What’s wrong with this picture? In my experience:
- Typically, clients with this type of profile have not looked at their holdings as an overall portfolio. In fact, they have generally not reviewed the individual holdings since the time at which they were purchased.
- Such clients are not aware of their overall asset allocation. Are they taking too much risk or too little? Is there a high degree of overlap (of the underlying holdings) within the funds held?
These problems are a sign of a collection of investments accumulated over time for various reasons, instead of a portfolio that was built as the result of a financial plan tailored to their unique situation.
Financial clutter can also extend beyond investments and may include:
- Nonexistent or missing beneficiary designations on insurance policies, annuities, and retirement accounts. The beneficiary designation is the final determinant as to how these types of assets are distributed at death. A missing or outdated beneficiary designation can cause these assets to go to someone other than whom you would choose. Beneficiary designations may need to be updated for various life changes, including marriage, divorce, birth of a child, or a family death.
- Outdated or nonexistent estate-planning documents. If you have minor children, you must have an up-to-date will that designates your desired guardian for those children. (Check with an attorney for the requirements in your state.) Without these documents, in the worst-case scenario, the outcome for your children and your family could potentially be very ugly. For more help, see my previous blog post, “How Often Should I Update My Estate-Planning Documents?”
- Lost or misplaced assets. This is a huge problem and the reason why most states have an unclaimed property department (usually in the office of the state treasurer). This situation can even happen to professionals. About a year ago, I discovered that around $1,500 had been sent to a former address in 1985. I completed the paperwork, and 12 weeks later I received my check from the Wisconsin treasurer.
Whether you are working with a financial advisor or you’re a do-it-yourselfer, I urge you to eliminate the financial clutter in your life. Cleaning up your finances periodically can yield tremendous dividends for you and your family.
Roger Wohlner, CFP® is a fee-only financial advisor at Asset Strategy Consultants and Retirement Fiduciary Advisors. Roger provides advice to individual clients, retirement plan sponsors and participants, foundations, and endowments.
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