Independent financial advisors provide a variety of services to their clients. This is a series of three hypothetical scenarios that demonstrate how independent advisors might work with investors to provide tailored solutions to their complex financial needs.
Investing in your goals.
Dave and Margo Smith’s finances had become increasingly complex. Both in their late 40s, they had two young daughters to raise and educate as well as their own careers to consider. And when a major life event left them an inherited property, they realized they needed help.
Dave’s dad had died around New Year’s, leaving him the valuable summerhouse on Block Island his parents had bought in the late 1960s. Dave also knew that this year his options from the Boston-based tech firm where he’d risen to SVP of product management would vest and become his to sell or keep. They needed smart advice about how to make these new assets work in an overall financial life plan – from someone who was an expert at handling complex needs such as theirs. And they wanted to clearly understand how they would pay for that advice and ongoing investment management.
Dave and Margo made an appointment with Peter Hughes, a professional associated with a local independent financial advisory firm and with whom Margo served on a community arts council. At their first meeting, Peter listened intently as they discussed their financial questions and concerns. How would the new property affect their tax strategy? Would the custodial accounts they’d opened in the kids’ names be adequate to meet future college tuitions? What approach would make the most of Dave’s options over the long term? Peter asked questions of his own, too, finding out that one of Margo’s goals was to leave her consulting job in a few years and become a teacher.
Dave and Margo felt that in Peter they’d found someone who could do more for them, who understood their complex questions, and who would be available when they needed him. They were glad to hear his firm was registered with the SEC. He told them that his fee would be a percentage of the assets he’d manage for them, so they would know exactly what they were paying. They liked that the arrangement gave him a shared interest in the success of their investments.
Over the following week, Peter worked up a customized plan for the couple and gave them a copy. First, he advised Dave on how to handle the stock he would get from exercising his options. Since the family’s finances were heavily concentrated in the technology industry, Peter reviewed their fund holdings and recommended a diversification plan. He also let them know their assets would be safeguarded at an institutional custodian, a firm Peter used to custody stocks, mutual funds, and other assets for his clients.
He outlined specifics for renting the summerhouse, letting them know how tax laws could allow them to deduct a portion of the upkeep, depreciation, and insurance costs. Dave was relieved to know that by holding on to the house, they wouldn’t have to worry about the huge tax implications of the cost basis between what his parents had paid to buy it and what it would fetch today. For the kids’ college savings, Peter suggested they immediately open 529 plans for their daughters, pointing out the potential tax advantage these would give them.
As they worked together, Dave and Margo felt confident Peter could guide them through future complex decisions and help them achieve their life goals.
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The example is hypothetical and provided for illustrative purposes only. Neither the investors nor the advisor are real. The description of independent financial advisors is for general information purposes only and does not necessarily reflect the services offered by any particular advisor. Advisors’ services, investment strategies, and conditions for accepting accounts may vary.