When a life partner is lost — due to death, divorce, or major illness — the surviving spouse suddenly faces the “money question”.
One spouse in a relationship often handles the finances, pays the bills, and manages the investments. If that spouse is lost, the survivor often turns to one of the many firms that advertise as “Wealth Managers”, and offer to manage the finances of the surviving spouse.
And perhaps no decision is more confusing than deciding if a “Wealth Management” firm is needed, and which services from a firm are a good deal for the surviving spouse.
Make no mistake: Wealth Management firms are in the business of making money for themselves, either by managing a clients money , selling them financial products such as annuities, or both. And they are highly profitable enterprises. Making money is not bad, if they provide a useful service for an individual. And that’s the basic question: does the surviving spouse benefit significantly from the services of that Wealth Manager? How do you know?
The answer is a detailed and objective “Financial Analysis”. Some surviving spouses allow the financial investment adviser to help them through that analysis, but a far better approach is to help the surviving spouse complete the Financial Analysis before stepping into the office of the Wealth Manager. This is a far too important job to leave to an outsider whose ultimate goal is to make money from clients.
The Financial Analysis is not terribly difficult or complicated, but requires an objective attitude, a willingness to face what might be an unpleasant reality, and the work ethic to plow through a stack of paperwork that might be unorganized, confusing, and occasionally incorrect.
The Financial Analysis is a list of questions, answers, and conclusions. In many cases, the conclusions will be obvious from the answers.
The questions are:
- What will be the current fixed income? List the sources, frequency, and amounts.
- What will be the current variable income? List the sources, frequencies, and average amounts.
- What the required monthly expenses? List the description, amounts, and dates due.
- What the optional monthly expenses? List the description, amounts, and dates due.
- What are the required quarterly expenses? List the description, amounts, and dates due.
- What are the optional quarterly expenses? List the description, amounts, and dates due.
- What the required annual expenses? List the descriptions, amounts, and dates due.
- What are the optional annual expenses? List the descriptions, amounts, and dates due.
- Does the person have life insurance and/or long term care insurance? Are they needed at this time?
- List all debts. Include mortgages, credit cards, outstanding bills, and money owed to others. List the amounts and any ‘date due’ considerations.
- What funeral, cemetery, financial obligations are needed to settle the estate?
- What tax obligations are due to settle the estate?
- What legal fees are needed for probate or other courts?
- What will be the net proceeds from insurance or other death benefit sources?
- How much is in savings accounts? List the banks, amounts, and interest rates.
- How much is in Certificates of Deposits? List the banks, amounts, interest rates, maturity dates, and penalties for early withdrawal.
- How much is in investments? List the locations, amounts, and nature of the investments.
- Does the person have any primary property? What is the net value (sale price less mortgage and sales expenses)?
- Does the person have any secondary (vacation or second home) property? What is the net value (sale price less mortgage and sales expenses)?
- Does the person have enough fixed monthly income to pay required and optional monthly expenses? If not, how much is the deficit? If not, can some or all of the ‘optional expenses” be eliminated?
- Can the person pay the estate expenses from the estate proceeds?
- Does the person need to pay some or all of the estate expenses from savings or investments? If so, how much?
- What is the net from the estate income (income less estate expenses)?
- What expenses are projected during the next three years? Include such as items as a new car, major house repairs, assisting a child or grandchild, etc.
- Has the surviving spouse managed the investments?
- If ‘no’, does he or she need any help managing the investments?
- Are the investments the type that can be on ‘auto-pilot (without any changes)’ for at least one or two years?
- Are any of the investments needed to maintain the current life style (expenses)? If so, how much per month, quarterly, and annually? If so, which are the likely candidates?
- Can the savings be used to maintain the current life style? If so, how long would they last? Remember that some savings is essential for emergency expenses.
Answering these questions will prepare the surviving spouse for discussions with Wealth Management companies. These firms offer three types of services:
- Financial adviser, who reviews your overall financial status and recommends actions — which include purchasing their products.
- Managing your investments, which often requires selling the investments and purchasing their portfolio of mutual funds or index annuities.
- Providing fixed annuities, variable annuities, and other insurance company based products that can provide a monthly income stream or long term investment.
Except for fixed annuities, investment products are complicated, with surrender charges, caps, limits, and fees. They are often sold with the promise “You will never lose your principle”. This is true, although any FDIC insured savings bank can make the same claim. Investment products generally make money for the Wealth Management company and the Life Insurance Company, and that profit comes from the person buying their investment. But if the need for an investment product is real, they may be a decent option for some surviving spouses. Each product should be examined with a detailed and skeptical eye: like any salesman, the Wealth Manager tends to emphasize the good points and gloss over the potential negatives.