New Asset Allocation Considerations Factor In Client Careers And Investments In Their Education, Professions, And Businesses

Thursday, February 21, 2013 08:25
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New Asset Allocation Considerations Factor In Client Careers And Investments In Their Education, Professions, And Businesses

What does your client’s profession have to do with your investment advice to them? Plenty, according to Moshe Milevsky, finance professor and author of "Are You a Stock or a Bond?"
 
It’s a matter of considering what your clients do for a living as part of their human capital. The risk involved in your clients’ professions should be factored into their asset allocation design.

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In fact, for anyone who is not born into wealth, their careers are their most important assets. A 25-year-old’s human capital makes up about 99% of his or her personal balance sheet.
Only by around age 55 does an investment portfolio become of equal value.
 
Quantifying a person’s human capital is difficult. A good initial tool is the US Department of Labor’s salary ranges and unemployment levels for various careers.
 
Using this information, you can calculate a reasonable projection of the present value of current cash flows, just as you would with a stock or bond.
 
Most financial planners and advisors do not spend time on these aspects of their clients’ lives because it is not a revenue source for them.
 
Combining an asset-based fee arrangement with an hourly rate may be a solution. Offering career advice, job prospects, debt levels, savings plans, and whether a professional or graduate degree is advisable.
 
None of that advice currently fits within the traditional financial planning model.
 
Looking at a person’s investments in their careers or businesses and how those investments factor into a client’s personal financial picture should also be part of your service model.
 
Stepping outside the box on asset allocation and finding differentiating ways of serving your clients is a career booster for you and a key growth element for your business.

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