When Technology Doesn't Make Sense

By Sheryl Rowling, CEO, Total Rebalance Expert on Tuesday, March 24th, 2015

Technology allows us to do all sorts of calculations. Depending on how the numbers turn out, we can give our clients great advice. Yet, sometimes, it doesn't make sense to do that. The human element – understanding our clients, their goals and their motivations – is often more important than detailed computations.

The most common example is whether or not a client should pay off the mortgage. Given interest rates at all-time lows and tax deductions for mortgage interest, crunching the numbers through a nifty program will prove that it just doesn't pay to deflect investment dollars into mortgage principal. Still, many clients want to pay off their mortgages.

It's not our job to dictate goals to our clients; it's our job to help them reach their goals. Hence, there is a difference between advising clients who ask, “Should I pay off my house?” and clients who state they want to pay off their house.

Another example of useless software is Roth conversion analysis when the client won't write a check to the Internal Revenue Service anyway. Unless your client is in a zero tax bracket, converting traditional IRA funds to Roth requires paying tax. Most clients prefer to pay taxes later rather than now. And some of them aren't willing to pay now even if it means they will save money in the long run. Before you roll up your sleeves, do yourself a favor by asking your clients about their willingness to write a check.

One other example comes easily to mind: Social Security optimizers. In my opinion, advising clients on when to take Social Security is easy. Are they eligible to receive Social Security and either not working or at full retirement age?  If the answer is yes, take the Social Security now. If no, they should take it as soon as they stop working or reach full retirement age. I've had advisers argue with me about the advantages of waiting – the monthly benefit will increase, people are living longer, there are fancy strategies to maximize the long-term cash flow, etc.

I have two issues with delaying benefits: Taking benefits sooner may positively impact your clients' lifestyles now, and do you really think Social Security as we know it will remain intact over the next five, 10 or 20 years?

I could come up with more examples, but I think you get the point. As advisers, we need to know our clients before we give advice, even if that means ignoring our software.

This blog post was previously posted in an InvestmentNews article on March 18, 2015

Sheryl Rowling, CPA/PFS is chief executive of Total Rebalance Expert and principal at Rowling & Associates. She is also a columnist for both Investment News and Advisors4Advisors. 

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