When dealing with new clients and prospects, I often encounter financial clutter. I define financial clutter as a lot of

“financial stuff.” Just like that overstuffed closet or garage, if you don’t sort through it you won’t know what you have.

The two most common forms of financial clutter I encounter are:

Multiple, overlapping accounts. Perhaps a couple might have 3-4 IRA accounts, a 401(k) from a current job and one or two others from prior jobs, a brokerage account, an annuity, etc.

Often in addition to many accounts, the client or prospect will have what can best be described as a collection of various investment vehicles. Mutual funds, individual stocks, annuity sub-accounts.

One problem in both cases is that for most people it is just too hard to keep track of all these investment holdings, and more importantly these holdings rarely if ever are viewed as a total investment portfolio. Whether or not someone has the knowledge or expertise, proper review and monitoring of one’s investments takes some amount of time. As busy as we all are with work, family, and life in general managing our finances can get pushed way down the list.

Another problem is that a collection of investments may turn out to be improperly allocated for your needs. A number of years ago I was working with a client to do a financial planning review. He felt that he was diversified given that he had 19 mutual funds. In analyzing the funds for overlap of holdings, we found that all 19 held Microsoft, Intel, Cisco, and a number of other stocks. Almost all of the funds were large cap growth funds. This was a few months before the Dot Com/911 correction of 2000-2002. I would guess that if this client had held onto all of these funds, they would have dropped by 50% or more by the time the markets bottomed out.

Because of this, one of the first things that I do with a new client is to set-up a simple excel spreadsheet with a line for each holding and account, classified by asset class. This allows me to see the client’s allocation in total and provides a base line for any reallocation of the portfolio.

While I’ve focused on investments, the type of clutter described above is often accompanied by clutter in other areas:

Non-existent or missing beneficiary designations on insurance policies, annuities, and retirement accounts. As 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beneficiary designation is the final determinant as to how these types of assets are distributed at death, a missing or outdated beneficiary designation can cause these assets to go to someone other than who you would choose. Beneficiary designations may need to be updated for various life changes including marriage, divorce, birth of a child, a family death.

Outdated or non-existent estate planning documents. I’m not going to say much here, maybe more in a future post, other than this. If you have minor children, you generally 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). If not and the worst happens, the outcome for your children and your family can potentially be very ugly.

Lost or misplaced assets. This is huge and the reason why most states have an unclaimed property department, usually in the Office of the State Treasurer. True story, I recently discovered about $1,500 that had been sent to a former address in 1985. I completed the paperwork and about 12 weeks later I received my check from the Wisconsin Treasurer.

As a financial planner, one of the first things that I do is gather information about all financial holdings for a new client, as well as copies of important documents and tax returns. This gives me a picture of where the client is and allows us to begin planning how the client will get to where they want to be financially.

Whether or not you are working with a financial advisor, I urge you to eliminate the financial clutter in your life.

Please feel free to contact me with your financial planning questions. 

Photo credit:  Tax Credits