Integrating Asset Management into Your Financial Plan

By Eric Gibson, CFP®, ChFC®, CLU®

You may own the best car money can buy, but if you are heading on a road trip, you still need a detailed map or GPS system and itinerary to ensure you are heading in the right direction.

The latter aptly describes financial planning, which many mistakenly think is synonymous with wealth management. They are related but both serve different purposes:

• Wealth management focuses primarily on investment strategies, “the gasoline in the tank,” as I like to put it.
• Financial planning, on the other hand, is the navigation system, mapping out objectives, timelines, and strategies to help you reach your financial goals with peace of mind. You can’t get very far without it.

Asset management acts as the bridge between these two concepts. It involves managing the financial resources and properties that an individual owns in the most effective way—a way that helps maximize returns, reduces losses, and aligns with the person’s financial goals, risk tolerance, and time horizon.

Another common misconception is that asset management is beneficial only to wealthy people seeking early retirement or a lavish lifestyle in retirement. This is not true; everyone can take advantage of it. Assets are more than just valuable properties that wealthy people own. They include everything from cash to certificates of deposit to stocks, properties owned, retirement accounts like 401(k)s and IRAs, and annuities.

Beyond the 60/40 rule

There is no single magic bullet formula for managing retirement assets effectively, but there are many wrong ways to do it.

Traditional financial planning approaches rely heavily on standardized risk tolerance questionnaires to determine asset allocation. Too often, these customary practices do not capture the nuanced financial needs or emotional preparedness of individuals.

Instead of making random choices about where to put money, a goal-oriented asset allocation plan considers all other financial planning elements and targets specific goals like retirement savings, estate planning, tax planning, and cash flow planning over set time periods. For example, rather than the typical “60/40 portfolio” recommended by many asset managers, an astute financial professional would adjust investments to match financial goals, the need for cash, and risk comfort over a specified period.

In other words, asset management should be part of a broader conversation around these four elements:

• Risk management: How to protect your assets against unforeseen circumstances and help ensure financial resilience
• Estate planning: How to distribute and/or transfer your assets to heirs
• Tax planning: How to manage tax liabilities and help ensure that more wealth is retained for future use
• Cash flow planning: How to manage income and expenses both before and during retirement to help prevent shortfalls.

That is why it’s important to find the right financial professional who will take the time to carefully understand your past spending habits, fears, and concerns—one who will tailor a financial plan that is grounded in reality and personal experience, and that truly fits your needs.

Find a financial professional near you.

Economic concerns

Asset management conversations for future retirees are likely to change dramatically in the coming years as many discover that they may not be able to rely on Social Security benefits once they retire. In fact, 73% of people who are yet to retire are concerned that promised Social Security benefits won’t be paid to them upon retirement.⁽¹⁾

With fluctuating markets and unpredictable interest rates, expect the retirement landscape to get even more complex. Liquid assets, like cash or easily sellable securities such as bonds and stocks, offer future retirees flexibility and security, but balancing these with liabilities, such as loans or mortgages, would require better planning.

It’s also important to consider debt management, like credit card debt, which has risen significantly in the last four years in many households. Financial professionals emphasize the importance of paying off high-interest debt to help minimize liabilities and maintain enough liquid assets (e.g., savings and checking accounts or Treasury bills) to provide quick access to cash for unexpected expenses.

Emerging trends

Financial professionals are employing various new asset management strategies and tax management solutions in developing more holistic financial plans.

Among the emerging trends, direct indexing has gained significant popularity as a tax-efficient strategy. With direct indexing, future retirees can directly own shares of companies within an index like the S&P 500. Normally, when you invest in an index fund, a manager buys and sells stocks, which might lead to taxes even if you didn’t make any money.

Direct indexing lets you decide when to sell your shares, so you can better manage your taxes through strategies known as tax-loss and tax-gain harvesting. These strategies and the balance between them can become complex, so you should work closely with your financial advisor and tax professional to avoid any tax-time surprises.

Thanks to technology, anyone can now buy small pieces of big companies, making direct indexing accessible to more people. This change is due to better technology and tools that make managing these investments easier and cheaper.

Another popular strategy involves taking advantage of current low tax rates to convert pre-tax retirement accounts, such as a 401(k) or traditional IRA, into Roth IRAs. Financial professionals are employing a structured Roth IRA conversion strategy to help future and current retirees lock in lower taxes today. This potentially enhances their after-tax income during retirement. Oftentimes, this strategy can result in paying taxes, so it’s important to work closely with your financial and tax professionals to estimate the impact on your current-year taxes, as well as the benefit to your future income.

Remember, both 401(k)s and IRAs can be converted, depending on the rules governing your specific plan. Also, the timing of the conversion is very important to avoid paying higher taxes. ⁽²⁾

Financial professionals are also cautioning future and current retirees to be careful about the many buzzworthy investment products and strategies flooding the investment retirement landscape. Not everything that glitters should end up in your retirement portfolio.

Cryptocurrencies, for example, have offered substantial gains to some, but their volatility and lack of regulation provide significant risks. The right financial professional can help you decide if such assets fit into your overall financial goals. Remember, there are investment products and strategies available for people of all income and wealth levels and perfectly suited for your unique retirement goals.

Focus on what you can control

You cannot build a comprehensive financial plan without smart asset management. Asset management is a dynamic, tailored process grounded in financial planning that anyone can implement and one can’t happen without the other.

The most well-rounded financial plan focuses on controllable factors, such as working with an attorney to create robust estate plans, preparing for long-term care, and managing tax obligations. These plans are not based on emotion but rather on facts and informed calculations.

One thing a future retiree has complete control over is who they select as their financial professional. Here’s what you can do to make an informed decision:

• Conduct thorough research beyond initial impressions, especially in your selection of a financial professional. Verify their credentials, like Certified Financial Planner (CFP) status.
• Seek referrals from friends or trusted sources so you have pre-vetted options.
• Interview at least three financial professionals to ensure a well-rounded decision. Ask for references to gauge long-term client happiness.

Finally, if you are looking to make smarter money moves with your financial assets, remember these five key takeaways:

1. Education and collaboration are essential.
2. Stay focused on long-term goals rather than reacting to short-term volatility.
3. Use real-life scenarios and historical behavior, rather than hypothetical questions, to more thoroughly assess your financial needs and emotional readiness for risk.
4. Align assets with personal goals and leverage modern strategies.
5. And never forget this: There is no one-size-fits-all asset management strategy in retirement planning. The right financial professional can help you create a plan that ensures your finances are resilient, no matter what happens.

Find a financial professional near you.

About Eric Gibson, CFP^® , ChFC^® , CLU^® 

Eric is the founder of Clarity Financial. Since 2002, Eric and his team of financial planning nerds have provided guidance to strong women and their families as they prepare for and transition into retirement. They make sure the process is non-intimidating, collaborative, and even fun!

Footnotes

¹Bankrate, “Survey: More than half of workers expect to rely on Social Security benefits when they retire, yet 73% are concerned they won’t get them,” November 2024

²Investopedia, Roth IRA Conversion: Definition, Methods, and Example, November 2024

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Clarity Financial and Mutual of Omaha Investor Services, Inc. are not affiliated.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.