Your first act is school, your second act is work, but have you thought about what you’re going to do in your third act? Join host Liz Tinkham, a former Accenture Senior Managing Director, as she talks to guests who are happily “pretired” – enjoying their time, treasure, and talent to pursue their purpose and passion in the third act of their life.
Inspire others to get more and to do more later in life.
Athena helps women achieve executive-level leadership expertise, polish their boardroom and executive knowledge, get closer to board seats, and make leaps in their careers.
This week’s episode follows up on our popular Women & Wealth Salon hosted by Coco Brown, CEO of Athena Alliance. The Salon features Tama Smith, a financial planning advisor with Brighton Jones and founder of their Women Living a Richer Life division, and Manisha Thakor, author of Get Financially Naked: How to Talk Money with Your Honey.
This episode explores tips to ensure you’re financially compatible with your partner and how to pick a financial advisor—even if you don’t have millions of dollars in the bank. Learn how to steward your money with intention, whether you’re navigating financial conversations with your significant other, adult children, or aging parents.
4:44 Wealth is a state of mind
8:12 Five things to know to steward yourself and your money
12:00 Stewarding money with your significant other
15:50 Determining financial compatibility
24:07 Hiring a financial advisor
38:18 Stewarding money with your kids, parents, and community
45:08 Gender equality requires equal participation in our finances
Athena Alliance, the sponsor of this podcast, provides the learning and support women leaders need as they navigate their careers. Members have access to live learning three times per week, as well as on-demand access to hundreds of executive and board topics. Learn more here.
If you have questions or want to download the financial compatibility quiz from Manisha’s book, email Tama here.
Did you enjoy this episode? Leave us a review at ratemypodcast.com/thirdact. To hear more Third Act stories, subscribe to and follow the Third Act podcast at thirdactpodcast.com.
Liz Tinkham (00:34):
Today we’re back with the second part of our Women & Wealth series. If you missed part one, our sponsor, Athena Alliance, hosts live Salons for their members on a variety of topics. One of the most popular series of Salons has been around women and wealth. Several weeks ago, we took Women & Wealth Part 1 and repurposed it into a podcast. It’s in our archives. Go back and listen to it, it’s interesting. Today’s Salon is hosted by Coco Brown, the CEO of Athena Alliance, and features Tama Smith, a financial planning advisor with Brighton Jones and founder of the Women Living a Richer Life Division within Brighton Jones, and Manisha Thakor, author of Get Financially Naked: How to Talk Money with Your Honey. On today’s show, they talk about how to make sure you’re financially compatible with your partner. Manisha and Tama also cover how and when to pick a financial advisor, even if you don’t have millions of dollars in the bank. And, a very important topic for this audience, how to say no to your adult children. We all need that advice. So here we go, and let me know what you think by leaving a review or sending a comment on LinkedIn. Enjoy the show.
Coco Brown (01:45):
This is part two of a session that we did with Manisha and Tama, and it was so well received and also we only let them get three-quarters of the way through their presentation. So we had to stop and say, “We need a part two.” And really what we were talking about is both very pragmatic, deep things we need to be thinking about in terms of personal financial wealth management. And that doesn’t mean wealth as in “we are wealthy because that’s personally defined,” for one thing. And for another, it’s not just about whether or not you’re wealthy and how to do something with your wealth. It’s about how do you get to that place where whatever you have continually built for you so that we as women are increasingly independent in the way that we get to manage our lives.
Coco Brown (02:42):
And I think it was you, Manisha, who talked about vocational freedom. That’s such an important way of looking at things because I think it used to be that we think about retirement. Now we’re thinking about vocational freedom. How do I get to that point where I get to do what I want to do, as opposed to what I have to do. And that’s really what this is in part about. It’s about, “Yes, we’re working hard every day and we’re counting on our base incomes and our bonuses and whatever else is there for us, but also how do we turn all of that into something that makes something for us?” And the second part of the conversation that we’re having too, is recognizing that this is new territory for most women.
Coco Brown (03:21):
That this is not a comfort zone for us either because we haven’t lived through the osmosis of learning about financial management in the way that our male counterparts have. For example, my 19-year-old son said, “Hey, I’ve got a little bit of money in my bank account and I want to go buy some stock.” I can’t imagine hearing that from my daughter. And I think about that. I’m like, “Why? Why is that?” We live in this modern family and my son said it, but my daughter didn’t and what is that? And so there’s this osmosis thing that happens somehow, miraculously, but there’s also a culture where we tend to let our male counterparts or are more comfortable with our male counterparts managing the money.
Coco Brown (04:07):
And so we’re saying we need to get comfortable ourselves and out of whatever discomfort zone, we may sit in with that. So those are the two dimensions of the conversation that we started. And so with that, I want to turn it back over to Manisha and Tama because ladies, you are the star of the show and you know where to pick up best from where we left off.
Tama Smith (04:27):
It’s great to be back for part two, as Coco mentioned, I’m Tama Smith and I have the pleasure of leading Brighton Jones’s Women Living a Richer Life, a focus on women and wealth. And as Coco so eloquently captured, wealth is a state of mind. It’s not necessarily a certain number, but it’s a set of behaviors around owning our personal finances. I’m joined here today by my fellow and very dear friend and colleague Manisha Thakor, who is a nationally renowned expert on personal finance. And for those of you who didn’t attend a month ago in part one, Manisha is the author of two books. One is entitled On My Own Two Feet and the second book, which is very relevant for today is entitled, Get Financially Naked: How to Talk Money with Your Honey. And it’s exactly what part two today is all about. So just as a quick recap, we talked a little bit about why this topic is important.
Tama Smith (05:35):
I won’t get into this, but you can see that we as women will be controlling two-thirds of our nation’s wealth by 2030. Yet today, 81% of us don’t feel financially confident and 50% of us are deferring long-term financial decisions to our spouse. The UBS team spoke about this groundbreaking research that they’ve been doing for the last couple of years. And it mirrors exactly the research that we at Brighton Jones have been seeing over the last three years. Why is this topic important? 95% of us as women at some point will be the primary financial decision-maker in our household. So whether we like it or not, we need to be empowered in a way that is best and most comfortable for each of us. We talked a little bit about stewardship. It’s why we’re all members of Athena. Stewardship by definition is the careful and responsible management of something entrusted in one’s care.
Tama Smith (06:38):
That’s how it’s defined. And as we know, not only is members of Athena where we are being trained to take on roles on corporate boards, but we know that stewardship is important as it relates to money with ourselves, as well as with our significant others and with our children of all ages and our aging parents and the broader community. So with that, I’m going to ask Manisha to join me. We’re not going to get into the stewardship of money with yourself. That took over the majority of our part one presentation. So Manisha, if you could jump in here and just do a recap on stewardship of money with yourself, and then we can jump right into it with your spouse and partner.
Manisha Thakor (07:38):
I love what both Coco and Tama had to say about wealth and the way I’ve been thinking about it is it’s emotional wealth plus financial health. That’s what we want. The reason I say it that way is that there’s a set of things that if you know, you will have emotional wealth around your money because you will feel calm. And at the same time, your finances will also be healthy. Yet I would say eight out of 10, nine out of 10, crazy successful smart women and men that I meet do not know these numbers (although the men talk about it as if they do). So the five things in order to have true stewardship of yourself and your money is you should know your monthly spending and savings. That’s vital. If you end up getting divorced, or you need to change jobs, or you want to slow down your lifestyle, those numbers will enable you to do the calculations you need to see if it’ll work.
Manisha Thakor (08:32):
You want to know your net worth, and the reason that’s important is if it’s not growing over time, you want to see what’s going on under the hood to change that. You want your vocational freedom numbers, and it’s numbers because there are a couple of components to it. I don’t know if you remember this, there was an ad campaign maybe four or five years ago from ING and they had these people carrying on these big sides and it was “What’s your number?” The way I was really taught to think about this when I worked at Brighton Jones was that there is this amount of money at which point you no longer need to work and you work because you want to work and it’s your vocational freedom. And you want to know for you what that number is.
Manisha Thakor (09:21):
And if you don’t know one and two, it’s impossible to start calculating number three. And what you want to know about number three, it’s not just what the number is, but how much you need to be saving right now in order to get there. And also once you get there, how much you can afford to draw down and then related to that, you want to know what your current investment mix is. That plays into all of this in the sense that especially if you’re working towards vocational freedom not only do you need to know how much you need to be saving each month, but you also need to know what is the mix of investments that are most likely to give you the return you need to generate on those savings to hit those numbers. And then the last piece is knowing what your cash buffer is.
Manisha Thakor (10:13):
And people talk about emergency funds, blah, blah, blah, but I like to think about it more like this… emergency funds are absolutely important, but the more vital way that I like to think about it for executive women is that if you think about yourself, your personal finances are your business literally and figuratively. You want to make sure you don’t end up in a cashflow crunch. And with regards to your investments, what that means is you don’t ever want to be in a position where if the market is down for three years in a row, which has statistically happened in the past and is statistically likely to happen in the future, that you are ever in a position where you have to sell stocks while the market is down in order to meet your living expenses.
Manisha Thakor (11:04):
Because that’s how, when people tell me that 2007-2009 were in their retirement, I know without a doubt, one of two things happened. Either they got panicked and they sold or more commonly, they didn’t have these five pieces because if you had had these five pieces, ’07-’09 would have come and gone and you would not have felt any angst. So that’s what I want to say about the five numbers. Again, we go into so much more detail in the webinar in the library, but I also just want to emphasize if these are not numbers off the top of your head, I can’t tell you how many smart, smart, smart women and men do not know these numbers.
Manisha Thakor (11:48):
So don’t beat yourself up, the first video tells you how to find them. So part two is to talk about stewardship of your money with your significant other. And I have seen so many different examples over the years, and I wanted to share a couple of them with you so you know why I feel so strongly about this. These are just three examples of people I’ve come across recently. One was an extremely high-level tech exec at one of the Fortune 25 tech companies and her husband, they had met in college. Her husband had an MBA from Harvard and he lost his job in the ’07-’09 period. He was working in finance and he looked around a little bit, couldn’t get another one, and basically became a beach bum, or as much of a beach bum as you can become in San Francisco given the cold water.
Manisha Thakor (12:54):
But literally, I mean, he just started smoking pot and hanging out and he hasn’t worked a day since ’09. She wants to get divorced, but she’s frozen because it’s community property in California and she can owe him alimony. And she literally is absolutely frozen. That’s one situation. Another situation is another woman who went to a top 10 business school, works for American Express, and was saying to me, “I feel so humiliated. I work at American Express and I’m not even sure if I can afford to send my kids, we live in New York. I want to send my kids to private school, but I’m not sure what implications that has on our retirement and I’m embarrassed to even go talk to anyone because I work for American Express. You’d think I’d know this stuff, but Americans versus a credit card company.” And she works in marketing.
Manisha Thakor (13:50):
And then a third one was an example, actually, this one, a lot where two smart members of a couple will go in and sit down with a financial advisor and the advisor will A, talk straight to the guy not the woman, but B, the woman will defer to the guy. And what’s interesting is I see this in same-sex couples too. It’s the exact same dynamic. There’s like there is a financial alpha and a financial beta. The first, the financial alpha, and what’s really disturbing about that is oftentimes the one… And I’ll just generically use man to refer to the financial alpha is interested in a much more aggressive strategy. And the financial beta is not comfortable with that or it’s the reverse.
Manisha Thakor (14:39):
I’ve also seen an example of a woman whose husband, she’s a top 10 MBA graduate, super smart, but she chose to stay at home and raise their kids. Her husband is a super successful lawyer. He had a bad experience in ’07-’09 because he invested with his executive assistant’s son at XYZ brokerage firm and they were all in tech stocks. He lost everything. So he makes three million a year before taxes, but it’s all in cash. And that he’s never invested a penny of it and it drives her bonkers and she doesn’t know what to do about it. So these are just some of the situations that are multiple permutations, but this gives you a sense of the kind of angst that I am seeing women go through.
Manisha Thakor (15:30):
And so I wanted to highlight and break down like, “Okay, well, what do I do if any of these situations resonate even slightly with me? Or even if they don’t resonate, what mental framework should I be using to think about money in the context of a romantic partnership?” And the first of the three elements is financial compatibility. And I always say, when you meet someone special, people ask if you are emotionally compatible, intellectually compatible, compatible from a religious standpoint, compatible on whether or not you want to have kids. When have you ever asked a friend of yours, if they are financially compatible with the new person in their life?
Manisha Thakor (16:13):
I mean, nobody asks that yet consistently the American Psychological Association does these studies every year. Money is the top cause of fights, stress, and endings of marriages. And a huge part of it is because of an odd and ironic twist—we attracted to financial otherness. Like quite literally when we are dating, we will often find a level of emotional and psychological intoxication by being around somebody whose financial behavior is different than ours. Doesn’t always happen, but a lot of times it does. And the example I like to give is my own mistake. When I first met my now ex-husband 15 years ago, I remember we went to the movies and he asked me if I wanted a coke or diet coke with my popcorn.
Manisha Thakor (17:13):
And I remember thinking like, “Oh my God, you did not sneak food in your purse so you don’t have to pay the outrageous prices.” And I remember this was before TSA and three-ounce liquids and all of that. I always used to take an empty water bottle with me when I would travel, basically weekly, because I wouldn’t pay three bucks at the airport for water. And so I would go through and then I would fill it at a water fountain. And he used to think that was the smartest thing ever. And then we got married and it was a disaster.
Manisha Thakor (17:49):
It’s one of the things that made me write How to Get Financially Naked because I realized how prevalent financial incompatibility is in relationships. And oftentimes it’s because we are attracted to each other. And other cases where you actually have fairly similar underlying values and beliefs around money. You may have a compatibility issue simply because the components of the way you deal with money are different and I’ll speak to that next. So financial compatibility, the last thing I just want to say about it is there’s a gentleman who’s written two books, that study couples who have been married for like five decades or more, and they’re happy and what are the top five things that they have in common.
Manisha Thakor (18:37):
And number one is shared values, and then number two is a mutually agreed upon thought process around money. It doesn’t mean the exact same, but it means something mutually agreed upon. Which brings me to the second point, which is in order to have effective stewardship with your significant other, there are really three components around our money. It’s our behavior, our interest, and our knowledge. So we often focus on savers versus spenders and that’s a pretty big deal. In the case of me and my ex-husband, my goal has always been to have enough principle that I could live off my interest and dividends and never touch the principal and give that away to charity and my nephews and nieces. And my ex’s goal was to die with zero, to time it perfectly. Live it all up.
Manisha Thakor (19:30):
And so saver versus spender is definitely one big thing. You can on the surface, both be savers, both be spenders and still have acrimony if there’s incompatibility on these three levels, behavior, interest, and knowledge. So the elements around behavior can be as basic as the way in which you keep your financial documents. Are you very organized in terms of where all of your essential documents are, if something happened to one or the other of you, would you know exactly where the documents are, how to get ahold of them, where the money is, then the next piece is your interest? I mean, do you actually care? I think financial markets are absolutely fascinating. The man who I am seeing now thinks it’s the most boring thing on earth to pay attention to, but he doesn’t… It’s like dealing with finances is something that he does, like going to the dentist to get your teeth cleaned, but it’s not of deep interest.
Manisha Thakor (20:38):
And then there’s knowledge. And this one’s really interesting because studies have shown levels of financial literacy. Men know slightly more than women, slightly more, but men’s level of confidence around what they know is here and our level of confidence about what we know is like here. And so oftentimes I will see situations where the alpha, which we’ll just call again the male, but I see the same thing in same-sex couples, is that the person who talks the loudest voice in the room, the one who uses the most jargon or talks as if they know oftentimes does not know. They think they know, but if you listen to what they’re saying, it’s about as logical as my saying, “Oh, this morning I woke up, but I didn’t like where my nose was. So I put it on my head.” And they’re literally saying stuff that doesn’t make sense.
Manisha Thakor (21:33):
And you don’t realize it because they sound knowledgeable. So you think, “Well, I’ll just let them handle our money.” So this is such a big thing that I actually in the book have put together a financial compatibility quiz that has a whole, like 10 different elements of what are the financial behaviors you want to take a look at? What are the financial items of interest and what are 10 items of knowledge? My publisher, Simon and Schuster, won’t allow me to share that broadly. I can’t send it out to everyone, but I do have permission if people reach out to Tama one-on-one and she’ll leave her contact information at the end, they will allow me to send it out on a one-on-one basis. So we’ve put it together and it’s a wonderful little booklet that you can use just for yourself.
Manisha Thakor (22:29):
You don’t need to be in a relationship. You can assess your financial behaviors, interests, and knowledge. But it’s also an incredible tool to use with your significant other because you each can use the booklet and then come together and compare your answers on these different elements. The goal is not for each person to be doing the exact same work as the other. The goal is for each person to have the same knowledge of those five key elements that we started off in section one with no matter who is taking the actual actions or who has more interest. So that’s the goal of this. And I have found that when people walk through this quiz, this inventory, it is mind-boggling what comes up.
Manisha Thakor (23:20):
I’ve never met anybody who’s gone through it and hasn’t found other for themselves or for their relationship, a better way to handle their finances going forward for simply having identified the place where there was friction. So again, I can’t email it out to a group, but Tama can send it on my behalf on a one-on-one basis. So if you email her, she can get you that. And then the final piece is financial advice. And we actually had a number of questions about this at the end of the last presentation. So I’m going to ask Tama to…
Tama Smith (23:56):
Yes. I was going to say, I’ve got about four questions to ask you here that we were unable to answer in part one. And so the first question was, “At what point in your financial journey, should you consider hiring a financial advisor, and is there an age or a minimum amount where it makes more sense?”
Manisha Thakor (24:21):
Yeah, so this is like a chicken and the egg kind of thing. And the chicken is driven by the financial services industry. So historically, it has been extremely difficult to get quality financial advice until you’ve amassed a million dollars in assets. But how do you get a million dollars in liquid assets to invest if no one’s giving you advice? So what’s happened is there’s always been what I’ll call the underbelly of the industry, where I have a cousin twice removed, who joined the training program at one of the extremely well-known brokerage houses. And in these programs, what they’re supposed to do as trainees is try and build a book of the first five million in assets. And the way they do it is by identifying people who have $250,000 or $400,000 over there. The advice these people are getting is from a 23-year-old.
Manisha Thakor (25:25):
And so up until now, the ability to get quality when you’ve had less than a million dollars in assets has been very difficult to come by. Technology has blown that out of the water. So as to when you need it, I would basically say, as soon as you start making money. If you make the right decisions early on, it makes everything so much easier. As to how much for really young people like in your 20s and early 30s, when you’re just getting started if you’ve got kids in this age. If they’re female, I always recommend they go to Ellevest. And then another one you can check out on a gender-neutral basis is Betterment. And I think both of those places are great places to start off because I will accept accounts where you’re putting in smaller bits of money each month, and then give you a very limited amount of financial help.
Manisha Thakor (26:13):
What technology has enabled, however, is once you hit $100,000 or more in investable assets, there are increasing opportunities where a lot of companies who have historically only taken people with a million dollars or more are offering a white label option where they’ve changed the business model so that they’re not coming out to visit you in person. They’re doing all of the work virtually, which pre-COVID seemed very revolutionary. Now, it just seems normal. And so these firms will provide quality work. The same quality of work as you’d get out of a million-dollar or above level. They have a slightly different format. So for instance, my favorite, because when I was working I was associated with them, is called OpenPlan. And it’s a white label and you go there and if you’ve got $100,000 to a million, you can get a financial plan.
Manisha Thakor (27:26):
And then the model there is you pay for a financial plan and then if you want to have the ability to call them up about any personal finance question going forward if you pay a monthly fee and it’s like $100 or $150 a month, they will manage your assets and talk to you. There are increasingly wonderful places like this. And then if you have a million dollars or more, everybody wants your money. So then it becomes, how do you vet that? We’ll get to that in a moment, but the short answer is as soon as you start making money, you should have financial advice. And it used to be, you couldn’t get it unless you have a million dollars and now you can. And the training wheels are places like Ellevest and Betterment. And then you’re riding on your own between $100,000 and a million with a lot of these, a white label option. And then most of those feed into a wealth management firm at the million and up level.
Tama Smith (28:30):
So, Manisha, in the interest of time, I just want to quickly cover a couple more financial advisory questions before we move on to stewardship of adult children and parents. Can you just touch on the fiduciary advisor? One of the questions was, “Is it normal to charge a fee rather than a percent of assets managed?” And then, “What do you do if you have some cross border international needs? Do you need a separate advisor?”
Manisha Thakor (29:04):
Let me loop that question into the point that I wanted to make about financial advice, which is what I would say is the five-point checklist for getting a financial advisor. The first question that I advise everyone to ask is of a potential advisor. And I recommend that you talk to two or three before making a decision. Are you a fiduciary? That is the biggest question out there. There are two types of legal structures under which financial advisors operate. One is fiduciary, the other stability. Under fiduciary, your company is set up under a legal structure that reports to the SEC. You have a legal obligation to put the interest of your client ahead of your personal interests and the firm’s personal interest. Most people think, “Well, that’s logical. Isn’t that the whole industry?” No, it’s 20% of the industry. It’s growing, but it’s 20%.
Manisha Thakor (30:03):
These firms are called Registered Investment Advisors, RIAs. The other 80% operates under a standard called suitability, which says that… And this group reports up conveniently to a self-regulating entity called FINRA. And this group legally is in a structure that enables them to adhere to a standard that says, as long as the advice you give is suitable, it’s okay to put your interests ahead of your clients or your funds’ interest ahead of your clients. So what does that mean? It basically means, let’s say you’re going to buy a blue-chip mutual. You’re recommending for your client, a blue-chip mutual fund under suitability. And there’s one managed out there by iShares, it’s an ETF and it’s got a 10 basis point fee. And then there’s one managed in-house and it has a 1% fee.
Manisha Thakor (31:01):
Well, it’s essentially the same fund, so it’s suitable, but you can put the client in the higher fee one, which benefits you and your firm because it’s suitable. And so a lot of people tell me that finding a financial advisor feels like looking for a used car. Like it just feels slimy and the pricing is opaque and you feel like you’re being taken for a ride. And the reason you have that feeling is that that’s what the suitability world feels like. So ask, are you a fiduciary? People don’t have to offer up. I’m a fiduciary or I’m a suitability, but if you ask them, they have to answer.
Manisha Thakor (31:39):
The second checklist that you want to understand when interviewing an advisor is what is their investment strategy? There are as many investment strategies as there are styles of dressing. I personally highly recommend a style called evidence-based investing, which essentially the way I like to describe it is, if you’re on a freeway, there are two types of drivers, people who drive in the right lane and people drive in the left lane. And when you’re driving in the right lane, you’re probably going speed limit. You’ve got a podcast on. Going in the left lane, you’re weaving out of traffic trying to get ahead. And what happens? You both hit the traffic jam at the same time. But the driver in the left lane is all frazzled and the driver in the right lane is calm and evidence-based investing is like right lane investing.
Manisha Thakor (32:33):
And what’s called active investing is left lane investing. There can be roles for both, but for the core of your portfolio, I always recommend evidence-based investing. Personal opinion, but you want to know the investment strategy. Again, I cannot tell you how many people I meet. And I’m like, “What’s your investment strategy?” They don’t know what their advisor is employing. So are you a fiduciary? What’s your investment strategy? Oh, and I would never, ever work with an advisor who’s not a fiduciary. And then the third one, which gets to one of the questions Tama raised, what are your all-in fees?
Manisha Thakor (33:11):
So up until now, the standard for charging fees has been a percent of assets under management. Usually starts at 1% and then it declines. It can decline as much as by half as your assets get larger. But what a lot of people don’t know is that’s not the only fee. There’s that fee, and then there’s the fee for the investments that you are being put into. And so what you always want to ask is, “If you were managing my money with what you know about me and the kind of portfolio that you would be building, what will my all-in fees be?” And you don’t ask for all-in fees, they’re just going to give you the advisory fee, not everything.
Manisha Thakor (33:57):
And I like to see all-in fees at one and a half percent or less. And I can’t tell you how many people from the suitability side will tell me, “I don’t pay my advisor anything.” Because they’re paying their advisor half a percent and then the advisor is putting them in products that have a 3% expense ratio because they’re suitable and their own company manages it and they get bonus points for putting you in it. So you have a three and a half percent all-in fee, and you think you’re paying half a percent. So asking, “Are you a fiduciary? What’s my investment strategy? What are the all-in fees?” Related to that, a lot of people ask me, can you get hourly planning? And the answer is yes and no. There are individuals who do hourly financial planning. The clearinghouse for that, the best one is Garrett Planning Networks.
Manisha Thakor (34:52):
The issue is there are just only so many hours in a day. And so the high-quality folks who do this book up so fast. I have no more hourly planners to recommend people to because they have waiting lists that are so long. The other problem with hourly planning, it’s just like working with a lawyer on an hourly basis. They have to get paid. So every conversation you have with them, the clock is ticking. And that brings me to the fourth point, which is what are the services that are provided for that fee? If you were getting the right services, you will not feel that you need an hourly rate. So if you are frustrated with your advisor and feel like you need to be paying an hourly rate, that’s a sign right there that they are not giving you all the items that you should be getting for in true financial life planning these days.
Manisha Thakor (35:44):
And that speaks to my fifth point, which is you want to know what is the prospective client process at a firm. So the kind of advisor I would argue you want is an advisor whose prospective client process lets you experience the services you should be receiving in exchange for that fee. Number one service is those five things that I identified. Stewardship with yourself, that’s the bare minimum—that they’re organizing all of that, you know all of that. But then they go on to understand who you are as a person and what is important to you. And they make sure that without selling you any of this stuff that they’re looking through your insurance policies, they’re looking through your estate documents, they’re speaking with your CPA on a regular basis to make sure that your portfolio is being tax efficient.
Manisha Thakor (36:41):
If you’re thinking about getting divorced, that’s a great time to hire a financial advisor because they can help give you guidance before you get divorced. And typically what they’ll do is just charge you a retainer. Typically, the amount would be the annual fee on a million dollars. And the experience that you want to have is that somebody is literally your financial general position and on-demand, any question you have, like, “Should I buy or lease my car? How much of my child’s college expense should I put in a 529 plan?” They’ll answer any question that you have. If they’re just doing investing, you do not have a true financial advisor. So those are the questions and what to look for and why the hourly question is a little bit difficult.
Manisha Thakor (37:35):
And then in terms of cross-border, what I recommend is to interview people, go through the prospective client process, interview a domestic advisor and ask them how they work with cross-border issues. And then that firm will be able to tell you whether or not they have depth in people in-house that are able to do that, or whether they partner with people overseas. But you want a domestic partner rather than having two different advisors who aren’t talking to each other. It’s like getting your hair cut and having one person cut on this side and one person coming outside. It won’t all come together. So as usual, I’m talking a lot, and we’re running out of time.
Manisha Thakor (38:18):
So I am going to address stewardship with kids, parents, community, and try and loop in some of the questions that I know we have had from the first session. Kids. How do you help your kids get money smart? I think the absolute worst possible idea is to tell them to go take some money and invest in the stock market. That teaches them nothing. That teaches them how to play Russian Roulette. What you really want to teach them is how to be a good steward of their money. The single best book that you can use is called Make Your Kid A Money Genius (Even If You’re Not) written by Beth Kobliner.
Manisha Thakor (39:02):
And it literally runs from age three to age 23. What at each stage your child should be learning from you about money since we don’t teach it in schools. As a parent, a guide that you can use to help steward your child’s financial knowledge is by Ron Lieber. He’s the personal finance columnist for the New York Times. And the book is called The Opposite of Spoiled. And it’s a really great mental framework. So those are the two books that I think can most help you steward your child. Two other things that I want to say, I encourage parents to say no. The cost of raising a child has exploded way faster than inflation. And that’s because the standard of living of the average child has grown dramatically in terms of the kinds of activities and gadgets and things that are considered essential.
Manisha Thakor (40:04):
So don’t feel that you’re denying kids things if it’s digging into your finances, which brings me to college. The two most common questions I get are, “How much of the percent of college cost should I be saving for my kids? Do I use a 529?” And then the third one would be, “Do I save for my retirement money?” So here’s my argument on college. I feel like 529 is the optimal plan to use. I feel like somewhere between 50% and 75% of your expected college costs makes sense to put in a 529 if you are unable to fully fund your kids. The gold standard would be if you are able when each child is born to put in five years worth, they allow you to do a one-time five-year contribution for each parent to put in, and then you have this lump sum. You don’t contribute again and it grows.
Manisha Thakor (41:08):
Most people can’t do that. They contribute each year. So try and save between 50% and 75% of your child’s college costs, but don’t tap your investment, your retirement accounts for the remainder. I know student loans are such a huge issue, but one of the tough things that we all have to just come to terms with is the fact that… and some places it may make more sense to start at a state school and then transfer because no one asks where you start, they always ask where you graduated from. And bending down your retirement assets to pay for your kids’ education is essentially burdening your children with your retirement.
Tama Smith (41:49):
Manisha, one of the part one questions we had about adult children since you’ve captured the younger side of kids, someone in part one said, “Look, I’m in the Bay Area, I’m in retirement, but the Bay Area is expensive and so we’re subsidizing the living expenses of our adult children in the Bay Area. Is this the right thing to do?”
Manisha Thakor (42:15):
No. And I hate saying that, but the answer is if subsidizing them impacts your ability to maintain your standard of living in retirement, then you shouldn’t be doing it. And this is one of those reasons… Again, when I was talking about financial advisors, and if you find a good financial life planning firm, this is the kind of analysis they will do for you. They will say, “Okay, if you are spending this, given you’ve got this lump of assets. If you were spending this to subsidize your adult children, then this is the impact that it’s going to have on your retirement. This is how much it’s going to impact the odds that you might run out of money.” And then you can make the choice.
Manisha Thakor (43:00):
So it’s hard for me without knowing the numbers to basically say, “No, don’t.” But what I can say is if it’s stressing you out, if you’re feeling tension around it, the answer is, “No, don’t do it.” There are a lot of great jobs… I grew up in Indiana. There are a lot of great jobs in the Midwest. The standard of living is a lot lower. And again, I can’t emphasize this enough, you’re burdening your kids with your retirement, which gets to elderly parents. And this is going to be a huge problem for probably all of us on this call.
Tama Smith (43:32):
Manisha, one more question because it’s related to kids before we… Because elderly parents are important. Someone asked in the chat about insights around differently able children and special needs planning. Oh, and thinking about future women and wealth continued virtual series here. There is a whole topic on how to address this through your financial advisor and partnership with estate planning. There’s a whole number of different types of special-purpose trust, but Manisha, why don’t you cover that briefly before we jump to elder parents?
Manisha Thakor (44:13):
Yeah, I mean a key thing, We literally call them special needs trusts, and there is a variety of them that have different types of tax benefits. The way you work on it is with an estate lawyer in conjunction with your financial advisor. You can either talk to the estate lawyer that you like the most and have them pull in an advisor that you work with, or my preference is to pick the advisor that you like because the legal setup is, I don’t want to say boilerplate, but it’s fairly straightforward whereas the part that can really get screwed up is the financial part. So I recommend finding a financial advisor or advisory firm that has experience with helping parents who have special needs situations because there are some wonderful tools that you can use to ensure continuity of care.
Manisha Thakor (45:08):
At the end of the day, the message that I would like everyone to take away is that if we want to move the needle on gender equality, equal participation in our finances, whether it’s with ourselves, actually doing something with it, or with our partner, equal participation is at the heart of that. And it’s what enables women’s financial security. And then the second thing that I want to say is the financial services industry is changing dramatically. It used to be, you’d go to an advisor and they tell you how to invest your assets. There are still plenty of those types of advisors out there. You want a firm that will be your financial general physician and take care of the totality. And if you do not know the five things that I said when I started off that you should know about your money, your numbers that’s a sign to me, that you would benefit enormously from working with a financial life planning firm. And thanks to technology there are asset levels from $100,000 on up.
Manisha Thakor (46:19):
Well, at any asset level now you can start to find quality advisors. And if you have questions, you can talk to Tama and she can guide you towards places or resources, firms, people we know, or suggestions of people you should talk to for an interview. And again, I recommend interviewing two or three. And the third thing I just want to end with is if any of this was confusing or overwhelming, I just want you to know you are not alone. 90% of the people I meet, this is all new stuff.
Want to share the story of your own Third Act on our podcast? We welcome stories from executives who pivoted their careers to find their passion and purpose later in their lives. Tell us more about yourself to be considered as a guest.