New Year’s Resolutions Financial Advisors Wish Clients Would Make

Every financial advisor knows the feeling of having their good advice ignored. Clients splurge when they shouldn’t, play it safe in retirement when they can afford to spend more, and just won’t update those darned beneficiary designations. But what if advisors could create New Year’s resolutions for their clients? Granted resolutions and follow-through are two different matters, but for this week’s Barron’s Advisor Big Q, we invited five advisors to create resolutions for their clients. Here’s how they responded.

Craig Robson, founding principal, managing director, Regent Peak Wealth Advisors

Create or pursue your own stretch goals. Those could be financial, personal, or relational. We always bucket aspirational goals in our clients’ plans, and I will periodically remind them and ask, “What is preventing you from pursuing those goals?” Another way to say it is, “If not now, when?” Examples could be building your dream home, starting a business, going for that C-suite job opportunity.

The second resolution is to take chances. Make yourself available for some new opportunities. For me, the pandemic was a huge reminder of this. We started our firm eight months before the pandemic started. In the summer of 2020, I decided to negotiate a five-year contract for brand-new office space. When everybody was leaving and parking lots were empty, we were going back in. We negotiated fantastic financial terms and got great new fresh office space in Atlanta. Obviously, think it through and be educated, but there’s nothing wrong with taking some chances.

Emily Millsap, manager, financial planning, Avantax Wealth Management

Take thetime to learn your generational wealth story. So many of our beliefs about money and financial behaviours are tied to what we’ve learned and observed from our family and our culture and our community. And we always try to make money about math and logic, but there’s a lot of emotion tied into why we make the financial decisions we do. Understanding how our current behaviours and beliefs are connected to the stories of those who came before us, and then passing those stories to the next generation, is such a powerful and healing thing.

There are a few books out there that I really like on this topic. Loaded: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind touches on some of that. Anything by Dr. Brad Klontz; Mind over Money: Overcoming the Money Disorders That Threaten Our Financial Health is a great one. Those are good places to start, and then talking to your parents, grandparents, aunts, uncles, about what they remember, what they learned, how they felt about money.

If you really want to do a deep dive, you can build a genogram, which is like a family tree, but you outline levels of education and career and how ancestors behaved with money and what they thought about money. Another resolution is that anyone who carries anxiety about their financial future will seek out experts who can help calm their fears and make a plan.

Dane Burkholder, private wealth advisor, Ameriprise Financial

New Year’s resolution No. 1 is to update your financial plan. People spend so much time focusing on markets and investments and rates of return. But the beginning of the year is a really great time to step back and say, “What are my financial goals, and am I on track for those financial goals?” No. 2 is doing a 401(k) audit. That could be as simple as rebalancing the assets inside of the 401(k) or setting the account to automatically rebalance throughout the year. If you were fortunate enough to get a raise, increase your contributions.

Resolution No. 3 is looking at your emergency fund. We have a unique opportunity to get a positive return on cash, with money-market accounts and CDs at 5%. People who are sitting on large cash balances have a tremendous opportunity to keep money liquid and available, but earning some interest. No. 4 is managing emotions: There are going to be points where the market pulls back or potentially corrects, but sometimes the best strategy is to take no action. When you use emotion to create action, generally the result isn’t beneficial. If you have a house that’s worth $800,000 and you go on Zillow the next day and it’s worth $700,000, you’re not going to sell your house.

Andrew Crowell, vice chairman, wealth management, D.A. Davidson & Co

The markets moved upward dramatically last year, and it’s very likely that clients’ target allocations are different than their current allocations. Somebody who owned a little Nvidia at the beginning of the year now has 220% more in terms of market weighting. So it’s important to rebalance annually, because you may inadvertently be carrying more risk than you need to or want to.

And if Santa makes a list and checks it twice, we have to do the same with all of our beneficiaries on every retirement account, with our trust documents, and so forth. Things change, relationships change. People die, people divorce, people marry, and the list that may have been valid 12 months ago may not be valid today. So make an annual checkup appointment and look at all the beneficiaries listed on your company 401(k), the IRA rollover from your first job out of college and whatever else.

It’s always helpful to set a budget and prioritise what you are going to be saving for this year and create spending guardrails. Banks and brokerage firms will soon allow you to download spending summaries from the prior year; pie charts breaking out spending by category. It can be eye opening to see, “Wow, I know we ate out a lot, but that restaurant line is a lot bigger than I thought.”

Nicholas Yeomans, president, Yeomans Consulting Group

Start with getting organised. Folks say they have that desire, but when it comes to actually getting organised and lining up all their affairs, to put together their tax documents, their estate-planning documents, their portfolios, their 401(k)s and IRAs, everything’s everywhere. I work with a lot of people who are retired, and as you get older, things unfortunately happen, from incapacity to death. Often, there is one spouse left holding the bag, and now they’re hunting and pecking and trying to find out where everything was. They’re already in a state of emotional distress, and now you’ve compounded that distress. Organising is a gift to the spouse who might end up having to take care of you or make those final decisions after you’re gone.

My second resolution is to communicate with family. Younger generations are more proactive in communicating with their kids, but unfortunately, a lot of folks in that 60- to 85-year-old group tend to do a much poorer job. We’re talking about the organisation of your finances and who is in charge of what. Who’s your trustee, who’s your power of attorney, what are your wishes with your healthcare directive? Is everything in a lockbox in your office? And what were you thinking when you put your will together? Why did Sandy get more than Charlie? [Explanatory] letters are a great idea. However, it’s even more meaningful to bring everyone together every two or three years and give them an update as to what you’re doing and why you’re doing it.

Impact investing is becoming more mainstream as larger, institutional asset owners drive more money into the sector, according to the nonprofit Global Impact Investing Network in New York.

In the GIIN’s State of the Market 2024 report, published late last month, researchers found that assets allocated to impact-investing strategies by repeat survey responders grew by a compound annual growth rate (CAGR) of 14% over the last five years.

These 71 responders to both the 2019 and 2024 surveys saw their total impact assets under management grow to US$249 billion this year from US$129 billion five years ago.

Medium- and large-size investors were largely responsible for the strong impact returns: Medium-size investors posted a median CAGR of 11% a year over the five-year period, and large-size investors posted a median CAGR of 14% a year.

Interestingly, the CAGR of assets held by small investors dropped by a median of 14% a year.

“When we drill down behind the compound annual growth of the assets that are being allocated to impact investing, it’s largely those larger investors that are actually driving it,” says Dean Hand, the GIIN’s chief research officer.

Overall, the GIIN surveyed 305 investors with a combined US$490 billion under management from 39 countries. Nearly three-quarters of the responders were investment managers, while 10% were foundations, and 3% were family offices. Development finance institutions, institutional asset owners, and companies represented most of the rest.

The majority of impact strategies are executed through private-equity, but public debt and equity have been the fastest-growing asset classes over the past five years, the report said. Public debt is growing at a CAGR of 32%, and public equity is growing at a CAGR of 19%. That compares to a CAGR of 17% for private equity and 7% for private debt.

According to the GIIN, the rise in public impact assets is being driven by larger investors, likely institutions.

Private equity has traditionally served as an ideal way to execute impact strategies, as it allows investors to select vehicles specifically designed to create a positive social or environmental impact by, for example, providing loans to smallholder farmers in Africa or by supporting fledging renewable energy technologies.

Future Returns: Preqin expects managers to rely on family offices, private banks, and individual investors for growth in the next six years

But today, institutional investors are looking across their portfolios—encompassing both private and public assets—to achieve their impact goals.

“Institutional asset owners are saying, ‘In the interests of our ultimate beneficiaries, we probably need to start driving these strategies across our assets,’” Hand says. Instead of carving out a dedicated impact strategy, these investors are taking “a holistic portfolio approach.”

An institutional manager may want to address issues such as climate change, healthcare costs, and local economic growth so it can support a better quality of life for its beneficiaries.

To achieve these goals, the manager could invest across a range of private debt, private equity, and real estate.

But the public markets offer opportunities, too. Using public debt, a manager could, for example, invest in green bonds, regional bank bonds, or healthcare social bonds. In public equity, it could invest in green-power storage technologies, minority-focused real-estate trusts, and in pharmaceutical and medical-care company stocks with the aim of influencing them to lower the costs of care, according to an example the GIIN lays out in a separate report on institutional strategies.

Influencing companies to act in the best interests of society and the environment is increasingly being done through such shareholder advocacy, either directly through ownership in individual stocks or through fund vehicles.

“They’re trying to move their portfolio companies to actually solving some of the challenges that exist,” Hand says.

Although the rate of growth in public strategies for impact is brisk, among survey respondents investments in public debt totaled only 12% of assets and just 7% in public equity. Private equity, however, grabs 43% of these investors’ assets.

Within private equity, Hand also discerns more evidence of maturity in the impact sector. That’s because more impact-oriented asset owners invest in mature and growth-stage companies, which are favored by larger asset owners that have more substantial assets to put to work.

The GIIN State of the Market report also found that impact asset owners are largely happy with both the financial performance and impact results of their holdings.

About three-quarters of those surveyed were seeking risk-adjusted, market-rate returns, although foundations were an exception as 68% sought below-market returns, the report said. Overall, 86% reported their investments were performing in line or above their expectations—even when their targets were not met—and 90% said the same for their impact returns.

Private-equity posted the strongest results, returning 17% on average, although that was less than the 19% targeted return. By contrast, public equity returned 11%, above a 10% target.

The fact some asset classes over performed and others underperformed, shows that “normal economic forces are at play in the market,” Hand says.

Although investors are satisfied with their impact performance, they are still dealing with a fragmented approach for measuring it, the report said. “Despite this, over two-thirds of investors are incorporating impact criteria into their investment governance documents, signalling a significant shift toward formalising impact considerations in decision-making processes,” it said.

Also, more investors are getting third-party verification of their results, which strengthens their accountability in the market.

“The satisfaction with performance is nice to see,” Hand says. “But we do need to see more about what’s happening in terms of investors being able to actually track both the impact performance in real terms as well as the financial performance in real terms.”