The Financial Planning Elephant Advisors Aren’t Acknowledging

Financial advisors are in the business of helping clients pursue their financial goals. How an advisor goes about this task can vary significantly, based on client, advisor, company and location. But when I look out across all financial advisors, I see far too few tackling financial advice in a holistic manner.

Perhaps the biggest area that needs a renewed focus is housing wealth.

When I ask advisors how much time they spend discussing a client’s housing wealth, the answer is typically less than 5 percent of the time, if that – many advisors said they spend almost no time on housing discussions. That feels like an oversight when you consider that, from a net worth perspective, the home represents nearly two-thirds of the overall wealth of the average 65-year-old retiring couple, making it their largest asset by far, according to data from the U.S. Census Bureau, Survey of Income and Program Participation.

Even if a home isn’t something you would consider a true asset, housing costs are still the largest expense for the average American. In 2016, housing accounted for $18,886 of expenses, compared to the average pre-tax income of $74,664. In other words, housing gobbled up roughly 25 percent of the average salary – and that’s before taxes even came out.

When you take a step back and see that a home represents two-thirds of the average American’s net worth, and housing costs represent roughly 25 percent of their total spending, it’s hard to understand why financial advisors don’t spend more time on the topic. Why would you not spend a significant amount of time on your clients’ largest financial resource and expenditure?

Sometimes advisors argue their clients aren’t average Americans, they’re more high-net-worth. Even then, does the home still represent a significant amount of their overall wealth and cash flow? The likely answer is yes.

Start with a focus on your client’s situation and goals, then address them. Don’t start with what you want to do for them. The client’s cash flow is driven in part by their housing costs – whether they‘re renting, buying or they own their home, utilities and taxes still play a heavy role.

Housing affects people in various ways throughout their life. It’s ideal to work with the next generation now as a way to provide value early on in your client’s life cycle. You’ll help them with home purchases and cash flow analysis.

When your client is older they will likely relocate for work, family, kids or another reason. You should be part of that process, too.

Retirement introduces a new set of housing challenges. Where does your client want to live in retirement? Do they want to age in place? What is the best way to utilize home equity? Can you help manage cash flow issues that might arise from ongoing mortgage payments in retirement?

Advisors can add a lot of value to their client experience by incorporating housing wealth into financial planning. One hurdle is it requires more effort, going far beyond investment and cash flow analysis.

A house is an asset, a liability, as well as an emotional and sentimental topic. Advisors need to recognize the importance of this topic and start taking it seriously as a crucial part of their clients’ goals and financial well being.

Jamie Hopkins, Esq., LLM, MBA, CFP®, RICP®, is the Director of Retirement Research at Carson Wealth and a former professor of Taxation at The American College, where he helped co-create the Retirement Income Certified Professional® (RICP®) education program. Jamie strives to increase the retirement income security of Americans by delivering practical and trusted retirement research and education. His most recent book, “Rewirement: Rewiring The Way You Think About Retirement,” details the behavioral finance issues that hold people back from a more financially secure retirement. In 2017, Trusts & Estates Journal awarded Professor Hopkins the Distinguished Author Award for his article on the Department of Labor Fiduciary Rule. He holds his LLM in Taxation from Temple University School of Law and his J.D. from Villanova University School of Law.