Just like an annual physical is important to your health, a yearly conversation to check on your financial health will help ensure that your investments, insurance coverage and estate plans reflect your current circumstances and objectives.
Meeting with your financial advisor each year makes sense—especially if your life has changed in the past year, and even if it hasn’t.
"At a minimum, even if you're someone who's not really interested in watching the financial markets, you still need to get in front of your advisor on an annual basis to gain an understanding of what's going on in the markets and what's going on with your portfolio specifically," said Kimberly Bridges, director of financial planning at BOK Financial®.
Your advisor will review the performance of your portfolio, including a look at the difference between expectations at the beginning of last year versus how the portfolio actually performed and why.
This is also an opportunity for you to review your investment objectives and take a "gut check" of how much risk you are comfortable taking, Bridges explained. This is especially important after periods of volatility.
Insurance that works for you
Reviewing your insurance coverage should include property and casualty, as well as life insurance, Bridges said. Make sure you have adequate coverage and that your designated beneficiaries are up-to-date. Your homeowners’ insurance, for instance, should fully cover the cost of a rebuild in the event of a total loss, like the recent fires in Colorado, she noted. With recently escalating building costs, it’s important that you review your coverage with your insurance agent, so you aren’t left under-insured.
Your life insurance coverage should align with your stage of life, said Jim Shaw, director of BOK Financial Advisors. For example, people in their 20s tend to focus on policies with sufficient income replacement for their families in the event of death or disability.
Older adults, whose children are grown and out of school, may utilize insurance as a means to accumulate wealth and outpace inflation during retirement.
"While the main objective of buying life insurance is to protect against unforeseen circumstances, it can also help in wealth accumulation and preservation, and give access to liquidity at the right time when added as a component of a financial plan," Shaw said.
Don’t forget your estate plan
Insurance also can potentially mitigate the tax burdens often placed on your heirs, so it’s an important part of estate planning, Shaw said. Recipients of a life insurance policy don’t have to pay income tax on what they receive.
But if your estate exceeds the federal applicable exclusion amount, currently at $12.06 million per person in 2022, then your heirs could be subject to estate taxes on the entire estate.
Other factors that could cut into the value of a deceased person’s estate include administrative and probate costs, as well as attorney fees, according to Bridges.
Having an estate plan in place can help reduce these costs, but only one-third of Americans have prepared estate planning documents, down from 40% before the pandemic, according to a Caring.com study.
If you don’t have an estate plan, now is the time to make one. And even if you already have an estate plan, the start of each year is a great time to audit it, Bridges said. "Assets can be depleted when there’s no estate plan in place."
Many ways to meet
And don’t worry; you can certainly meet your financial advisor virtually. Over the course of the pandemic, 48% of advisors said they preferred to meet with clients through video calls and 32% preferred phone calls, according to a SmartAsset survey. That’s a significant jump from the only 2.44% who preferred video calls and nearly 28% who preferred phone calls prior to the pandemic.
At BOK Financial, 73% of financial plans were delivered virtually during 2021, according to Bridges. "In some cases, the clients were in a conference room with one or more members of the wealth team, while the financial planner and others joined remotely, but often everyone was in a different location and they all joined remotely," she explained.
"Clients can stay in the comfort of their own home or office, attend the meeting in their casual attire, and don’t have to lose time driving to or from downtown during rush hour," Bridges said, adding the younger clients who are juggling work and family appreciate the convenience and time savings of meeting virtually.
"We’ve come a long way since March 2020, and in some ways, it is for the better—offering more options to meet the needs of our clients."
These changes in communication aren’t expected to go away entirely even after the pandemic ends, the SmartAsset study found. About one in three advisors surveyed said they are likely to continue video calls with clients, and 16% said they would talk with clients by phone.
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