The Wheel of Fortune | February 2002 Ligher Side of Life

Lighter Side of Life: The Wheel of Fortune

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As advisors, we must help our clients prepare for change.

By Penny Righthand, CLU, ChFC

The big problem with the human race, as far as I can tell, is that we have no imagination. We cannot imagine anything is going to be any different tomorrow from what it is today. When my dad sold life insurance in the 1950s, he sold $5,000 and $10,000 policies so people can maintain their lifestyle if the breadwinner died. Who would have guessed that less than a generation later our lifestyle would require microwaves, computers and cell phones, or that $5,000 wouldn't pay for a semester of college?

That's why planning for the future is so hard for most people. We think things will never change. We will never be older, ill, disabled, unemployed, divorced or dead. The stock market will never go up (or down) again and interest rates will never go down (or up). Maybe it's not imagination we lack; maybe it's recall. We can't even remember that after the shortest day of the year, the days start to get longer.

Life is kind of like the weather. If you don't like it much, hang around for a while and it will change. Two years ago, clients were complaining about any advisor who was getting them only 10 percent return a year. In fact, who needed an advisor? This year, I can't convince anyone this is the time to consider buy ing instead of selling stocks. They want fixed annuities and whole life. They want guarantees, and someone to give advice. Who would have guessed?

When we're feeling financially secure, we presume we will always have all the money we want. When we are not, we assume we never will.

Two years ago, a bright 27-year-old came into my office. He was shopping for a financial advisor. He had run his credit card up to its limit. He had borrowed money from his dad, gotten divorced and was ready to plan his future -- based on his software company's then current value of $17 million.

He wanted to make the right decision about an advisor; he didn't want to overpay. But he had generous plans for taking care of his dad's retirement, buying his sister a house and starting an "incubation company" to help new companies get started.

We met with an accountant who advised him to sell some stock and pay his debts and taxes. I advised him to diversify. He wanted to wait till the stock got back up, and he wasn't sure yet whom he wanted to work with. The stock never recovered. The last time I talked to him, he was trying to figure out how to pay the IRS. He was also going back to finish his college education.

When we're feeling financially secure, we presume we will always have all the money we want.

Then there is my least favorite story. It involves a 50-year-old client, in the middle of a divorce, and her two teenagers. She was earning close to a million dollars a year, and had stock and company options worth millions. We were working on estate planning with an attorney and an accountant who did a great job of drawing documents, paying taxes and watching her one-stock portfolio go down in value -- no fault of theirs.

They didn't think she needed life insurance, since the estate tax was going away. I did. Her trustee and children's guardian could gift the premiums to a trust, and she was in such good shape that the premiums for $10 million were relatively small. I suggested they get the term insurance in place and decide what other coverage was needed when the divorce was settled. We got her the insurance.

Last month she called to tell me she had breast cancer. She will be OK and live a long time, but I won't be able to get her life insurance again. All of them can take their time figuring out how much of it she should drop.

That's what makes our work so valuable and satisfying. You can't count on tomorrow being the same as today. But we must rise above our clients' shortsightedness -- as well as our own -- and help them prepare for change. The good times will take care of themselves.

Penny Righthand represents New York Life in the San Francisco area. Her Address: 70 Washington St., Suite 220, Oakland, CA 94607, or prighthand@ft.newyorklife.com.

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