Fintech for Financial Planning
3 Reasons My Clients Love FinTech (Even If They Don’t Know What That Is)
Like many kids I learned to play the piano; I was taught by my mother and grandmother. Let’s just say I did not have the talent of my maternal figures, who both played in church. My grandmother especially had amazing musical skills; she could play any hymn from memory and she continued to play beautifully even as she entered the advanced stages of Alzheimer’s.
I’m hoping to pass along an appreciation for music along to my daughter, who is currently learning to play in modern times via modern methods. The instrument: an electric keyboard. The method: a book to follow along with, labeled keys, and an app for additional assistance. While different from the “old school” way of learning, things seem to be working out—she’s doing well so far.
Technology truly has breached just about all aspects of life. We’ve got online shopping, banking, meetings, work, and school. We check out our own groceries, command Siri to answer our most pressing questions, and rely on GPS to find our destination. Kids today—like my 8-year-old daughter—have never known life any differently. They’ve had Internet everywhere they go plus cell phones, apps, and social media at their disposal their whole lives. They are true digital natives.
Most of my clients are not. And like them, I didn’t have those things as a child, either. I remember when binging on funny cat videos on YouTube wasn’t yet a pastime. And I recall spending summers outside with my friends, playing in the sprinkler, and riding my bike around the neighborhood—unteathered to a screen.
I did, however, use the (dial-up) Internet in school and I remember when iPads became all the rage. And I’ve had a cell phone since college (albeit an early model, large and clunky) so I’ve been around technology long enough to be very comfortable with it. As a “xennial,” people my age overlap Generation X and the Millenials. I may be caught in the middle in my own micro generation, but it’s worked out just fine. In fact, this gives me a unique perspective on my work. I can relate to clients who aren’t interested viewing multiple online platforms to track their investments—but I’m also totally comfortable using these tech tools.
There’s a name for this method—FinTech (financial technology)—and it’s a huge asset to financial planners. It allows me efficiently watch my clients' portfolios, interpret the data, and communicate results to help them stay abreast of your investments. All while they (you) sit back and enjoy the retirement you’re shooting for, or that you've already earned.
Here are just a few ways I use FinTech to benefit my clients:
Easy-to-understand cash flow analysis
The software I use to simulate gross income sources, expenses, taxes, liabilities, etc. is amazing. It doesn’t just account for inflation—it also monitors and records changes in income tax, fluctuations between medical systems (employer-based plans to retiree medical or Medicare), and income reductions in the event of the unfortunate death of a spouse.
To project the income tax component, we have to make assumptions regarding investment growth and required minimum distributions. We can then project for year-by-year income and forecast future tax burdens. Of course, all predictions are based upon current tax rates, but we also account for rates already scheduled to change in 2025. However, tax changes are going to come before that scheduled date—but don’t worry. We're keeping up with any upcoming changes in tax laws for you, too.
All of this information helps plan for the future based on an accurate picture of your finances—and you benefit by being able to confidently finance your travels, improve your home, share your money with family, or do whatever you wish with your hard-earned money.
Visual simulations for specialized tax planning
The old adage, “nothing is certain except death and taxes,” is classic. As a financial advisor, I prefer to focus on the taxes part of this quote, and one thing you need to know is which tax bracket you’re in. This can change yearly as your income increases. While your tax bracket may not change specifically due to income growth, you still need to watch for an increase in capital gains tax rates or surcharges to Medicare premiums.
For example, the graph below shows that these clients could add about $41,000 of income and remain in their current 12% tax bracket. However, at $35,000 of additional income, capital gains tax is triggered on all of their investment income. If the goal is to withdrawal or convert as much as possible while remaining in a fairly low 22% tax bracket, they can convert $132,000 without moving into the 24% bracket. We also have to be mindful of the amount that would trigger a surtax on the Net Investment Income.
Individualized, computer-generated charts and graphs are a great way to present information in an easy-to-understand visual example—so much simpler than wading though a lot of text to explain what’s going on with your investments. I’m happy to create ways to share/interpret the results with my clients so that they have a clear picture of their finances.
Keep tabs on estate tax projections
We love our families and want to provide for them as best we can. So it’s a smart move to keep an eye on your investments and tax implications for the future; after all, at some point your heirs will be responsible for taxes on your wealth. And because you don’t want them to be surprised by potential taxes on your accumulated wealth any more than they want to be surprised, we use software to calculate projected estate values and potential estate tax burden.
Again, there are many FinTech options available to help determine these estimates and projections, and having an experienced advisor on your side who takes the time to select the most appropriate programs—and learns to use them efficiently—is a great asset. You’ll rest easy knowing your financial well-being is in good hands right now, and your loved ones will appreciate your thoughtful planning for the long term.
These are just a few ways I use FinTech regularly to serve my clients. So many other options are available to help advisors provide accurate, up-to-date information—to measure risk tolerance, manage portfolios, report performance, provide e-signatures, and more—that it would be unrealistic for my clients to learn them all. (They have better things to do!) Luckily for them, I love technology! An experienced advisor with an understanding of financial planning is best suited to integrate, utilize and interpret the array of tools at their disposal.
To circle back to my daughter’s piano experience, consider the notes she plays on her keyboard. I have notes, too; my “notes” are the FinTech platforms I use to create a “melody” (i.e., your portfolio). In order to make music—and to grow a healthy portfolio—a knowledgeable “conductor” (that’s me) is needed to orchestrate things. And you get to be the audience enjoying the performance—a flush portfolio, which enables you to feel confident in your investments and ultimately, enjoy your retirement.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance.
She utilizes advanced tools for in-depth calculations that analyze tax and retirement scenarios to help their clients avoid a future tax time-bomb. Whether this means enjoying more of your hard-earned money in retirement or passing along assets to loved ones, with less tax burden, planning makes the difference.
