One of the best things that financial advisors can provide to clients is an annual review of their financial situation. While this may seem intuitive, not all advisors do it.

These sessions are beneficial for both the client and the financial advisor. While, ideally, there is ongoing communication all year long, a face-to-face meeting devoted to discussing where the client is and what might have changed over the past 12 months can lead to a much more in-depth conversation than a quick email or phone call.

Here are some tips for conducting a meaningful client financial review, along with a laundry list of questions that should be answered during such a meeting.

Key Takeaways

  • Financial advisors should conduct annual review meetings with their clients so that everyone is on the same page in terms of the current status, any changes, as well as future goals.
  • An annual review should go beyond financial discussions but also cover any personal changes.
  • Areas to be discussed with a client should include their investment portfolio, tax planning, estate planning, retirement planning, and life insurance policies.

Go Beyond Merely Reviewing Investments

Reviewing a client’s portfolio is certainly a key reason to conduct a financial review. The review leads to a discussion of how the client is doing compared to their financial plan, and how they are progressing towards their various goals, such as saving for retirement and college.

It is beyond these obvious topics, however, where the real value in these meetings lies. You need to ask the client what is going on in their life to determine how that might impact what you are doing for them. Key information might include their current employment/career situation, any health issues, or any changes in the client’s feelings towards risk.

Asset Allocation

This is one of the most important elements to review. Is the client’s allocation within the target ranges outlined in the investment plan? Especially with any volatility in the markets, it wouldn’t be surprising if the portfolio needed to be rebalanced back into the target range.

Moreover, does the target asset allocation still fit their situation? Is the client expressing a level of discomfort with any of the financial decisions or economic outlook?

Tax Planning

While tax considerations should not drive investment decisions, tax planning is nonetheless important. Are the client’s assets located in the appropriate accounts? For those with charitable inclinations, are there appreciated securities that could be used to make donations in a tax-efficient manner?

Has the client’s income changed significantly? If their income will be lower this year, perhaps a conversion of some of their traditional IRA assets to a Roth IRA might be appropriate.

Tax planning should involve assessing an individual's tax bracket at their current age against their expected tax bracket in retirement.

Keeping up with tax law and any changes that the Internal Revenue Service (IRS) has made is essential, as it might require some adjustments that your client can take advantage of.

Estate Planning Issues

This is often an area that gets pushed to the side if for no other reason than that many clients don’t like to think about their own mortality. Still, you must ensure that the client’s desires for the distribution of their assets would be met were they to die suddenly.

Some of the issues can be easily remedied, such as making sure that beneficiary designations on retirement accounts and life insurance policies are up to date and reflect the client’s current wishes.

Ensuring that beneficiary designations on all retirement accounts, relevant employee benefits, life insurance policies, and other vehicles where benefits pass via such a designation is critical, and should be reviewed periodically. These instruments rely on the beneficiary designation and not on what is in the client’s will.

The annual review is also a time for the client to take stock of the financial advisor's performance and whether or not the relationship is still compatible.

Also, to ask: Has the client’s family situation changed? Is there another child or grandchild to be accounted for? Did the client get married? Did the client get divorced? Did their spouse die?

In the case of clients with children who are minors, they must have a designated guardian for those children in the event of the client's death. Financial advisors should urge them to have this in written form in their estate planning documents and to be sure to review this with the client(s) periodically to ensure that they remain willing and able to assume this role if ever needed.

Retirement Planning Issues

Regardless of the client’s age, there is invariably some retirement-planning issue to address.

For clients in the accumulation stage: Are they on track toward accumulating enough for retirement? While this number might be tough to nail down for clients who are 20 or more years away from retirement, what is critical is to ensure that clients are saving as much as possible via their 401(k) plans and other vehicles, to provide a reasonable shot at a solid retirement.

For clients who are within 10 years of retirement, the questions are more critical and concrete. Does the client have a fairly clear picture of what their retirement will look like? How long would they ideally like to work? How much will their lifestyle cost? 

Will the changes to couples' Social Security claiming strategies impact their retirement plans? How will they pay for healthcare costs in retirement?

Financial advisors should be ensuring that clients at this point in life have their arms around all potential sources of retirement income. Beyond 401(k) accounts, IRAs, and taxable investments, pensions and Social Security should be considered.

Is the client eligible for a pension from an old employer? Have they been in contact with that employer to ensure that the company knows where to contact them when the time comes to making decisions as to how they will draw on that pension?

Insurance Issues

Does the client have adequate life insurance for their situation? Younger parents typically need a large death benefit, and some form of term insurance is often appropriate. 

Older clients may need to ensure adequate retirement income for a surviving spouse, or estate planning purposes. In the latter case, the death benefit might be needed to cover estate taxes for clients with larger estates. Financial advisors can play a key role in helping clients secure the right amount and the right type of policy to meet their needs.

Clients in their working years should have disability insurance, whether via their employer or via private insurance. Lastly, don’t neglect policies that protect the client’s home and liability.

The Bottom Line

Sitting down with clients to do a formal review of their overall financial situation is valuable for both the client and the financial advisor. The client gets a comprehensive picture of whether they are on point with a financial plan. The advisor gains insights into the client’s attitudes and learns where and how to advise them in terms of helping them achieve their financial goals.