How Are Financial Solutions Tailored to Client Needs?


    How Are Financial Solutions Tailored to Client Needs?

    When it comes to tailoring financial solutions to a client's unique needs, industry professionals like a Financial Planner have shared their strategies and impacts, starting with creative approaches to capital gains tax reduction. Alongside expert insights, we've gathered additional answers that reflect the diverse ways in which financial services can be customized, from adapting insurance to client lifestyles to ensuring retirement plans support income longevity. Here's a look at six personalized financial strategies and their transformative effects.

    • Creative Capital Gains Tax Reduction
    • Align Investments with Risk Tolerance
    • Map Goals with Financial Strategies
    • Customize Loan Terms for Repayment Capacity
    • Adapt Insurance to Client Lifestyle
    • Tailor Retirement Plans for Income Longevity

    Creative Capital Gains Tax Reduction

    Financial advice should always be based on a client's situation, and no two people are exactly alike. Even still, sometimes a client presents a unique financial planning challenge, and we have to think outside the box to serve them effectively.

    In one such instance, a client was planning to move but faced a massive capital gains bill to sell their home. As long as a married couple has lived in their home as a primary residence for 2 out of the last 5 years, then they qualify for $500k of capital gains on their home tax-free. This means that most people won't pay any capital gains taxes if they sell their homes. However, in this instance, the client had added so much value to the home that they were facing over $1m in capital gains above and beyond the $500k that was tax-free!

    So, how could we help them move without creating a monstrous tax bill? Usually, the simplest solutions are the best ones. Just because something is complicated doesn't mean it is sophisticated. But, sometimes you have to get creative and think outside the box. This was one of those times.

    After a lot of collaboration between the client, us, and other professionals, they decided on a two-pronged approach. First, they subdivided the property into two parcels, one with their residence and the other as an empty lot with a small outbuilding. This divided the value and gains into two properties with two separate sale transactions. The empty lot was sold via a 1031 exchange, allowing them to purchase an investment property with the proceeds and defer the tax bill.

    Then, they sold the parcel that contained their primary residence using the $500k gains exclusion. This reduced their tax bill, but there was still room to go. Thankfully, the client was also a business owner, so they launched a new retirement program at their company which allowed them to make a large tax-deductible contribution and offset some of the remaining gains.

    As a result, the client was able to lower their tax bill by over $100k and make a significant contribution towards their retirement.

    Ty Johnson
    Ty JohnsonFinancial Planner, Peak Financial Management

    Align Investments with Risk Tolerance

    Tailoring financial solutions to a client's risk tolerance involves a careful evaluation of how much market volatility they are comfortable with. Advisors consider both the client's psychological comfort level with risk, as well as their financial capacity to absorb potential losses. Based on this assessment, the advisor then allocates assets across different investment vehicles such as stocks, bonds, and cash which can reflect the client's risk appetite.

    This personalized strategy aims to balance the potential for growth with the need for security. Find an advisor who can understand and meet your risk preferences for investment portfolio allocation.

    Map Goals with Financial Strategies

    Adjusting financial recommendations to align with client goals ensures that every piece of advice is geared towards the individual's short and long-term objectives. Whether a client aims to purchase a home, fund their children's education, or build a nest egg, a financial planner can develop a strategy that addresses these targets. This might involve setting up savings plans, investment accounts, or even tax planning initiatives that support the achievement of these personal goals.

    Each step of the financial plan is crafted to move the client closer to their aspirations. Start mapping out your goals with a financial planner to get a personalized strategy that works for you.

    Customize Loan Terms for Repayment Capacity

    When it comes to personalizing loans, lenders consider the client's repayment capacity to avoid financial strain. They examine income, existing debts, and other financial obligations to offer loan terms, including amounts and repayment schedules, that match the borrower's budget. The result is a customized loan solution that fits within the borrower's financial landscape, ensuring that repayments are manageable and do not become a burden.

    This approach helps in maintaining a healthy credit score and reduces the risk of default. Reach out to a lender who will work with you to tailor a loan that fits your financial situation.

    Adapt Insurance to Client Lifestyle

    Insurance coverage can be adapted to suit the various aspects of a client's lifestyle, ensuring ample protection where it's most needed. For instance, someone who travels frequently may require more comprehensive travel insurance, while an individual with valuable home contents may need a stronger policy in that area. An insurance advisor will evaluate the client’s day-to-day risks and recommend policies that offer the best protection for their unique lifestyle.

    This ensures that clients are not over-insured in areas they don’t need, or under-insured where it counts the most. Speak with an insurance agent to tailor coverage that matches your lifestyle.

    Tailor Retirement Plans for Income Longevity

    Customizing retirement plans is crucial for ensuring income longevity, striving to make sure the client's money lasts as long as they do. Financial planners achieve this by creating a mix of income streams, such as dividends from investments, pensions, and social security benefits that align with expected expenses during retirement. They carefully consider inflation, healthcare costs, and potential emergencies when advising on how much to save and how to invest.

    The aim is to provide stability and peace of mind for clients, who can then look forward to a comfortable retirement. Consult with a retirement planner to customize a retirement plan that will support your future needs.