Life happens. Plan for it.

Karen L. DeRose, CFP, CRPC • Chicago, IL
DeRose Financial Planning Group • Lincoln Financial Advisors Corp.
Read full biography below

Proactive Advisor Magazine: Karen, please share a quick view of your overall practice philosophy.

First and foremost, I am firmly committed to the financial-planning process. I started in the business working first with my father, who had a very successful insurance practice, and then later had another wonderful mentor who was a CFP. They both instilled in me the idea that the industry was going through a major transition from transactional, product-oriented selling to holistic planning. I went on to earn my own CFP and CRPC. Things really came together when I joined Lincoln, which also has a strong planning culture. I have had the privilege to earn leadership roles in two of Lincoln’s important internal advisor groups. My career has worked out very well, and I am proud of what I have accomplished.

I have been in the business now for over 20 years, and we have a multi-generational practice. I think that is an important distinction, and I see our practice as providing family wealth advice. My son Anthony joined our firm a few years ago and plays a very important role as an associate planner. He has terrific qualifications and a strong educational background, holding an MBA, CPA, and a law degree. He not only brings a world of specialized knowledge, but is also integral to executing our multi-generational strategy.

We frequently work across three generations in a family and can handle just about every planning need for both business owners and individuals. My passion is listening to clients and translating their wants, needs, and values into a plan that builds and preserves their wealth over their lifetime. This hopefully leads to a long-term relationship, as we help clients achieve their goals at various life stages and plan for their legacy.

Can you describe the planning process you use?

We take a holistic approach through a proactive and comprehensive view to planning. We aim to uncover gaps in our client’s financial picture so we can take preventive measures, along with uncovering financial-planning opportunities. The only way to discern such gaps and find financial-planning opportunities is to look at a client’s entire financial picture all at once.

Essentially our process follows the CFP standard with some customizing that we have found of value. It has seven distinct steps and takes anywhere from four to eight weeks, depending on the level of complexity and coordinating a schedule with a client. It is also important to understand that we take a team approach to the planning process. We have an in-house planning department and access to Lincoln’s planning department, which includes legal and accounting review functions. We also use state-of-the-art software that does a wonderful job of integrating all of a client’s financial accounts. We will train clients on how to use that and make sure they are comfortable with the system.

One key thing that sets us apart is the level of initial discovery we conduct with clients. We really feel that it is critical to understand all of the facts and attitudes associated with a family’s financial story. Many couples, for example, are not on the same page regarding their feelings about money when they initially consult with us. We can help develop a plan that can make those financial discussions easier and more productive.

Here is what I tell clients: “The focus is on you—what you are trying to accomplish individually and as a couple and family. I want to understand your feelings and past experiences with money, household finances, interactions with financial institutions, investing, and how you view the world around you. I want to help you establish a plan and then succeed at what you are trying to accomplish today, 10 and 20 years from now, and after you leave this earth.”

“My passion is listening to clients and translating their wants, needs, and values into a plan that builds and preserves their wealth over their lifetime.”

Talk about the investment piece of the process.

That, of course, is an integral part of the plan. It also goes back to determining a client’s or client couple’s attitude about risk. Is it important to them that some part of their retirement income stream be guaranteed? Once we look at all of the potential sources of income in retirement and make the appropriate assumptions for them in the planning model, there could be several ways to generate any additional income they will need. Some clients will not sleep at night if they do not know their basic retirement needs are covered and guaranteed to the degree possible. For those people, some form of an annuity might be appropriate.

 

The key for everyone we work with is determining a bucket approach involving strategies, time frames, and tax implications. Let me give one simple example: If a relatively high-net-worth couple will be more than able to cover their retirement income needs and have significant assets left over, our approach to investing that money will likely be very different from investing money that would have to help fund income needs. It will likely be designated for their legacy planning, have a longer time horizon, and could be invested somewhat more aggressively.

For most clients, there will be a middle ground, both in terms of their outlook on risk and a well-diversified approach to investment planning. Equity investments, we all have to acknowledge, have historically been the best place to achieve adequate returns over longer time frames. That is especially true in this low-interest-rate environment. The key is finding a way to manage risk in the markets as much as possible for clients. Risk needs to be carefully controlled and monitored—first through the asset-allocation process and then via different investment strategies.

How do you implement that risk management for clients?

One conversation that I’m having with clients more and more now is this: “You need a longevity plan. With the length of time people are living, it’s not just a retirement plan anymore.” So, we need to use our planning process and model to establish a reasonable rate of return that will help clients meet their objectives—and then select the strategies that should accomplish that within their risk tolerance. It might be a blend of active and passive strategies on the equity side, in addition to the non-equity strategies we could recommend.

On the equity side, I determined a long time ago that I am not an expert on actual portfolio management, nor do I have the time or desire to be one. That is where our selection of third-party money managers becomes an important element of the overall investment-planning process and in managing investment risk. They are the experts whose sole responsibility is managing client money. They have the resources, staff, and models to do this effectively. They will never be right on all of their portfolio moves, but I have a high degree of confidence in their overall capabilities.

Roughly 80% of our client equity money is actively managed, and we utilize several different managers and platforms for that. One key shared attribute of all of our managers is the strong element of risk management in their strategies. In addition, I consider three key things in selecting managers: What is their investment philosophy? How long have they been managing money? What is their track record of performance, especially in down markets?

Can you share a client experience that you find motivating?

It is fascinating to me what we are seeing with some of our younger clients. They tend to be more risk-averse than many of our older clients. When I think about what they have witnessed in the last two decades in the equity markets, it really should not be a surprise. If you throw in the difficulties they have seen in the economy, the job market, getting their careers and lives on track, and possibly carrying significant student loan debt, I think their concerns are understandable.

That is where I think our process of exploring a client’s relationship with money is extremely valuable. We will work with these younger clients to thoroughly address their anxieties. We may be able to help them see how investments can be managed with an emphasis on risk mitigation—where one does not have to feel totally at the mercy of the roller-coaster nature of the markets. I find that making that personal connection and then providing solutions is one of the most gratifying aspects of our business.