If you ask a room full of financial advisors who their toughest competition is, you will get the usual list—low-cost robo-platforms, insurance salesmen calling themselves financial advisors, and the unlicensed TikToker with the whiteboard and perfect hair.
But to determine who the biggest competition is, you must explain what you are competing for in the first place. In my industry, money management, often we are jockeying for size—the bigger the firm, the more revenue to retain and attract employees, expand service lines, and expand geographically. The industry often measures size by way of “assets under management,” or “AUM.” AUM is the aggregate value of all the client portfolios managed. AUM grows (or shrinks) when portfolio values increase (or decline).
At Berkshire Money Management (BMM), we joke that our biggest competition is not any from the usual list. Our biggest competition is our own clients. This is especially true for retired households that have moved from the accumulation phase to the withdrawal phase, when they determine how to withdraw cash from their portfolios to replace their paychecks in the most tax-efficient way.
And why does that matter to you? Because many people—especially retirees—are better hoarders than spenders. Somewhere along the way, the retirement account became more of a scoreboard or security blanket than the tool it is supposed to be. I get that—when your whole adult life has been spent measuring progress by how big that number is, it is no small thing to start making it smaller on purpose. That is the paradox: The very habits that got you to financial independence can make it emotionally hard to enjoy financial freedom. For you to live your best life, a life of financial freedom, it might help you to know that you can write some big checks. (The right checks, of course.)
Obviously, first consult your financial advisor and/or run your own financial plan using sophisticated planning software, such as MoneyGuide or eMoney. You might be able to spend a lot more than you have been. But who wants to spend money for the sake of doing so when you delight in the feeling of safety from holding onto it? Well, first, with that financial plan, you can determine what you can spend—or lose—and still feel safe that you will not run out of money in retirement.
Second, think of your retirement as a tool, not a collectible. Even if, at first, it is hard to spend on yourself, you can use the money to help people you love. What do you think might make you feel more useful and delighted: dying and leaving your heirs an inheritance when they are too old to enjoy it or give it to them now so they can build a house for your grandkids, start a business, or have the honeymoon they never had? Or maybe you, God forbid, spend some money on yourself! (Sarcasm.)
So, yes, the higher the assets under management, the more “successful” a firm like mine might be considered. (That is not an excuse for BMM being a small Registered Investment Advisor; we are comfortably above average by size.) But who cares about size?
Success might be different from what you have thought all along
The point is not really about size or competition, anyhow; it is about reframing success. Just as a firm like mine should measure its success not by its size but by what it can do for its clients (increasing spending or otherwise), you may want to consider reframing your success away from the size of your portfolio toward the happiness you create and the value you deliver by spending it.
When we talk about spending, we are not just talking about “Can I afford this?” spreadsheets. We are talking about long-held beliefs about what responsible people do, about not wanting to be a cautionary tale, about the quiet pride that comes from being the one who never needed help.
Over the decades, I have noticed something else. The spending that people hesitate about the most is rarely the meaningless, forgettable stuff. It is not the daily latte that keeps them awake at night (figuratively and literally). It is the big, meaningful things, like helping a child start a business, taking a three-generation family trip while everyone is healthy enough to enjoy it, and giving more generously to a cause that matters to them.
But let’s be honest: None of that matters if you are secretly convinced that every dollar spent today is a dollar you will desperately need at age 85. That is where planning comes in. I am not trying to push financial planning. I recognize I am biased because I see its value every day. However, I am trying to push you to spend more, and you may not get there if you do not understand how well positioned you might remain under different negative shocks (job loss, inflation, market crash, medical emergency) or positive outcomes (buy that second house, or give money to charity) that reduce your portfolio’s size.
Only after you have abused the plan a little bit can you come back and say, “OK, here’s what happens if I help my child now. Here’s what happens if we redo the kitchen. Here’s what happens if you and your sister take that trip to Italy you’ve talked about for 20 years.” Sometimes the answer is: “Yes, you can do all of that and still have a large cushion.” Sometimes the answer is: “You can do it, but we’ll want to trim back in this other area to keep things safe.” Occasionally, the answer is: “Not like that, but here’s a smaller version that works.” But it is permission to spend, because there is clarity in the financial outcome.
Spending now does not automatically mean running out later. Responsible spending is built into a good plan. If your plan does not include enjoying your money, I would argue it is not a very good plan.
Here is the funny part: Berkshire Money Management’s AUM has been growing. From a strict, cold business perspective, that is a little absurd. We measure our firm by assets under management, and we encourage our clients to withdraw portions of those assets to live better lives.
But I believe that is, in part, why people refer their friends to BMM, which replenishes our AUM. Or it is one of the reasons why clients’ children, who watch all this happen, end up calling us when they get their first big promotion or inherit money. We are actively encouraging their parents to use their money to create memories, buy back time, and make life more livable.
BMM is “shrinking” on purpose in one sense and growing because of it in another. That is not a marketing slogan; I am not trying to promote BMM—this does not make us unique. The point is, BMM’s clients will often refer new clients to us, in part, because we helped them spend. That is evidence that people are enjoying their financial lives by spending rather than hoarding and that their friends want permission to do the same. And if that is making people happy, it might make you happy to get to the point where you can say, “I am going to use this money to enjoy my life, and I’m not going to lie awake at 3 a.m. worrying about it.” Getting there is hard work; it is emotional work as much as financial. The first step is recognizing that you can view retirement differently.
Otherwise, you risk winning the wrong game. You can “win” at your own game of having the largest investment portfolio and still lose out on the experiences, relationships, and peace of mind that the money was supposed to make possible. That seems like a tragic trade. Do not spend it foolishly; you do not want to outlive your money. But also, do not carry around the goal of dying with the thickest wallet.
Oh, what is BMM’s second biggest competition? Roth IRA Conversions. Roth IRA conversions are among the most effective tax tools to reduce an investor’s lifetime tax burden. However, it initially reduces portfolio value. By no means is it a tax-reduction strategy exclusive to BMM—you can do it yourself or have your financial advisor do it for you (pro-tip: in either case, consider converting amounts that keep your income-related monthly adjustment amount, IRMMA, in check). I will write more about this in the future for you and your financial advisor to discuss. But for now, the two of you can develop a plan for your family to spend a whole lot in a way that you don’t run out of money in retirement.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $1 billion of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representation that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
