After more than 30 years in the business, Michael Haubrich manages $110 million in assets - a small sum compared with the billions managed by his peers. But that's just fine with him. As it turns out, many of his 150 clients don't have even a dime of assets under management with his firm, Financial Service Group of Racine, Wis. - instead, they pay him a yearly retainer that begins at $5,000 and varies with the complexity of their needs.
Haubrich's clientele includes people with large incomes from careers in entertainment or private businesses, but few investable assets. The firm also attracts engineers, who often like to delegate rather than do everything themselves.
"While most firms are out looking for the golden egg, our firm is looking toward the goose," he says. If the eggs are assets, the goose is the client's earning power. Haubrich sends away clients who aren't a good fit, generally selecting those with between $1 million to $5 million in net worth.
Haubrich views a client's career as an asset class. A technique he relies on, which he calls Career Asset Management, combines insights from career coaches with financial planning. (The Certified Financial Planner Board of Standards has approved Career Asset Management for continuing education credits.)
The firm uses certified career coaches with at least five years of experience, who are evaluated yearly. Haubrich works with each client who will be paired with a coach to find the best fit.
"I do more than refer out to career coaches," he says. "I get their assessments and benchmarks, along with the future needs for career development."
To properly diversify a portfolio, Haubrich says a planner must consider how often a client changes jobs and how much his or her income fluctuates, as well as the possibility for income growth. For example, a schoolteacher's bond-like steady career might mean he needs to more heavily invest in stocks. A contract software developer with an equitylike career should consider buying more bonds.
Based in part on recommendations from the career coaches, Haubrich counsels clients to establish what he calls a Career Asset Working Capital Fund that's separate from emergency cash reserves. The money can be used to maintain and develop job skills for a longer working life, fill in gaps after a pay cut or help pay for a leave from the workplace. "Investing in our careers may be one of the best investments to make right now," he says.
Avoid Early Retirement
One of the biggest mistakes Haubrich notices among his clients is the tendency to view early retirement as the solution to a draining job. He asks all clients nearing retirement age to read the first 50 pages of Mitch Anthony's The New Retirementality, which recommends phasing in changes -- working less hours or finding a less stressful position - rather than leaving of the workforce.
One client, a 52-year-old chemical engineer named Mark, was desperate to escape corporate politics and a steady increase in responsibilities that he felt was compromising his performance. He and his wife had enough saved to retire together within five years. But he loved engineering and wasn't looking forward to more leisure.
Haubrich studied his situation in part with an analytical tool called the Capital Asset Management Model, which includes six steps parallel to the College for Financial Planning's overall financial planning process. Mark's $90,000 salary and his benefits worth $25,000, minus yearly costs (taxes, transportation, clothing, education and training) of $34,650 produced a net income of $80,350.
He would earn this net income every year during years six through 10 if he worked an additional 10 years instead of retiring in five. Haubrich showed him the immediate present value of this future income stream -akin to getting a lump sum now -by discounting the future cash flow. Using a 6% discount rate, the future extra earnings would now be valued at $268,000.
The projection assumed no increase in compensation, allowing Mark to slow down as he grew older. As it turned out, Mark was able to negotiate a position more to his liking, and the firm didn't ask for a paycut. His wife liked her job as a teacher and kept working.
Consider the details of this couple: The husband is a 51-year-old tenured college professor and his wife, 50, has a PhD in nutrition and is the director of a county agency. They have two children: a 21-year-old son in his third year of college and a daughter in high school. They live well within their combined annual income of $135,000.
The woman's job paid $50,000 a year plus benefits. She was working 50 hours a week not including time for meetings and some travel. Her job was keeping her from spending time with her mother, who has dementia and is living in an assisted living facility, as well as her daughter, who's set to head off to college in two years.
The woman felt that she needed to work for the money, even though the couple had prepaid for college costs and had a net worth of around $1 million. She was also expecting a significant inheritance.
Haubrich recommended the woman take an 18- to 24-month sabbatical so that she could focus on family while exploring jobs that might not be as demanding. He had to show her that she would be secure financially - even if she opted to not return to work after the sabbatical.
He prepared financial projections that demonstrated with a high degree of certainty that she did not need her income to accomplish her personal and family goals. He also had to address a psychological roadblock; much of her identity was based on her career.
To do this, he defined her sabbatical as career development, arranging investments that provided a monthly distribution equal to after-tax income from her job. This "paycheck" supported her self-worth.
Her new job was to prepare for her next career - and for that she was being compensated. The planned cost of her sabbatical was 24 months of monthly distributions of $3,000, plus education and training costs of another $10,000 to $15,000, for a total investment of about $90,000.
The woman is now teaching part-time as an adjunct at a nearby college while training for a new position in health care. She anticipates her new work will be more flexible and project-based.
Along with his quantitative model, Haubrich recently discovered a way of evaluating career satisfaction. He encourages all clients to read Well Being: The Five Essential Elements by Tom Rath and Jim Harter, who argue that career satisfaction is the single most important factor in anyone's well-being. The authors consulted a mass of Gallup data from 150 countries based on what the authors describe as "the best questions asked over the last 50 years."
As services like retirement planning and tax preparation become more routine, adding career planning to your mix could be a valuable move.
Jim Grote, a CFP in Louisville, Ky., writes regularly for Financial Planning.