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This is a glaring omission for both the client's quality of life and portfolio growth. The average client might spend half of his or her waking time at work, which makes his or her career hugely relevant to the quality of life and personal satisfaction that are addressed by the life planning movement. And if you consider a client's career as an asset--as I do--you know that it generates a huge percentage of a client's net worth, which clearly pertains to portfolio management.
If the profession could create tools and procedures to help clients manage their careers, we would add significant value by:
- increasing the client's potential income;
- optimizing the client's work/life balance and quality-of-life issues; and
- extending the life cycle of the career asset.
Indeed, if a client's career can be considered one of his or her most valuable personal and financial assets, then career asset management could become an important service for planners to offer. Among other things, it could help us distinguish our brand in a world in which asset management, retirement analysis and tax preparation are increasingly viewed as commodities.
BINARY APPROACH
How would a traditional planning engagement expand to address career management? By default, the traditional financial planning process views clients' careers as static, and takes a binary approach to evaluating their work lives: Clients either work or retire. In the real world, however, there is a complex and dynamic continuum between not working at all and full-time employment.
For example, say your client's most pressing concern is to retire immediately, or soon thereafter. He finds his job stressful and feels he has a serious work/life imbalance. Planner A, following the traditional model, focuses on retirement projection and portfolio issues to help the client retire at age 60--and ignores career management. Planner B encourages the client to explore alternatives to retirement that could optimize the quantitative and qualitative advantages of his career.
Let's assume that, at the time of the initial visit, this individual has peak wages of $150,000, and that Planner B is able to help him negotiate a less stressful employment arrangement. For three years he will work 75% of his former hours and earn 75% of his peak income; the next three years, 60%, then two more years at 40%.
Under Planner B's guidance, the client will be work for eight additional years, retire gradually and enjoy increasing amounts of free time. After you subtract out an average income and employment tax rate of 40% and assume a 6% discount rate, the net present value of those eight years of income is $348,150. If the client's investment portfolio at the time of the first visit is $1 million, Planner B's advice will increase the client's net worth by approximately 33%.
This, of course, is not a total accounting: The value of an extended career also includes employee benefits, plus increased pension and Social Security accruals. Nor do the numbers account for intangibles such as the ability to maintain social interaction and self-actualization through work.
How feasible is this scenario? Consider the impact that demographic changes are having on the job market, and you'll see how well it can work. The primary group of working-age adults, 25- to 54-year-olds, is projected to decline from 70.2% of the labor force in 2002 to 65.9% by 2012. Meanwhile, the number of workers who are 55 and older is projected to increase from 14.3% of the labor forcet o 19.1%. From 2002 to 2012, the Bureau of Labor Statistics (BLS) projects that the number of new jobs will increase by 15%, and 97% of them will be in service industries. Career and life experience have greater value in an intellectual economy than they do in a manual labor or manufacturing economy. Companies will need to retain their experienced employees to fill the population gap in the next generation.
Moreover, project-based employment is replacing career-long jobs. One BLS study projects that workers entering the work force today are looking at more than nine job changes during their career. Just as capital needs to be quickly redeployed in response to new opportunities, human capital needs to be adaptable to rapid change. But few workers can easily plot out increasingly complex careers or evaluate potential improvements in their work/life fit.
THE METRICS
The first goal of any new career asset management service would be to create a quantifiable model to measure results. A career's value has two components: Career Financial Value (CFV) and Career Qualitative Value (CQV). We should view these separately and holistically in devising a metric for Total Career Value (TCV).
The CFV formula measures the quantitative values of the client's career and affects the financial component of career satisfaction. Wages and employee benefits have positive values (PV) or correlation to satisfaction because as these increase, so does career satisfaction (to a degree). But the costs of employment (see below) have negative value because they decrease net wages:
CFV = (PV of Wages + PV of Benefits) (PV of Employment Costs)
In this equation, wages include salary, bonuses and other reimbursement. Benefits are comprised of employee benefits (pension, health and welfare, etc.) plus government benefits (Social Security, Medicare, etc.). Employment Costs include taxes, transportation, child or family care, tools and supplies, education and training, plus miscellaneous related costs (clothing, meals, entertainment, networking, etc.).
The CQV, meanwhile, would be defined as the sum of:
- Career Knowledge Value
- Experience/Maturity/Wisdom
- Connections
- Job Satisfaction Value
- Family Value
- Self-actualization
Each of these components relates to a well-documented challenge that retirees often don't realize they'll face when they leave the work force. Knowledge Value often declines over time as relevant job skills change. (This is most evident in high-tech industries, in which change occurs so rapidly that relevant job skills from just a few years ago have reduced value today.) Likewise, people may lose the wisdom gained from solving problems and handling the daily demands of work. This loss can, of course, be mitigated if the client replaces working with other challenging pursuits.
Connections represent the interpersonal relationships that everyone needs to feel grounded in the world. Someone used to being the go-to person at work may suddenly feel disconnected and less fulfilled. Job satisfaction value measures the intrinsic rewards of a job, such as feelings of accomplishment. Also included is satisfaction with relationships with colleagues and mangers, and feelings of appreciation and respect from the organization. Self-employed people substitute opportunity and achievement for this organizational respect and appreciation.
Family Value addresses the fact that the way work fits with family life is a determinant of job satisfaction. Self-actualization, or the realization of one's full potential, is the highest level of achievement on psychologist Abraham Maslow's hierarchy of human needs.
Of course, most advisors will recognize that the comparative importance of each element of CQV will vary from client to client. Some clients derive more job satisfaction from relationships with coworkers, whereas others place more value on independence and achievement. The appropriate measuring device for determining CQVs is a subjective well-being (SWB) questionnaire. SWB questionnaires have been extensively researched and effectively used to measure job satisfaction. They can also be used with clients to measure qualitative changes over time. (Two studies demonstrating the use of SWB questions in measuring job satisfaction are Well-being at Work: A Cross-National Analysis of the Levels and Determinants of Job Satisfaction, by Alfonso Sousa-Poza and Andres Sousa-Poza, and Job Satisfaction of Recent Graduates in Financial Services, by Sharon DeVaney and Zhan Chenand.)
TOTAL CAREER VALUE
Once the advisor has evaluated the CQV, then the Total Career Value (TCV) formula can be applied for both discrete and absolute time periods with minimal modification:
Total Career Value (TCV) = CFV (Quantitative) + CQV (Qualitative)
Using the career value formulas to measure the performance of a client's career should be both relative and absolute--relative in comparison with similar job descriptions, and absolute as it relates to personal and family goals. This, of course, provides an evaluative tracking mechanism as well as a way to help a client recognize the importance of career management--and is a necessary first step toward adding these services to the financial planning menu.
Michael Haubrich, CFP, is president of Financial Service Group, a fee-only financial and investment advisory firm in Racine, Wis.
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