Everyone has heard of Maslow’s Hierarchy of Needs, the psychological theory about what motivates us in life. At the bottom of the pyramid are basic human needs like food, water and shelter, which most people have. At the top of the pyramid is self-actualization, or achieving one’s full potential. Unfortunately, few people achieve this end in life. Attorneys no doubt have the ability to scale up Maslow’s pyramid. But many are foiled by the high-stress, high-burnout nature of the profession. While many turn to career planning as an answer, less well understood and practiced is how financial goal-setting can not only create a clearer career trajectory, but help lead to a self-actualized life.
How can financial goal-setting help an attorney with career planning?
Simply put, the act of visualizing and costing out your life goals better ensures that a career can support and sustain the quality of life those goals are designed to achieve. When life goals are known—e.g., retiring early, pursuing an advanced degree, fully funding a 529 plan—they become valuable inputs for a financial plan, one that provides a client with annualized savings targets based on his/her risk profile and a reasonable time horizon. A well-designed financial plan helps make abstract notions of ‘career’ and ‘lifestyle’ less daunting and more actionable. Clients tell me they also create the kind of clarity and discipline needed to make critical decisions to advance, change or sustain a career.
Is financial goal-setting the norm in investing?
Yes and no. Financial goal-setting, widely known as “goals-based investing,” is a growing trend in the investment world, although it’s been practiced for at least 20 years. Goals-based investing measures success as progress toward well-defined, documented goals and priorities in life. This differs from the passive asset allocation framework that pigeonholes investors by their capacity for risk and perpetually seeks an ever-higher market return. The problem with this approach is that investors are rarely satisfied because, on a historical basis, chasing market highs and reacting to market volatility makes for poor investment outcomes.
Would paying down law school debt prevent a new associate from doing goals-based investing?
Not at all—and it arguably may be more important in this context. Debt hobbles wealth creation, but it doesn’t prevent it. If debt elimination is a goal, a financial plan can be designed to seek a rate of return in a class of investments that can help help pay off debt more quickly. Additionally, budgeting and earmarking monies for debt service through, for example, automatic deduction can help avoid unwise spending decisions that outpace an individual’s disposable income. It’s not unrealistic for a new attorney to service debt while, at the same time, working toward his/her financial goals.
Do you find that the goals-based investment approach works well with your attorney clients?
Yes. The practicing attorneys who I work with are high-income earners who have a scarcity of time. Many of my clients have found that the goals-based approach leads to greater peace of mind about their futures so they can devote their energies to their careers and their families. They also are better insulated to market volatility because their measure of success is progress toward goals. Some of my clients also tell me they are better able to execute on job and career decisions—e.g., what kind of raises and/or bonuses to seek out, whether going back to school is important, where to live—because they understand how those decisions will impact the future they’ve envisioned.
What typically is the first step in the process for your clients?
The first step is the most important: visualizing long-term goals and, overall, the kind of lifestyle you want for yourself and your family. This process is as simple as writing your goals down on paper and revisiting them to see if your feelings changed. While it sounds intuitive, it’s incredible important. A widely cited Harvard Business School study that found that only 3% of one of its graduating class had both written goals and concrete plans to achieve them. In 10 years, those 3% of graduates were making ten times as much as the rest of the 97% of the class.
Once these goals are known, defined and embraced, an investment strategy and accompanying financial plan are developed. From there on, a good advisor will work with his/her client to revisit goals at least annually to respond to changes in the capital markets, adjust the plan for changing circumstances (e.g., a new member of the family), ensure the portfolio remains diversified and recommend potential opportunities.
Do attorneys need a financial advisor to help achieve their goals?
Ultimately, it comes down to an individual investor’s choice. Some individual investors who also have time-intensive jobs, like attorneys, do well in the market. Additionally, digital investment services that provide automated, algorithm-driven financial advice with little to no human supervision, known as “robo-advisors,” are coming on to the scene in greater numbers and may be right for some investors. But since an individual’s relationship with his/her money can be a complex one and often driven by emotions, a good financial advisor will be honest with clients, help them articulate goals and counsel them to make ongoing course corrections. Taking it a step further, a good advisor will serve as a hedge against bad client investment decisions. This last point can’t be overstated enough. A growing field of investing that I believe in is behavioral finance—how emotion and psychology influence our investment decisions causing us, at times, to behave in unpredictable or irrational ways. Thanks to pioneering research by University of Chicago economist Richard Thaler, who won a Nobel Prize in October for his work, the field is becoming more mainstream.
What if an attorney is considering a career change (e.g., becoming a nonprofit attorney) that comes with diminished earning power? How would that impact their ability to reach their financial goals?
Career change is an excellent example of a known event to plan for financially. Depending on current savings, projected income and income-generating assets, the time horizon may not change to reach some life goals. For those seriously considering it, their financial advisor should be part of the conversation. For a client who decided to change careers from law to teaching, my team developed an analysis of financial scenarios the career change would create to help address the “what ifs” (e.g., reduced income, in some cases, may translate to pushing out a retirement date). Above all else, an individual considering a career change must resist the temptation to cash out a retirement plan or suspending contributions to make up for reduced income cash flow.
What characteristics do your best clients have in common?
My best clients, attorneys included, share one or both of these characteristics: they practice financial discipline and they love what they do.
Many attorneys I know aspire to make partner at their firms. But, as they get promotions, bonuses and other financial incentives, many ramp-up their lifestyles, often without forethought about how the changes in their lifestyles impact their savings and investments. Owning a beach home, for example, may not be a good trade-off for retirement security since a second home often increases fixed costs without having a net positive value. The takeaway here is not to stop enjoying the fruits of your labor, but to keep saving and spending in line with a household income and within the context of a long-term financial plan.
Second and most importantly, there is no substitute for professional passion. I find that my clients who love what they do and are good at it tend to find ways to realize their goals—whether they are about your career, investments, life or otherwise.
In the end, I think this all comes down to a simple quote by Johann von Goethe: “Thinking is easy, acting is difficult, and to put one’s thoughts into action is the most difficult thing in the world.” While difficult, managing a career according to one’s goals in life is entirely actionable. Once acted upon, you realize that financial well-being and a self-actualized life are far more achievable than previously imagined.
Ben Klein is a managing director and wealth management advisor at Merrill Lynch, with more than 20 years experience in the financial services industry. He can be contacted at 847-564-7139 or at benjamin_klein@ml.com.