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As a confident 12-year-old, being driven to my first day of school in sixth grade, I was feeling pretty excited and confident. My father saw me in the rearview mirror and asked me a “simple” math question while driving on the way:
2 + 2 x 2 = ?
Take a moment and look at that “simple” math problem—and I want you to come to an answer in your head. How many think the answer is 8? How many think the answer is 6?
I did the math, left to right: 2 plus 2 is 4, then multiplied by 2. “The answer is 8!” I proudly told him.
He looked at me sideways and asked, “Hmm, are you sure?”
What I later learned that year in school was that my answer, 8, was completely wrong.
PEMDAS is an acronym that means parenthesis, exponent, multiplication, division, addition, subtraction.
To solve this math problem correctly, you must know the order of operations, or PEMDAS, which is a rule in math that teaches us what must be done first, second, and so on.
In this case, it tells us to do multiplication before addition. If you don’t do it in the right order, you will get the wrong answer.
2 + 2 x 2 = 6
2 + 4 = 6
If I had shown up on stage, smiling, with my underwear outside of my pants, you would probably think I was some kind of crazy. But how do we make sure that our clients are not financially wearing their underwear outside of their pants?
Clients have many financial priorities: to build savings, pay off student loans, get disability insurance, invest for retirement, write a will, pay off mortgage, get life insurance, save for child’s education, buy real estate. Clients have many important priorities when we first meet them—some don’t know where to begin, and others may want to begin in the wrong place.
Now I challenge you to take five seconds and think to yourself, What would be the first one or two items I discuss with my client—and why?
Now that you’ve thought about what you would want to cover first, let me provide you with the golden answer—and guess what? The very same PEMDAS mnemonic device can be brought into our world of financial advising. How convenient!
In addition to describing the financial order of operations, I will share some questions I would be comfortable asking clients so that you can hear some of the language I use.
Here is PEMDAS for financial advising.
P stands for Protection. This consists of the insurances and legal documents that protect one’s assets, income, and loved ones from something that, in theory, could go wrong tomorrow. “Mr. Client, why do you think these items should be the first things that we cover, rather than some of the other financial topics on your radar?”
E stands for Emergency Fund. It is crucial for us to make sure every family has enough money in the bank, or short-term liquidity, in the event of unexpected life events such as a job loss, automobile or home disrepair, or even a trip to the vet with the family dog or cat. “Mrs. Client, why do you think this step must be completed before we aggressively pay down debt or save for retirement?”
Monthly Cash Flow Management
M stands for Monthly Cash Flow Management. How our clients organize their bank accounts, swipe their cards, and set up (or don’t set up!) automatic transfers must be optimized. “Mr. Client, wouldn’t you want to ensure that, in your life, none of your dollars are falling through the cracks and, instead, that you had a system to make saving, spending, and paying bills happen very easily?”
D stands for Debt Paydown. So many individuals and families define financial success as being debt-free, and while, of course, we will agree that having high interest loans or high monthly required payments is toxic, we by no means believe that a 20 percent interest credit card debt should be treated the same as a 4 percent fixed rate mortgage. “Mrs. Client, would you agree that true financial freedom is more than just being debt-free?”
A stands for Asset Optimization. Hey, advisors! This is the sexy part (step 5!) that we always like jumping to right away (step 1!), where we help our clients grow their investments and retirement income, rather than talking about protection and the basics. “Mr. Client, how would you feel knowing that you are saving the right amount into the right places to receive the most benefits?”
Finally, S stands for Succession Planning. When advisors properly team up with estate planning attorneys, our clients are able to optimize their legacy by limiting the government’s access to assets that pass to the next generation. “Mrs. Client, when all is said and done, wouldn’t it be great to know that when you are not here anymore, what you wanted to happen will happen?”
Let’s go help more families experience financial freedom!
The families we interact with rely on us to help them be financially successful. I ask you to join me in proudly accepting this responsibility to provide plans for clients that can withstand the test of time. Let’s go help more families experience financial freedom by doing things in the right order!
Dimitry Neyshtadt, ChFC, is a four-year MDRT member who has been known in his community as the financial advisor for hard-working young professionals and growing families for nine years. He was awarded the “4 Under 40” award by NAIFA–Massachusetts in 2014, and “Associate of the Year” by his general agency in 2015.