New Financial Planning Tool Positions Planners to Serve Client Needs in

Drastically Changing Demographic, Employment and Retirement Landscape

Introducing the Career Asset Management Model

          Unprecedented changes in demographic, employment and retirement trends are leading to the emergence of a new asset class, the “career.”  In creating a truly holistic financial plan, planners should expand the traditional view of asset classes to include career.  Like traditional asset classes of cash, stocks, bonds, and real estate, the career asset class represents the opportunity for clients to acquire additional financial assets.  It also offers planners the opportunity to significantly add value by increasing client’s potential income, optimizing work/life fit, and extending the life cycle of the career asset. 

 We view the career as the sum total of a client’s time, talent and potential.  The traditional financial planning process views clients’ careers as static and doesn’t offer a process for change outside an all or nothing approach: work or retire.  

Planners often work with clients who are looking at retirement as the escape hatch to a career not fitting within their life goals and objectives. Both planners and clients typically view the outcome as work or retire rather than exploring ways to achieve work/life fit that is suited to clients’ situations.   By viewing career as an asset, financial planners can explore the alternatives on the continuum between not working at all and full-time work until retirement. These alternatives represent the opportunity to optimize the clients’ career and extend the life-cycle of that asset.

With proper tools, expert partners and guidance from a planner equipped to view career as an asset, clients can explore alternatives to retirement that could allow them to continue to optimize both the quantitative and qualitative values of their career asset.

Consider a client with peak wages of $150,000 who abruptly retires at age 60 instead of extending the career asset for an additional eight years – the first three years at 75 percent work time (and income), the next three years at 60 percent, and last two at 40 percent.  Assuming an average income and employment tax rate of 40 percent and a six percent discount rate, the net present value of that increased income stream is $348,150.

The example over simplifies the situation given that income is the only consideration taken into account. Other quantifiable measures of the value of the career asset including employee benefits, increased pension, and Social Security benefit accruals would also be considered.  Additionally, there are qualitative (non-financial) factors, such as job satisfaction and social interaction that would be measured.

Technology and a 24/7 global economy is changing how, when, and the way work is done.  Employee attraction/retention are going to be critical management imperatives with the U.S. Labor Department’s “quit rate” reaching a four-year high,  growing concern in the human resource profession about the increasing number of voluntary resignations, and 76 million Baby Boomers -- the oldest of who turn 60 this year, approaching retirement.  Recognizing these trends presents financial planners with the opportunity to serve as change agents in helping clients optimize and extend their career asset to best fit their work/life and financial objectives.

Financial fear is the most significant roadblock to clients making changes to improve their work/life fit and career optimization.  Career optimization is the process of increasing the career asset value.  The Career Asset Management Model (CAMM)™[i] is a new tool planners can use to facilitate discussion and change in their clients’ work/life fit and ensure continued career asset optimization.

Comparing a career to a rental property helps explain career optimization.  If deferred maintenance (career skill set) along with a destructive tenant (employer or negative work/life fit) are allowed to continue over time, the property (career) will decline in value, the ability to increase rents (maximize skills) will be reduced and the useful life (time to retirement) is diminished.  The net present value of this mismanaged asset (career) is minimized.  By evicting the destructive tenant (adjusting the negative work/life fit factors) and rehabbing the property (learning/applying new skills or changing jobs), future cash flow potential is increased along with the useful life and net present value being maximized (career optimization). 

Estimating Total Career Value

We consider two formulas when estimating career value, the Career Financial Value(CFV) (quantitative) and the Career Qualitative Value.  The sum of these equals the Total Career Value (TCV).  Using these metrics provides a baseline for career value estimation and optimization.

The CFV formula measures the quantitative values of the career asset in financial terms. Wages and employee benefits have a positive value.  Employment costs have a negative value because they decrease wages or take home pay.

The Career Qualitative Value represents those non-quantifiable factors that could enhance or diminish the value of the career asset.   For example, Knowledge declines over time as relevant job skills change.  Clients may find satisfaction in knowing they are on the cutting edge of their industry but experience dissatisfaction when their skills become less relevant, which results in a decline in present value.  And, Connections represent the interpersonal relationships experienced in team work, informal information sharing and networking activities. 

 The comparative importance of each Career Qualitative Value factor varies by client.  Some find more job satisfaction from relationships with co-workers while others may value work independence and achievement as a more important value.

A subjective well-being (SWB) questionnaire is a good method for determining Career Qualitative Values is a.  SWB questionnaires have been extensively researched and effectively used to measure factors related to job satisfaction and can be used with clients for establishing a baseline to measure qualitative changes (positive or negative) over time. 

CAMM Follows the Financial Planning Model

Adding Career Asset Management to the financial planning process is a natural fit as long as the planner is following the six steps of the financial planning process (establishing client-planner relationship, discovery, analysis of current state, developing the plan, implementation, and ongoing monitor and review). The Career Asset Management Model (CAMM) runs parallel to the financial planning process.  

Career Asset Management Model (CAMM)

Just as planners coordinate the services of other providers such as attorneys, accountants, and real estate agents to develop and implement the financial plan, so should planners have similar relationships with career counselors or coaches when offering Career Asset Management services.  Adding Career Asset Management is just extending each financial planning step to include the corresponding step under CAMM. 

The Career Asset Management Model offers financial planners a new tool to significantly enhance the value of the financial planning process and client/planner relationship. Looking to demographic and employment trends of the future, the Career Asset Management Model positions financial planners to respond to unprecedented client needs.  As demonstrated in a variety of case studies, the Career Asset Management Model serves as a logical extension to traditional planner/client engagements and serves as a structured process for ensuring that the value of the career asset is optimized.