The importance of sound financial planning and strategies and the relevance of registered investment advisors aren’t confined to a prospective client’s age or stage in life. However, if there was a constituency of clients or potential clients that almost certainly need an advisors, it’s new parents.
That’s not to say new parents are more important than any client group. Ideally, advisors treat all clients the same. Still, new parents are a potentially compelling group for advisors because they’re likely to be receptive to quality financial advice and planning because they have a slew of new near- and long-term financial obligations to contend with.
In an ideal world, existing clients that are in the process of family planning apprise advisors of that fact, perhaps even doing so before conception and repeating that process across multiple births, if relevant. After all, being proactive before the game start is easier than playing catch up after a baby arrives.
Fortunately, some of the to-do items for expecting and new parents are easy to accomplish. Part of the secret for those clients is realizing checking those boxes even easier with the help of an advisors.
Insurance and Savings Considerations
One important tip for new parent is increasing the size of the family emergency fund, which is self-explanatory. Advisors should ask expecting clients if they have such a fund and if the answer is “no,” impart upon them the need to rectify that situation sooner than later.
With that action item out of the way, insurance – both disability and life – should be high atop the list of financial items for new parents. Disability insurance is a worthy topic of conversation because it’s possible that at some point in the future, one or both parents could be out of work for extended periods due to illness or injury. Life insurance is equally as important.
“Life insurance can help protect your growing family by making sure that financial resources are available to them if you're no longer there, while also providing peace of mind for your partner and loved ones while you're alive,” according to Charles Schwab research. “The payout from a policy could potentially cover things you'd like your survivors to have, such as a paid-off mortgage, school tuition, or a future wedding for your child.”
Other savings-related tips, important ones at that, include helping clients stay on track when it comes to retirement planning while getting a leg up on saving for college. Too often, clients see these as competing pursuits. Advisors can help them see otherwise.
It’s stating the obvious, but many clients aren’t experts in tax rules. Nor do they want to be, but taxes are one of the big reasons why clients become clients in the first place.
Specific to parenthood, there’s a plethora of related tax benefits clients may not be aware of. Advisors can add significant value by illuminating clients to those perks, some of which are mentioned below.
“For many working parents, childcare can be as expensive as a second car payment or mortgage. Tax breaks can help—at least a little bit. In 2023, if you meet certain criteria, the Child and Dependent Care Credit can cover up to 35% of eligible expenses, depending on your income. However, the maximum credit is $1,050 for one child and $2,100 for two,” adds Schwab. “A flexible spending account (FSA) is another option. This is an employer-sponsored program that allows you to set aside up to $5,000 per year tax-free for qualified childcare expenses for couples filing jointly with one or more dependents.”
Related: Help Your Clients Help Themselves