Four-Percent Return”?! a.k.a. The Article In Which I Go Ballistic

I have tried, in these articles, to maintain an even keel. To dispense information which I believe that you, as an attorney, will find useful for your clientele.

In this article, I’m afraid I’m going to break that mold. No: I won’t be giving you un-useful advice. Rather, that “even keel” is going away.

I’m a CPA, a CERTIFIED FINANCIAL PLANNER^® professional, and a Certified Divorce Financial Analyst^® professional. In other words, a divorce financial expert who offers divorce financial strategies, with tons of experience.

I mention those credentials, because I toil in a very heavily regulated industry. Just like you. Imagine if I told you, for example, “Well, ignore some of the laws for your client, it won’t matter.”

Wouldn’t you go ballistic?

This gets to the infamous “four-percent return.”

Allow me to clarify.

Being judge-mental 

This is a judge-thing. Or it’s a former judge who’s now a mediator, so it’s a mediator-thing. But it’s the same thing. And that thing is this:

These judges and former judges have this notion that “four percent” is a reasonable rate of return for, well, pretty much any investment.

Does that knock you out of your chair? It does to me.

It’s insane. And yet there’s someone, in a robe, handing this down as if it were true. And boy does this affect the trial, or the mediation, in really big ways that truly affect your client and their settlement.

I’m not going to dive into tons of numbers here; I don’t want to make your eyes glaze over. But I will tell you this: Rates of return vary a lot. And that makes a huge difference in, say, the financial future of your divorcing-woman client.

As a financial-services professional, I am required, by extensive industry regulations, which I can’t simply “ignore,” to determine an individual’s risk tolerance. Individual. Not “everyone.” Not “blanket four-percent.”

(Can you see the smoke piping out of my ears right now?)

It gets worse. My industry requires me—for good reason, I might add—to determine each individual client’s current savings, and future goals: how much they need to have in the future, and what rate of return would be appropriate for them. I need to compare how much they’re investing, say, as part of their settlement, vs. their entire portfolio.

Divorce court (or mediation by an ex-judge) is not the real world. Know what happens in the real world? Heck, I could park a client’s investment in a money-market fund from a local bank that pays four percent. That’s not investing. Investing is risk vs. return: If you’re willing to take a bigger risk, you should be rewarded by a higher expected return.

Reality check

As I said, divorce court isn’t the real world. How many judges, after all, have their own financial houses in order? And why would they care, with a generous government pension awaiting them in the future?

I had an ex-judge mediator in a recent case “order” a four-percent return, and she “showed me” how she arrived at that payout, on her calculator. Her math was so awful, it was embarrassing.

But guess what? I kept my mouth shut and smiled and nodded. Why? Because her ignorance, in that instance, benefitted my client. It was delicious.

But when the opposite is true, I speak up. When it affects your affluent divorcing-woman client, a bad assumption or calculation would cost them dearly. On a $2 million settlement, for example, the difference between a four- and seven-percent return is about $60,0000 a year. And that’s before compounding, which makes the number even bigger.

Two takeaways. (I know this article is running long, but I told you this is a sore point of mine, so thanks for hanging with me on this one, and I think you’ll agree that the newfound knowledge will benefit both you and your clients.) One: When you’re in a position to choose, do not choose an ex-judge as a mediator; that “four-percent bias” will be baked right in.

And two: I’ve got sophisticated software, whereby I can model portfolios for your clients, to compare different what-if scenarios, giving you, and them, confidence and negotiating power for what could be a massively different, and better, outcome.

Contact me and let’s talk!