Risk Management in Financial Planning

By Peter A. Racen, CLU®, ChFC®, CASL®, AEP®, CFP®
Chief Executive Officer
Racen Wealth Management

When it comes to managing your finances and planning long-term goals, there will always be some element of risk involved. So, how do you minimize those risks while maximizing the stability and security of your assets? That’s where risk management comes in.

Risk management can take many forms; following are some of the most common elements:

Legal Structures

Legal structures can be an intimidating concept, but in this context, the purpose is to protect you. Whether that means forming a corporation or LLC to provide asset protection or ensuring that you have proper binding agreements with business partners or associates, these legal structures can help you avoid controversy and potential lawsuits.

Structures like these are designed to help minimize tax liability while also helping lower your risk of potential lawsuits or other legal action. Agreements that have been thoroughly vetted by an attorney specializing in corporate law assure that everyone has a clear understanding of the business/financial relationship and lessen the chance of future misunderstandings or conflicts.


We’re all familiar with insurance in the context of homes, cars, and medical care. But, for financial planning, it’s important to have insurance that protects your assets, as well. The most common example is life insurance. Life insurance policies can help mitigate the financial impact when someone passes away, while also serving as a source of income for the heirs of the family’s primary breadwinner.

Determining the right amount of insurance can be a sensitive proposition. It’s important to work with an advisor who can help determine the coverage amount that is right for you so your loved ones aren’t left under-insured.

Planning for a disability is also important to help minimize the financial impact if you lose the ability to work. Knowing how you would replace your primary income source so your family can still lead comfortable lives is fundamental in risk management.

Overlooked Policies

While the insurance categories discussed above are key parts of any risk management plan, there are others that could easily be overlooked if your advisor is not looking at the complete picture.

For example, property and casualty policies include crucial liability clauses to protect your hard assets such as your home and car. Additional liability coverage called “Umbrella” insurance can be purchased to cover gaps not covered by other insurance policies. Umbrella insurance is also known as excess liability insurance to cover liability claims that exceed the amount of coverage provided from other insurance coverage. Coverage limits on umbrella policies typically start at $1 million of coverage.

Say someone slips and falls on your steps and then sues you for an injury. A property/casualty policy acts as a shield so the person can be compensated without being able to make claims directly against your assets.

Strong Foundations. Peace of Mind.

If you look at your financial plan as a pyramid, risk management is the essential foundation. Unfortunately, people sometimes focus on wealth accumulation without addressing risk management.

Having this solid base is vital to a healthy financial future that protects your investments (and more importantly) your family and loved ones.

Overall, these risk management best practices and strategies are only effective if properly implemented and appropriately managed. An experienced, trusted financial advisor will help you identify the suitable structures, amount of coverage, and types of policies needed for your unique situation.

A solid risk management foundation provides confidence in your long-term financial plan’s ability to create security and stability for you and your family.

*NM does not provide legal advice or property & causality insurance.

Racen Wealth Management

Peter Racen, CFP®, CLU®, ChFC®, CASL®, AEP®

Racen Wealth Management


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