This is the third and final installment in three-part series in which we have been discussing advanced planning with a multi family office and what it means for the affluent family or privately-held business owner.
In the first article we discussed the ambiguity surrounding the term financial planning, and how that can lead to a poor client experience and potentially poor outcomes. In the second article we reviewed the accessibility of a true MFO and the difference between investing strategies for retail versus affluent clients.
In this final installment we will be discussing wealth management issues that every affluent investor should examine with their financial professionals, and the extreme importance of working with a team of professionals, rather than just a single consultant.
The difference between people who call themselves planners and a Personal CFO is a concentration on the holistic needs of a family. The Personal CFO will work on all facets of your wealth, not just insurance or investments, and they will spend a lot of time with each client as well as their lawyers, accountants, real estate agents and other consultants on your behalf and on an ongoing basis.
20 Issues All Clients Should Consider:
- Discussion of goals, concerns, time-frame, risk tolerance
- Information gathering and in-person meetings
- Tax Planning on multiple fronts
- Asset Protection and Titling of Assets
- Corporate Entity Selection vs. Federal Tax Election
- Risk Assessment (asset liability, personal liability)
- Leverage Analysis
- Qualified Retirement Plan (401k, SEP etc./IRA Distribution Plan)
- Asset vs. Liability Ratio (quick ratio, liquidity, cash flow)
- Options (type, vesting, tax aspects)
- Portfolio Analysis (correlation, # of asset classes, volatility vs. goals)
- Educational Funding Review
- Gifting to Children/Descendents
- Charitable Giving during Life
- Wealth Preservation Strategies
- Business Succession Plan Review
- Estate Plan Review
- Distribution Plan at Death of Spouse/Descendents
- Charitable Inclinations at Death
- Vehicle selection for estate reduction
Analyzing the Data Stream
As you can see from this list of 20 considerations, meeting with a new financial professional and the initial information gathering process can take and should take several meetings. At Handwerk MFO, after our initial services application meeting we review all information like a puzzle. Metaphorically speaking, we dump all the puzzle pieces onto a big table and start going through every bit of information and data. We put the tax returns on one pile, estate plans on another, insurance policies, investments and all the proprietary data that we have collected from the client in their own separate piles. Then we assimilate all the information and start putting it back together in order to manage it more effectively and efficiently.
You should be asking your financial professional to look over all aspects of your financial life and to re-examine these areas as your circumstances change or when an exogenous event occurs (i.e. Federal Reserve policy changes, taxes increases, geopolitical turmoil, changes in your risk tolerance any other event that occurs which may impact your wealth planning strategies or the spectrum of investments) rather than working from a one-time review of your financial life in one snapshot of time.
Developing a Consulting Network
A Personal CFO needs to work with a client’s accountants and lawyers to understand the total client picture. This process can take anywhere from 30 to 200 hours per year. This allows for a comprehensive and personalized solution. The key is to look at the grand scheme of the client’s needs and to try to work a solution to meet short and long-term goals, and to provide solutions which may not be readily apparent to the client. This includes not only implementing investing strategies but also helping to protect the client’s assets, and many times, solving problems which the client is not even aware they have. As one client told me: “People don’t know what they don’t know.”
Financial Planning is Just a Push of a Button
What we have learned over the past several years is that many “advisors” claim to give clients a financial plan. They superficially collect some data and provide a binder of boilerplate reports. Many times this financial plan is nothing more than a future value of investments and a cash flow analysis, and the truth is these plans can be created in less than 15 minutes by an administrative assistant. With the click of a button out come hundreds of pages of data. What we find interesting about these financial planning packages that spit out massive reports is the number of variables which are not considered, including black swan events, taxes, integration with the estate plan and overview of the client's entire financial situation. Many times they take assumptions and forecast those 20 years into the future at the same rates of return.
Who would you rather work with? A planner with 300 clients who gathers a superficial amount of information to produce a thick binder? Or a Personal CFO with 25 clients who takes the time to work on all of your issues on an ongoing basis? You want to work with a company that looks at all aspects of your wealth and not just your investments. You also want a consultant who works with your accountants and lawyers on your behalf so as conditions change your entire future strategy can be nimble. Don’t be fooled by a thick binder of data that supplants time with your advisor. You deserve more.