By Brad Heagy, CFP ® and Kari Baer, CFP ®, CFA
How many of our meetings with clients start off talking numbers, hit on performance at halftime and then end with investment strategy? Out of the last 100, I would guess one... maybe. Managing wealth isn’t exactly what the title suggests. Managing life’s by-product of wealth could be a bit more accurate. Yes, it is about growing assets, achieving financial goals, preparing for retirement and planning for the legacy you leave behind. At its core, wealth management is about improving the quality of life for people. This doesn’t mean simply adding zeros to a bank account; it means removing stress, reducing complexity and empowering families we care for to focus on what matters most. Although not visible to the naked eye the AI family shown above depicts what many families, wealthy or not, feel like when it comes to their financial and estate planning. Life is busy, it just piles up.
As the late rapper, Notorious BIG, once said ‘mo money mo problems.’ He wasn’t completely wrong. Like many folks with wealth, the problem isn’t that they need more. What most need is the time and freedom to live life knowing that the inevitable hurdles they will face will be handled by a trusted team; trust being the key. We only have so much time to spend with family, energy to stay healthy and attention to put into everything that life throws our way.
Source: Carl Richards
Airline passengers aren’t paying to get the fastest, most exciting ride to their destination. They are paying to get there safely, have emergencies handled, turbulence to a minimum and no drinks spilled while watching a favorite movie with minimal hassles. The same can go for wealth management.
An Investment Frame Without a Foundation
Much of what a family wealth manager does revolves around that one word--simplicity. The plethora of investment options, estate tax law changes and retirement income rules could be compared to the process of building a house. At first it is fun to pick out a design, colors, tile, etc. and then the options become overwhelming enough to make you wonder why you started this process in the first place. But you know that if you try to build it on your own it could turn out looking like something out of a Dr. Suess book.
Better yet, try working with a so-called wealth manager who knows investments but nothing about taxes, estate planning, trusts, retirement planning, etc. That is like using a home builder who knows how to build a wood frame but has no clue how to pour a foundation or install the roof. Piece-mealing anything creates inefficiency and stress, let alone trying to do it with your financial future. Again, you can’t always go back, tear it all down and rebuild. Time isn’t always on your side.
We have all seen plenty of financial and estate plans look just like this:
Illustration: Lisa Sheehan/The Guardian
Simplifying the Complex
Managing significant wealth often means dealing with a web of intricate decisions: estate planning, tax optimization and tax law changes, investments, insurance and philanthropic efforts. For clients, this complexity can feel daunting and burdensome.
Even if the wealth isn’t significant (or not significant yet), every building starts with a foundation and a blueprint. Without it, you are one hospital stay, uninsured driver or bad business idea away from detriment.
A great fiduciary wealth manager or team acts as a trusted guide, consolidating these moving parts into a cohesive strategy. They need to understand a client’s goals and values. Yes, they need to listen, be human and have financial bedside manner. The financial bedside manner that will be empathetic and be your advocate to stay the course.
Time Shrinks While Complexity Grows
For many individuals, time is their most valuable resource. Wealth management isn’t just about managing money—it’s about giving clients the bandwidth to focus on what truly matters, whether that’s spending time with family, pursuing passions or running a business. Isn’t that why we all add staff to our firms and employ assistants? Or at home we hire nannies and lawn care companies to remove even more complexity from our lives. Maybe it takes a stare into the mirror and the question of ‘what would make my life simpler?’ For those out there asking that question, be part of the solution.
Coming from an upbringing of a DIY mindset, it is hard to pay for a service or job that I can do on my own. But after recent years digging a draining ditch, laying sod or staring up a 12-foot ladder while hanging Christmas lights, I started asking myself, ‘is this worth it?’ Time is money and, in this instance, it can be bought. A broken limb, on the other hand, will cost both (by the way, according to the BLS, 2020 saw 22,710 non-fatal and 161 fatal injuries involving ladders. A good percentage of these have likely we have likely seen on Instagram).
Simplifying One of the Biggest Decisions
The concept of making life simpler is also shared by other professionals. Ever shopped for and purchased a house without a good realtor? Yes, it can work out just fine and you can laugh your way to the bank, but it can also be a complete time-suck and mine field. Like wealth managers, realtors aren’t all created equal.
Honey Weidman, a premier Realtor in Tampa, FL, takes a holistic approach to her clients. "About 10% of the serious buyers/sellers I meet truly think they can do it right, alone. The vast majority respect the need to hire a professional much like they don’t cut their own hair or pull their own teeth," says Ms. Weidman.
"The folks that don’t value the skills of a skilled realtor are focused on the wrong thing, which is how they can ‘save’ in the short term. Who doesn’t want to save money? What could I do with that $12k or $30k, etc. However, they fail to see that their short-term savings will ultimately cost them more in the long run."
She continues by adding that, "TV shows make home buying seem glamorous, but in reality, it can be extremely risky. Ask the legions of real estate attorneys who deal with FSBO (For Sale By Owner) participants and unrepresented buyers and seller sides of deals who did it alone because they knew better. The money those plaintiffs and defendants 'saved' end up costing them far more than the $12k they saved. But telling that 10% is like… pulling teeth."
Information for consumers is abundant. But what to do with it all is where any of us can go wrong. Analysis paralysis is real. Not knowing what you don’t know is real, too. Adding more additional ingredients to a recipe doesn’t make it better. It could also make it taste horrible. There is a reason the Food Network exists.
The same goes for family wealth management. How much in capital gains distributions and fees are those mediocre mutual funds costing you? Am I being too greedy? Fearful? What are annual exlusion gifts vs. lifetime exclusion gifts? How much has panic caused you to sell out of your entire portfolio when the mainstream news told you the sky was falling? And how much value was lost by dragging your feet on getting back into the market over time? Self-discipline isn't easy. How you handle and react to these questions can be detrimental to your wealth (and sometimes your health).
Source: Blackrock
Our team has delivered chicken soup to those clients feeling ill, gone car shopping with our clients to act as a liaison, and spent time on weekends and evenings enjoying their company. Not because we had, to but because we wanted to. The more we know our clients, the better we can serve them. Losing some sleep worrying about certain challenges that are facing clients isn’t the exception, it’s the rule, and it helps simplify their complex lives. This is our standard, and we wish it was contagious.
The ‘Too Hard’ Pile
Famed investors Warren Buffet and Charlie Munger often mentioned their ‘too hard’ pile. If something was too hard or complicated, they would put it in a separate file and focus on something simpler. This ‘too hard’ pile exists in most everyone’s life. Some let it pile up, some realize the power of dealing with it. Unlike Buffet and Munger, it isn’t going away. Too hard piles are our bread n’ butter.
Peace of Mind
If you ask most of my fellow like-minded professionals (financial and others) what they would love to have most in life, the answer is likely ‘peace of mind.’ Actually, my guess is that ‘peace of mind’ is in most anyone’s top five.
The beauty of what good wealth managers do is baked into the fact that we are all in the same boat with our clients. Covid and the markets at the time affected us all. We all have families and futures to worry about and plan for. We all get sick. We all pick from the same ‘investment’ garden. We must practice what we preach. Empathy is everything when times get tough and confusing. The job doesn't stop. It's not a 9-5.
Contrary to popular belief, financial success isn’t just about investment returns. As New York Times Bestselling Author, Morgan Housel, stated: “compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time — especially in times of chaos and havoc — will always win.” Regardless of how big your investment returns are, it matters more what you do with them and what happens in the inbetween. Like investment returns, life’s struggles, stressors and successes (made possible by having more time) compound, as well. Simplicity can be the best performing asset in your portfolio.
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