Wealth Clarity Blog

I recently blogged about the issue of performance and the importance from the perspective of a wealth creator.  For more background you may want to read, “Investment Performance; How Important is it?”

I continue to be amazed that financial advisory firms aren’t listening to their own client’s, let alone the surveys. 

The message from clients is very clear: 

Wealth creators care deeply about investment performance…but not as much as effective communication. 

Communication about who they are, where they are going, what is important to them and what they are worried about.  Communication about investment solutions and strategy that is in their language and not industry jargon. 

This week I was having coffee with a colleague at another wealth management firm.  During our conversation, we disagreed on this issue of what a client really wants from their financial advisory relationship. 

He was arguing that through his firms substantial investments focused on generating portfolio out-performance, they would be clearly differentiated from other wealth management alternatives in the eyes of wealth creators. 

I totally agreed that adding value through investment performance was critically important, but that true company differentiation would come through seeing the issues facing client’s from their perspective; reducing the complexity in their lives, creating freedom to pursue the things they love.  Wealth creators would gravitate to that first.

He went on to share that a secondary focus of his firm was to enhance the way information was gathered and shared with clients; significantly improving relationships with their clients. 

I agreed completely and said the following:

Let’s put it this way, if your company was split into two publicly traded stocks; Company A—the performance company, and Company B—the enhanced communication company…

I would buy 300 shares of Company A, but…I would buy 1000 shares of Company B.

It isn’t that Company B (communication company) is better than Company A(enhanced performance company) by a factor of 3x, but instead, finding a trusted advisor that understands the value of communication will yield ecstatic clients, and clear differentiation.

Just like your health, it is sometimes easy to forget that the wealth you created is ultimately your responsibility.  

After work yesterday, I changed into my running gear and headed to the park near my office.  It was a beautifully sunny day, and with autumn fast approaching, I wanted to take advantage of one last day of summer and get in some exercise. 

This is something I do for my heart, and to take care of my body, part of my health regimen.  My doctor told me that some form of exercise 4 – 5 days a week was important in my fight to keep cholesterol and blood pressure in check.  

But the implementation of that advice is up to me.  In fact, my doctor can’t make me do it and doesn’t even know if I take a week or two off from exercising. 

While I was running, I was thinking about a new prospect I had met with earlier in the day.  He was worried about the stress that was impacting his life and his health.  On the surface he had enough money to do what he wanted with his life, but he was stuck and not confident in what to do next. 

During our conversation a few things were obvious:

• Creating a financial strategy that reduced the stress in his life was life or death
• Stress was clearly responsible for several ongoing health related issues he could point to
• His alternative was to remain in the same stress-filled lifestyle and just accept the probability of a reduced life expectancy

As a financial counselor, my role is to study the facts and use my experience and judgment to provide the best advice possible.  I can’t force anyone to make changes unless they are willing and ready.

Health and wealth go together because… they’re yours. 

Make sure you take the time to accept where the responsibility rests.

It may sound strange, but to wealth creators, not as much as expected.

In any number of publications throughout the year, you can find a survey about what investors want and need from their financial advisor.  The questions and focus are slightly modified from survey to survey, and so are the results.

However, one common theme develops from the surveys—Performance is consistently on the list, but surprisingly, never in the top one or two responses. 

As it relates to wealth creators, a subset of the high net worth segment, and a focus of this blog …I believe the surveys.  Why?

Based on experience, there are several observations that explain why this is true:

a)      The lives of wealth creators are diverse and full of many interests and passions beyond their investments.  There isn’t an over-emphasis on investment performance because they expect “good” performance in all areas of their life—business, philanthropic and personal.  So, it is safe to say investment performance needs to closely align to the performance of the overall financial markets and their specific objectives.

 b)      Wealth creators know the difference between managing money and wealth creation and therefore where to get out-sized returns.  The former assumes diversification, preservation, lower risk and lower returns, while instinctively, and from experience, they know wealth creation has the potential for much higher returns and associated higher risk.  In fact, this is the reason they are attracted to wealth creation activities in the first place. 

 c)      Technically speaking…they don’t want to be a “chump”.  Said another way, wealth creators understand the importance of compounding even small incremental return improvements over-time, but worry much more about significantly under-performing their expectations and/or completely missing-out on positive market returns over extended periods of time.

Investment performance will always be important; will always be on the “list”… just maybe not where you think.

A long-term client of mine went through a horrible experience earlier this year. 

Their bookkeeper stole a significant amount of money from them over several years.  To add insult to injury, there was a slim chance they would ever recover any of the money.   As you might imagine, this violation of trust caused a great deal of emotional damage, even though their lifestyle wasn’t in jeopardy. 

The bank, insurance company, and accountant were contacted; all in an effort to uncover any possible way to mitigate the loss.

Shortly thereafter, I happened to receive my client’s insurance renewal documents in the mail.  For this particular family, they wanted all of the paperwork that was generated by the insurance company to be sent to our office. 

Now, you need to understand, a routine part of our financial planning process with clients is to review their insurance coverages, including home and auto. 

Reading an insurance policy is somewhat akin to going to the dentist for most people.  It is hard to do because the insurance companies don’t make it very easy.  They pack policies with foreign terms, lengthy definitions, and exclusions; enough to put anyone to sleep.

Anyway, I am scanning the policy and looking at the coverages (call me crazy).  Lo and behold, I came across a section titled, Fraud SafeGuard Coverage.

Interested, I kept reading. 

The policy provided identity theft coverage.  I called the insurance broker and confirmed the coverage would apply to this case.  It was not sufficient to offset the complete loss, but my client got a $62,000 check several weeks later.   Not a bad outcome under the circumstances.

As it relates to insurance, this unfortunate fraud case reminded me of a few things:

 1) Reading the fine print of your insurance policies is important to do periodically; maybe not every renewal, but at least every other year.  

2) Don’t rely completely on your insurance agent or broker to alert you to key coverages.  A proactive insurance broker or advisor will schedule regular meetings to review coverages with you and give you the chance to ask questions. 

3) Insurance policies are updated and changed regularly.  This can mean a specific loss might not be covered one year, and then, be covered the next.  This was the case for my client.

4) No matter what the loss, don’t forget to call your insurance agent or broker to explore whether you might have some coverage.

Even as the economy appears to be stabilizing, there are still plenty of reasons for investors to worry: uncertain markets, continuing bank failures, a changing regulatory environment, persistently high unemployment rates and home foreclosures, and more. I spoke about this in a video earlier this year.

The three key points for people of means to know at a time that provides so many opportunities to worry:

• Don’t make any decisions based on short-term market moves or dramatic news reports
• Find a financial advisor you trust
• Keep your eye on your long-term goals

All easier said than done. Our Wealth Clarity System is designed to help create and sustain a long-term financial strategy based on your specific circumstances and goals. Our clients have found it’s particularly useful to have a plan like this in place during uncertain times.

If you’d like to assess your current state of clarity into your financial matters, you may want to download this 10-item checklist. (It’s a one-page document for you to print out and use, not something that asks you to input any information online.)

And for additional thoughts on how how to manage in difficult times, you may want to read my post from earlier in the year, “Three Success Strategies for Scary Times.”

I feel fortunate because I get the opportunity to work every day with wealth creators.

These are passionate, intelligent, talented, and creative people. Though they all have different backgrounds and experiences, they have one thing in common—they have received significant financial rewards. 

Many of them are first generation and even “accidental” wealth creators. Some worked very hard to get where they are. Some would consider themselves to be lucky when comparing their rewards to the effort expended.

Regardless of how they acquired the wealth, one thing is certain—wealth is unequivocally a gift.  Which raises the question, how do you make sure you don’t squander the gift?

Stated another way, how do you maximize the gift?

Most people aren’t sure.  In general, they’ve been offered practical solutions to help them manage the gift. 

Are you maximizing the gift, or just managing it?

Managing the gift of wealth and maximizing it are very different.

Managing the gift would include things like stock option exercise planning, asset allocation strategies, tax efficient investment and college education savings alternatives, and insurance coverage reviews—all valuable things to do.  Let me be clear: These are all valuable and practical actions to take. 

But at the end of your life, you likely won’t look back and remember the various strategies and solutions to manage this gift you have been given.  You will look back and evaluate whether or not you used the gift to pursue your passions, do the things you love, and to impact your world. 

Having the “Belief Conversation”

To allow people with wealth to explore these issues, we encourage them to have what is called the “Belief Conversation.”  This is unique process that was developed by Doug Davidoff and our marketing consulting team at Imagine, LLC.   

It goes like this. Imagine its 30 years from now, August 2039. You and I are having coffee.  You are looking back and telling me about your life and how you have lived with meaning and significance.  What things have given you the greatest joy, pride, satisfaction? 

Think of these things as the target of your life’s aspiration. 

It’s worth thinking about: Are you doing the things today that will move you towards these key objectives?  If you are not…you may be squandering your gift.

With two kids already off to college and one safely stashed with friends, my wife and I were invited to northern Idaho for a Labor Day weekend getaway.

Our friends' Idaho getaway provides not only a great weekend escape, but a place to cultivate family memories and values.

Aside from the six-hour car ride from Seattle, we were excited to be guests at this beautiful home on the south shore of Priest Lake, one of three pristine mountainous lakes in Idaho’s panhandle.

For our host family, this home and property provide a year-round gathering place for three generations of family and their friends.

Depending on the season, there’s abundant hiking, snowmobiling, water skiing, family dinners on the patio, stories around the fire pit, lots of laughter and games—all happening at this lakeside retreat.

Your family may already have a place like this so you may fully understand the power and benefits of creating this type of family experience.

The location or aesthetic features aren’t the key.  In fact, in the case of our Idaho friends, the little red cabin next door is the true humble beginning of their family story.

The important question is this:  Does your family have that one special place?

Why is this important?

In short, it is a tangible way for your family legacy to take shape and develop.

No matter where the ”place” is, it becomes the conduit to share family history, honor older generations, build new family memories, reinforce family values and beliefs, and provide a consistent place over time where family and close friends can gather.

There is no doubt that special places like this one in Idaho require vision, even, …courage to create.  But they can pay rich dividends to your family for generations to come.

Recently, we were asked by a CPA firm to write a short piece for their upcoming newsletter.  As you can tell by my response to the question posed, I had a strong opinion… I’ve expanded on that answer below. Enjoy!

Q:  ‘So, John, what’s your outlook for the market over the next six months?’ 

A:  I hear this question all the time in various forms.  Sure, the timeline changes, but the question is always the same.  My answer:  You’re asking the wrong question.  
 
Let’s be honest – I don’t (nor does anyone) have a bullet-proof view into the future.   

Think about it:  We didn’t know we were in this recession until many months after it started.  No one knows what the next six months – or six years – will look like.

So if market prediction is the wrong question, what is the right one?  

‘What can I do to ensure that no matter what happens in the economy or the market that I’ll be okay?’

The answer:  Three things

1)    Get a clear picture of your unique opportunities and obstacles.  What keeps you up at night worrying?  What helps you sleep confidently?  What’s your your ideal vision for your future? The result is clarity about where you are and a sense of comfort about where you are going.

2)      Create a financial strategy that aligns with your life–and only yours.  No one-size-fits-all approach here.  You need a plan that fits your background, goals, assets, family—all of the important factors.

 3)    Find a trusted source, someone I refer to as a “transformer.”  Everybody needs someone who will help convert the abundance of information on financial matters into useful knowledge, eliminate concerns that don’t require your attention–and free you to focus your time and energy on the things that you love.

It was 25 years ago, this coming February, that I was a young trainee stockbroker working for Dean Witter Reynolds, Inc. in what was the South Tower of the World Trade Center. 

It was 8 years ago, about 7:10 a.m. PST that I was going through my exercise routine at home while watching CNBC.  I remember standing there in disbelief as the television replayed the hijacked airplanes piercing the World Trade Center buildings—ultimately collapsing them; a place I had once worked. 

I was on my treadmill this morning as CNBC stopped their programming at 7:10 a.m. PST for a moment of silence to remember the victims and the heroes who died in this horrific tragedy.

This is an important day in our history; a day of remembrance. 

A day to hold on a little bit tighter to the freedom and liberty that we all have been blessed with.   

I have spent time this morning remembering how fortunate I am; fortunate to be able to pursue my dreams. 

Being thankful is something I try to do everyday, but somehow it tends to lapse into my subconscious—that is why days of remembrance are so important…days like…today.