Wealth Clarity Blog

No matter what the service (e.g. legal, accounting, investment management, banking), we are typically comfortable paying fees if our expectations of the service experience create value for our life.

Wealth management is no different, except in one key area: it’s critical that you understand not only the services you are provided, but also the philosophy behind how the firm you choose to work with is paid for its services.  If you don’t understand this, you could end up with a lack of alignment between your needs and intended outcomes.

The fee schedule should limit conflicts of interest so that investment selection and recommendations aren’t influenced by commissions, finder’s fees, etc.  This generally leads to a fee-only service model, which in my opinion is the best way to ensure your objectives are aligned with your financial advisor.

How fees are charged should create choice for the wealth creator by encouraging a discussion about the different investment assets and what type of advice and management is needed.

There needs to be recognition that certain asset types require varying levels of management and the fee schedule should reflect this.  For example, there could be distinctions between full fees for ongoing management of liquid assets, reduced advisory fees for certain illiquid assets like partnerships or real estate, and even lower administrative fees for assets that you would like considered only for asset allocation or reporting purposes, but don’t require management assistance and oversight.

It is best when the structure of the fee schedule looks at your situation holistically, not just your liquid assets.  Considering your consolidated assets allows for better planning and decision making, which increases the probability of achieving your desired outcomes.  This also includes building relationships with your other advisors and asset managers, so that the wealth manager is fluent in all of your holdings and is able to address your issues from a big picture perspective.

Wealth management services are by nature more comprehensive and potentially more expensive than other advisory solutions, but the benefits are also much greater.  When designed correctly, you can worry less and be more confident about your financial life, think less about your money, and have more free time to do the things you love.

Jackson Hole, Wyoming

In case you’re not familiar with the concept of a “thinking sabbatical”, it is scheduled time away from the office, family, work, and all the other commitments in your life.  It is unstructured time without the routine of normal daily life.  Usually, this means spending time alone, or with a small group of friends at a vacation home or some other fun retreat location.

I just returned from a thinking sabbatical with three friends in Jackson Hole, Wyoming.  We gathered with the intention of skiing a beautiful, premier resort; dedicating time to sharing about our lives, our work, and our dreams; and having quiet time for reading, reflection, and rest.  We also had a few amazing dinners thrown in for good measure.

Why are thinking sabbaticals so important?

In short, thinking sabbaticals lay the foundation that each of us needs to create and support the life we desire – both now, and in the future.

Five important elements of thinking sabbaticals:

1. Put away your computer and cell phone during large blocks of the day.  Establish firm boundaries around your work and other commitments.
2. Turn off the television.  Instead, use this valuable time for conversation, contemplation, and meditation.
3. Be flexible with your schedule – do something fun, and get some exercise.  For instance, go skiing, think about business projects, or read business and personal books.  Take care of yourself with good food and lots of rest.
4. Keep a journal handy.  Record your insights, new ways of thinking about things, ideas to explore, people to contact upon your return, and notes about what you want to accomplish in the coming weeks and months.
5. Review your goals – both business and personal.  Look for signs of your progress and where you may need to make mid-course adjustments.

Note: if you don’t have goals for 2010, take the time to set some goals and write them down.  I’ll discuss an interesting way to think about goal-setting in a future blog post.

We can always find reasons not to make the time for ourselves to get away and think.  Making thinking sabbaticals a priority is a skill that can be learned.  Some people may find this challenging since it requires introspection and a level of increased focus without normal distractions.  However, it is not something to postpone, and from my experience, it can yield incredible results.

So, get out your calendar and block out the time.

In my last post, I talked about wealth creators–and asked if you are one.

Wealth creators are usually new to wealth, representing the first generation in their families to have significant resources. They tend to think more about what the wealth can do for their lives–how it can enable them to live a life consistent with their values–than merely sustain a certain level of material comfort.

Most wealth managers focus on the needs of the more tenured wealthy, so-called “old money.” I’ve decided to focus on wealth creators. They have unique needs that can be very different from those whose wealth has been  in the family for a long time.

For instance, with so called “old money,” there is a more mature family advisory infrastructure. As a result, advice tends to be primarily investment-oriented, with a focus on standard institutional wealth protection and conservative growth approaches. The services tend not to focus on ideal life outcomes and values. They are not the creative, custom approaches required of a wealth creator.

What are the 6 unique needs of wealth creators?

• They need advisors to answer the “So what?” question. That is, they don’t want to be shown traditional approaches to wealth management unless there is relevance to their lives and how they will improve them.

• They have plenty of opportunities and choices but don’t have a framework (or “dashboard,” I call it) to evaluate the trade-offs, risks, and congruence of any given opportunity with their overall objectives.

• They have too many people talking to them, giving them advice (including family and friends, to say nothing of the many retail financial services firms that are always seeking their business with a bewildering range of products). But they don’t know whom to trust.  And they desperately want someone in their life they can trust.

• They are intelligent and capable of moving forward alone, but they understand the value of partnering with others whose experience can benefit them.

• They want regular and effective communication, as well as timely access to relevant information,  from their professional resource team.

• They want someone who can simplify the complexity of their life, but not run it.  This is about leverage and practical delegation, not abdication.

I’ve been consulting with wealth creators for 17 years, and I’m passionate about sharing objective advice, guidance and insights. If this interests you, feel free to give me a call.

It dawned on me recently that not everyone understands what a “wealth creator” is–and why I decided to focus this blog on this group of readers.

The New Year, while we’re all thinking about the road ahead, offers a great opportunity to explain.

What is a wealth creator?

Merriam-Webster doesn’t have a definition of “wealth creator.” Even Wikipedia doesn’t have a “wealth creator” entry. That’s not surprising, since it’s not a widely understood concept.

The dictionary defines “wealth” as the abundance of valuable material possessions or resources. A “creator” is one who brings something new or original into being.  It’s the confluence of these two concepts that makes for some interesting dynamics and unique needs.

There are many people who have wealth; in fact, they may be in the second or third generation of a family well-versed in the issues of family wealth management.  These are not the wealth creators I’m referring to.

The difference is between having wealth and making it–and living with it for the first time. It’s not a small distinction. The needs of and issues facing those with long-standing wealth and those who are wealth creators are very different.

Five wealth creator traits:

• Wealth creators generally didn’t come from a life of privilege and money. They are usually the first generation in their families to have significant wealth.
• They may have received wealth that’s disproportionate to their input into a business or activity. They may be what have been called “accidental millionaires.”
• They often have a desire to integrate their personal history, values, and perceptions about money into a new reality that includes expanded choices, opportunities, and risks.
• They enjoy the benefits that wealth can provide–but as the wealth grows, they can feel an increasing sense of stress, worry and complexity.
• They are smart, articulate, goal oriented, and value the time and freedom to pursue passions and a life of significance.

So does this sound like you? If so, you may be a wealth creator. That’s a compelling thought, a unique and useful way to view your life, circumstances and challenges.

In a blog posts to follow, I’ll talk about the unique needs of wealth creators, the common problems they face, and some of the approaches that help them accomplish lives of success, security and significance.

In the meantime, I  hope you’re enjoying and thriving in the New Year.

 There have been some major changes to the federal estate tax laws this year.

Laws passed several years ago went into effect recently and repealed the federal estate tax on January 1, 2010, and then will reinstate it in 2011 under very different rules.  Our legal friends at Howard Rice have created an excellent summary of the issue and potential considerations.

In short, 2010 is an interesting transition period where nobody has clarity about what to do because it was widely expected Congress would have implemented some type of permanent legislation by now.  It’s still possible something will be enacted later this year, and it may be applied retroactive to January 1. 

In fact, I was an attendee at the 54^th Annual Washington State Bar Association Estate Planning Seminar this past fall that was attended by well over 500 attorneys, CPAs, and other professional advisors.  A show of hands from this room full of professionals overwhelmingly predicted that Congress would take action before the end of 2009 to “fix” this issue, if for no other reason than because the U.S. Government needs the tax receipts.  It just goes to show you that even the legal community is having a difficult time gauging the direction this will ultimately go.

At this time, there continues to be quite a bit of speculation regarding how it will get resolved.  All of this uncertainty means there could be interesting planning opportunities, depending on your circumstances. 

It is very important that you review any estate planning strategies with your attorney before taking any action.