When you have questions

Wealth management firms offer an array of planning services to guide you through transitions such as:

Concentrated Stock: Some firms have expertise in strategic diversification, hedging, income generation, and tax minimization. They guide their clients through the complexities of a concentrated stock position while working towards maximizing its potential value.

Impact Investing: Some firms specialize in Impact Investments to help bridge your financial and social objectives. Seek firms that might be a certified B Corporation member or a signatory of the Principles for Responsible Investment (PRI).

Tax Planning: This could be as simple as tax-loss harvesting, but also would mean coordinating with a CPA or an Enrolled Agent to decide how to distribute assets among different accounts that have different tax consequences, and what tax year in which that occurs. One tax year may have a lower tax rate for the investor than another.

What is an Enrolled Agent? According to the IRS website,

• An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.

Other Wealth Management Services include:

Family Office services include asset management, wealth management, and a host of other services. In fact, a family office is not too different from a small business. Some investors who sell their small businesses establish family offices to take care of their wealth because of the large revenues and expenses involved.

For instance, the family may have employees on their staff, complex alternative investments, or tax Schedule K-1s they have to manage. They might have a lot of real estate investments or art collections. Family offices may have earmarked some assets for charitable and philanthropic causes. Security also tends to be a key issue from physical and cybersecurity perspectives.

Finally, a major goal is to make sure the wealth gets passed on to future generations and that it lasts. Family governance, education, documentation management all fall within the services of a family office.

​The Securities and Exchange Commission (SEC) enforces the Regulation Best Interest rule. The regulation, a successor to the Department of Labor’s defunct fiduciary rule, establishes a “best interest” standard for broker-dealers and mandates additional transparency for clients.

The SEC regulation changes how brokers may identify themselves, and aims to bring clarity to consumers looking for help with managing their wealth. Here’s what you need to know: Regulation Best Interest aims to hold brokers to a higher standard. The regulation requires brokers to stop referring to themselves as advisors if they aren’t working under a fiduciary standard. In addition, it imposes four obligations on them:

• Disclose information about their recommendations.
• Exercise diligence, care and skill when making a recommendation.
• Abide by policies that address conflict of interest.
• Complying fully with policies and procedures designed to fulfill the regulation.

Regulation Best Interest also requires both RIAs and brokers to provide their clients with a document that discloses key facts about a firm: Form CRS, a client relationship summary. This brief document outlines the services offered by a firm; all fees, costs, conflicts of interest and mandated standards of conduct associated with its services; and a review of the firm’s legal or disciplinary history.

View the full March 2021 article: What Regulation Best Interest Means For Your Financial Advisor

Typically, the time for someone to start working with a wealth advisor is when they go through life transitions and find themselves in a more complex financial sitiuation, such as:

• Inheritance
• Retirement
• Divorce
• Sale of a business
• Changes in your job or company, such as an Initial Public Offering
• Passing of a spouse. For example, if the spouse had been the financial manager of the family, there would likely be the need for help and guidance through complicated and difficult times.

People who might find themselves with the fortune of a complex financial situation and need guidance on tax-efficient strategies, concentrated stock management, portfolio diversification needs, charitable giving, or just peace of mind.

DIVORCE

IMPACT INVESTING

RETIREMENT

Widower

Selling a Business

Concentrated Stock

The fee structure for many wealth managers (Registered Investment Advisors or Broker-Dealers) varies based on the value of the investable assets the advisor is managing. Fee structures typically start at 1.0% to 1.5% and may offer lower fees based on higher investment totals, while others offer a flat fee.

Some advisors may base their fees on their investment performance, but that varies widely by the advisor and by year.

According to a Vanguard study that looked at a 20-year timeframe, the average investor saw returns of about 2.5% versus the market returning 8%. That’s a difference of 5.5%, which is an enormous underperformance. Factors could be that many investors tend to be emotional, and maybe swayed by news headlines and biases, or find it challenging to stay with a disciplined investment approach in up and down markets.

Further analysis suggests that the value of a wealth manager is closer to 3% of a client’s assets. The value-add is the ability to guide clients through difficult times of market distress and uncertainty. When a client stays on path with their long-term financial goals, the fee they pay can be a prudent long-term investment.

A variety of factors may be important, and not all firms offer comprehensives services, such as: tax planning, retirement or estate planning, business planning or impact investing.

A key questions to ask:

Who is on the team and how will that team be communicating, especially beyond the investment solution?

A client is hiring a relationship with a trusted advisor who will potentially know more about you and your family than some of your friends, so communication and trust levels are extremely important.

A typical pitfall is chasing returns and hiring a manager based on past performance. Financial advisors and wealth management firms can have great years and some years where they may lag, so performance should never be the only metric.

The bottom line is that an investor should evaluate a firm through a number of factors.

Another important consideration might be what the firm’s values are. For example, being a Certified B Corporation, which means that the business meets the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.

Another credential to look out for is being a signatory of the Principles for Responsible Investment (PRI), which includes global organizations unified under the belief that an economically efficient, sustainable global financial system is a necessity for long-term value creation.

If environmental, societal, and governance oversight is important to you, seek firms with deep expertise in the Impact Investing space.