Martin, a business acquaintance in his 70s, was diagnosed with an advanced form of cancer several years ago. The prognosis was not good. But after several rounds of therapy, including radiation and chemotherapy, he beat the odds and went into remission.
Six months after the doctors gave him the all-clear, he visited me and shared the details of his devastating diagnosis, difficult treatments, and, ultimately, the cheers of his family when it became clear that he would survive the ordeal.
Martin is a retired finance professional who knows all about investing and manages his own investment portfolio. We always have good conversations about business and investing, but he never seemed interested in our services and I wondered what he was doing in my office (this was before COVID-19).
“I’m here for my wife,” he admitted. “She doesn’t know anything about our finances. She doesn’t even know how much money we have. And if something should happen to me, she is completely lost as to what to do and where to find everything. “
I have ongoing conversations with several long-standing prospects, many of whom are just like Martin. They are all men, usually in their 70s, and they have all been extremely successful in their careers. Typically, these types of clients have a very confused and complicated financial situation (including various trusts, partnerships, etc. and investing in almost every asset class). Most of them have mastered the complexity themselves by this point in their lives. They have come to seek help organizing their portfolios and accounts, consolidating where necessary, and simplifying their finances. The goal is to have their ducks in a row so that their spouse or children are able to manage everything seamlessly in case unfortunate circumstances arise.
We have wonderful discussions, excellent relationships, and yet the conversation inevitably ends with two related comments. In other words, “Thank you, but managing my portfolio, investing my money and keeping track of my various assets and accounts is my hobby. I watch CNBC during the day to focus. It’s what I love to do most in my retirement. I just can’t give up on that yet. “
Then they add that they have managed their portfolios well and on that basis they cannot justify the fees of an apartment building for themselves. They don’t think the services will add enough value to them. You can’t bring yourself to make the change.
These feelings are understandable. It is very difficult to take away a key component of what makes people happy, busy, and motivated. For many, managing their family investments is their goal. In addition, they are happy with their performance and do not want to pay for what they did for free.
There is a separation from this view – the reality of the situation does not match their concerns. You can remain in control while working with an advisor. In addition, the coordination between investments, tax strategy, planning services, and charitable donations provide significant financial benefits. In addition, the likelihood that their wives will survive them is quite high – in the US, the life expectancy of women is about five years longer than that of men. This adds to the urgency of this particular situation, as opposed to a situation where both spouses are familiar with the family’s finances.
These people are having these conversations for the right reasons. They scheduled the meetings and lunches (now phone calls and zooms) because they know they won’t be there forever. They understand the utility and critical need of an advisor so that their heirs are not left with a clumped fishing net of accounts and portfolios and have someone on hand with the institutional knowledge of their financial affairs. And they know that the company they hire will last as long as their families need it.
While acknowledging their own mortality, they struggle to take the plunge. It’s both an emotional and a perceived financial problem for them.
It can be very difficult to watch as these generally thoughtful, intelligent, and dedicated Patriarchs potentially leave their families with the incredibly time-consuming and costly process of demystifying their accounts.
So we created a playbook to gently and slowly demonstrate that you can still maintain control of your portfolio decisions and that it is ultimately worth the fees you will be paying both in the short term and in the short term and for the greater in the long run Benefit from their surviving spouses and heirs.
- Include spouses in the process as early as possible. You should understand the importance of creating a smooth transition plan. They should learn as much as possible about their financial situation and the situation when they become the sole manager of the assets. Building this relationship is important to ensure that rational decisions are made in the future. As I half-jokingly tell many of these prospects in our meetings, “I don’t want to meet your spouse for the first time at your funeral.”
- If possible, involve responsible adult children in these discussions. It is likely that adult children ultimately have as much administrative responsibility for family wealth as their parents. Involving adult children early on can have the equally critical implications of: 1) preparing for this significant responsibility; 2) creating an understanding of the family’s financial structure; and 3) observing or participating in investment decisions. In a customer family there were four siblings with different financial demands. While their parents were still alive, we held a sibling-only meeting to review the family’s financial structure. It sparked a productive conversation between them that we were able to facilitate and ended in a conversation that extended to their parents. The open dialogue was effective in empowering the family to make decisions about how to manage family wealth after the death of one or both parents and to identify the different goals and needs of the final beneficiaries.
- Serve as a store of information and generate consolidated reports across the entire portfolio. Many of these investors have private bank or brokerage accounts with various companies, as well as private funds and direct investments. What they don’t have is a responsible client, which role the consultant plays. Someone needs to be tasked with gathering information on each asset: purchase price and date, investment thesis and expected liquidity. This knowledge clearinghouse is essential for these families as it is the job of an institution to consistently understand the full financial picture and to survive and survive a person.
- Act as a strategy partner. Once the information has been gathered and performance assessed, the next step is to develop an overall strategy. Identify excess concentrations or missed asset classes. There may be investment options that can complete the portfolio.
- For this arrangement to work, the plan must be individual. The portfolio should be based on what is already there. Customers shouldn’t be forced to sell something they don’t want to sell, especially if doing so could have adverse tax consequences. They should be able to avoid breaking down what they built and created for themselves and the customer should continue to play the key role in deciding their investments.
It is hard enough for a person to deal with these problems and decisions. So imagine the family’s financial chaos when that one person has proprietary knowledge and control, and then one day that person disappears. This dilemma occurs far too often. But Martin and his family will be able to avoid this fate – he finally came over and saw the value of working with a team of professionals. His family will thank him later.
Jonathan M. Bergman is President of TAG Associates