The 10 Keys to Integrated Wealth Planning

By David Bokman, Chief Wealth Advisory Officer

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Families of significant wealth often own a diverse mix of assets, including multiple residences, less liquid alternative or private equity investments, and valuable collectibles, all of which requires more sophisticated planning. Their wealth exceeds their foreseeable lifetime consumption needs and affords them an increased capacity to tolerate risk, yet they often express less desire to incur it. This “surplus” wealth also allows them, if they choose, to sustain their wealth for multiple generations or use it for philanthropic purposes. These families also have somewhat different emotions about their wealth. These emotions can include, among others, fear that wealth can have a corrosive effect on future generations or a heightened appreciation of the wealth’s potential to accomplish ambitious family or charitable goals.

The result of these unique circumstances is a somewhat different set of wealth management planning needs than those of other families. And, because no single advisor, no matter how talented, can serve these diverse needs, working with these families requires a team approach. We often have the privilege of collaborating with the other members of our client families’ advisory teams, including attorneys, accountants, and insurance consultants, among others. We have learned a great deal from our partners and have drawn some powerful conclusions, over the last 20 years about the best practices that allow multi-party advisory teams to most effectively serve their clients. Specifically, we have learned that planning for this unique group should have multiple characteristics.

Integrated

A well-integrated wealth management plan incorporates tax, investment, philanthropic, fiduciary, and risk management planning as well as an intimate assessment of the people involved and the impact of this planning on personal growth and family dynamics. It takes into account the income tax and estate planning objectives of different entities before making investment recommendations. It considers the different risk profiles of family members before proposing tax-saving strategies. And, perhaps most importantly, it incorporates a knowledge of the beneficiaries as real people with interests, strengths, and weaknesses that can derail or empower the most sophisticated planning techniques. Unfortunately, even a good estate plan and a good investment plan that don’t account for the other can introduce significant inefficiencies. The key warning sign of a poorly integrated plan is very similar investment allocation for accounts with very different income tax, personal or trust considerations, or estate planning objectives (e.g., a client’s personal account, his or her charitable foundation, an IRA and a family generation-skipping trust). There simply is no shortcut to successful planning that minimizes important considerations for the sake of simplicity.

Collaborative

Many clients believe that it is their responsibility to “take care of” wealth management planning for their family members. They don’t want to discuss uncomfortable issues, such as business succession planning, detailed information about the extent of family wealth, or their mortality, with other family members for fear of upsetting them or discouraging their work ethic. Other clients are simply uncomfortable themselves about discussing these issues. Nonetheless, our experience has proven that candid and specific conversations about wealth planning issues with all appropriate family members, as well as with the family’s entire team of advisors, yield the most effective results. Additionally, the dialogue itself often promotes better communication among the family more generally. So, while the conversations can be awkward at first, and the coordination of multiple family members and advisors can create an administrative burden, the benefits of collaborative planning are far-reaching. With respect to multiple advisors, the key factor to consider is whether they function well as a team rather than becoming territorial about who “owns” the client relationship or the best ideas. In the most successful situations, the members of the advisory team are respectful of each other’s areas of technical expertise but are open-minded in the search for the best solutions. Only the family “owns” its future, but it is inevitably a shared ownership. Often times an advisor can serve as facilitator to bring the family together and keep discussions on track that can become emotional.

Expansive

A thoughtful wealth management plan looks beyond a family's financial capital to incorporate its human and intellectual capital strengths. This requires an examination of the family's existing governance structures, the personal values of each family member, the family's overall mission, and the mentoring needs of each generation. Looking beyond the investment account allows us to not only address a more expansive set of needs but also to cultivate the family's broader resources and talents. So often the most effective answers to a family's questions lie within the family itself; a more expansive view of the advisory role helps clients locate those answers. The key indicator of an expansive plan is a sense that the advisors are cognizant of the unique characteristics of the family members as individuals, rather than merely in their role as beneficiaries of the estate.

Customized

No single planning idea is appropriate for every client. Each family's financial situation, risk profile, values, level of sophistication, and tolerance for complexity is unique and calls for customized planning solutions. Unfortunately, the risks and economics of running a professional practice serving wealthy families often lead professionals to implement similar techniques for many clients. For example, advisors who are wary of the risk of IRS challenges to estate plans develop a familiarity with a handful of techniques and become uncomfortable exploring other strategies. The rising cost of legal and accounting advice also makes it difficult to pass on the costs of researching customized solutions to fee-sensitive clients. Thus, it is tempting to apply well-established planning tools broadly to all clients. In other words, once the advisor has a hammer, every new client situation looks like a nail. By contrast, a multi-family office (MFO) serves very few clients and has access to a wide variety of recognized experts on different techniques. This facilitates the appropriate customized planning that is critical for the family. The key question to ask is: "to what extent am I encouraged to participate in the planning process before getting suggestions on how the plan should be designed or implemented?"