Take a Modern Approach to Wealth Planning

While building meaningful wealth may be challenging, those who are able to do it face another significant challenge: how to manage it. After all, without effective wealth management, it’s more difficult to reach certain goals and achieve a more secure financial future.

That’s where professional wealth planning comes into play. Although wealth planning has been around for many decades, it continues to evolve and become more important as people’s needs change in step with a rapidly changing world.

Today’s modern wealth planning covers the gamut of all things financial, from saving, spending and budgeting, to investments, insurance, tax and estate issues, retirement planning and more. It starts with having open and detailed discussions between client and wealth advisor. The advisor’s job is to listen intently and ask probing questions to learn everything possible about their client’s finances, including their family situation, income and expenses, risk tolerance, time horizon, and financial objectives. As they articulate their objectives, the advisor helps a client prioritize to gain a clearer picture of what matters to them most, and which financial strategies and frameworks may best help achieve their goals.

The family office

One structure that’s proven to be effective for many highly affluent clients with complex wealth management needs is the family office. In general terms, a family office provides integrated wealth management that goes beyond traditional planning services to more sophisticated areas like tailored advice for business founders and entrepreneurs, comprehensive financial education for family members across generations, and management of governance issues.

Quite often, a family office will engage different professionals – such as a wealth advisor, tax and estate specialist, accountant, lawyer, and business consultant – working as a team to offer complete and coordinated services to meet all of a family’s wealth management needs. This breadth of trusted professionals is critical for ultra-high-net worth families as they encounter complicated situations like business purchases or divestments, succession planning, inheritances, property transactions, divorce and remarriage, the need to engage future generations, legacy wishes, disability/critical illness and death.

One key benefit of having an experienced family office team is that they’re likely to have already encountered a wide array of life issues, equipping them well to offer sound wealth advice, cohesive solutions, and strategies customized to a client’s specific objectives and circumstances.

Wealth planning in action

Let’s take a look at a few examples of scenarios that high-net-worth individuals and families may encounter, and how modern wealth planning can help them.

1. Managing CEO compensation 

Since CEOs commonly earn significant income, they need a strong wealth plan that can invest this income tax-efficiently and for growth potential. A large percentage of a CEO’s compensation is also typically linked to incentives that are tied to the company’s stock. Wealth planning includes managing the vesting/exercising of these various share incentives to mitigate the potential tax consequences and concentration risk in order to put that income to work for long-term wealth building.

Furthermore, given that many CEOs work across multiple states and jurisdictions, it becomes essential to proactively integrate tax and estate planning into a comprehensive wealth plan.

2. Working with founders 

Many high-net-worth individuals have built up their wealth through starting businesses. The sooner they can work with a wealth advisor who has experience supporting founders and other entrepreneurs, the better the outcome is likely to be. Ideally, a founder will consult with their wealth advisor before they start negotiations for selling a business, so the advisor may recommend how best to value their business and implement a sound succession plan (or engage specialists who can assist with this important and complex process).

At the same time, strategic plans can begin regarding how best to allocate the proceeds of the business sale based on the founder’s specific objectives and circumstances. In our experience, founders who wait too long after their business exit before working with the appropriate professionals tend to run the risk of having no sensible post-transaction plan for the sale proceeds or the next steps in their career progression.

3. Navigating divorce

Divorce is one of the most impactful events in a person's life, often leaving them extremely vulnerable. In some ways, it’s similar to the founders we discussed above who suddenly face a new chapter in their life – one that can be both liberating and anxiety-provoking as they find themselves pushed out of their comfort zone with many question marks ahead. In such situations, the wealth advisor’s job is to provide practical support regarding their client’s finances, but also offer stability, clarity, and possibly a degree of emotional support in this difficult time.

Long before the divorce proceedings conclude, the advisor will proactively assess how the client’s finances will likely change. For many people, that will mean adapting to living on one income versus two, which often results in a revamped budget as income and expenses shift.

Retirement plans and other assets may also need to be transferred as part of the divorce settlement. In addition, other major issues may need customized solutions, including real estate/living arrangements, alimony and/or child support, and revised retirement plans. The advisor will need to consider their client’s overall financial picture and possibly adjust their saving and investing strategies, as well as their insurance coverage, to reflect their new reality.

4. Explaining cash flow modelling

Adequate cash flow is important at any stage of life, particularly in retirement when income is often greatly reduced but expenses must be covered – potentially for several decades. With cash flow modelling, the wealth advisor will take everything they know about their client (e.g., assets, liabilities, potential inheritances, business sale proceeds) and use sophisticated tools to review and stress test to identify potential risks or opportunities to their lifestyle. They’ll consider day-to-day expenses and typical major expenditures for “irregular” things like buying a new car, helping the children purchase a home, and other large capital events that may arise. This modelling can help the advisor gain a strong sense of whether or not the client is on track to be financially independent.

The advisor may also incorporate “what if” scenarios, such as buying or selling properties, retiring sooner than originally anticipated, and covering long-term care expenses. This can help quantify how these events might affect a client’s wealth and long-term financial independence. The advisor will consider putting structures and strategies in place to help optimize their client’s finance-, such as setting up a trust, gifting assets tax-efficiently to the next generation, or for making a philanthropic impact.

Cash flow modelling helps the wealth advisor determine how much the client may allocate to those structures and strategies, while still leaving more than enough for their own wants and needs. All of this can help clients be more organized and confident in their financial decisions, taking greater control of their life and their path towards the future.

The power of a wealth plan

Corient enlists the expertise of Practice Groups dedicated to affluent clients who face highly complicated financial challenges. Our specialized teams can uncover unique opportunities and devise tailored wealth planning strategies to help address these challenges.

Of course, wealth planning offers much more value than what we’ve discussed, but those scenarios above are examples of what the planning process entails. The bottom line is that clients work with wealth advisors because they want a sense of comfort and confidence when it comes to their finances – and those sentiments also extend to their family members and other loved ones.

That genuine peace of mind can have more impact on a client than many other important actions taken by a wealth advisor, such as dealing with daily market fluctuations or keeping on top of inflation and taxes. Basically, the client is seeking an experienced long-term partner, an expert in looking after families with complex wealth needs and challenges. That includes educating family members on critical financial matters so that they may also achieve long-term success with their wealth-building and wealth-preservation endeavors. That’s the essence of a modern, productive wealth planning process.

Contact a Corient Wealth Advisor today if you’re interested in benefiting from having your own personalized wealth plan.

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