Without question, building a business or career—the “accumulation” phase for wealth—requires its own set of strategies, not to mention risks. Then, as wealth begins to grow, a complementary but somewhat different set of management strategies becomes necessary to protect and preserve that wealth during the client’s lifetime and for future generations.
We like to say that wealth accumulation is planning scribbled in a notebook, while wealth management requires thorough, in-depth, x-ray type analysis. While clearly different, the two processes overlap and intersect and should force advisor integration.
For wealth management, you want to start early, with coordination and collaboration among the members of your team of accountants, attorneys, financial planners, etc. For accumulation, you want advisors schooled in the financial disciplines that take advantage of every opportunity that will, to put it bluntly, make you money.
Wealth accumulates basically from two sources: earned income from your career or business, and passive income from your investments. The latter include everything from acquisitions of other businesses, to dollar-cost averaging, to maximization of employer matches. But wealth accumulates most successfully when you have a plan, a real plan that not only includes forecasting, but leverages those wealth-building baskets that will produce the most revenue.
And such success requires working with proactive advisors in tune with, and on top of, your business and the current state of your investments. It also means discontinuing strategies that may have worked in “the early days,” but are no longer relevant. An example would be a $10,000 annual retirement plan contribution that is clearly no longer “substantial” with a portfolio now worth multiple millions of dollars.
Whether we are ‘accumulating’ or ‘managing’ our wealth, we must see our ultimate loyalty as being linked to our legacy.
Should an individual focus on tax diversification and use those funds to cover taxes on a Roth IRA conversion or contribute to a life insurance trust or fund a grandchild’s college 529 plan? All of those will provide future tax-free funds.
The second point is, that not after, but while your calculated risks in business are paying off and your portfolio is expanding, you should ensure coordinated wealth management. Our firm looks at nine key areas in three categories: cash flow, debt management and insurance; investment management, tax and retirement planning; and, estate, charitable and business-succession planning. As your wealth, and you, mature, the need for coordinated wealth management in all these areas intensifies.
For some investors, transitioning from wealth accumulation to wealth management isn’t easy, but it is critical, and it requires not just one advisor, but a team of advisors to protect your fortune from uncontrollable exposures.
An example of just such a protective stance would be keeping a keen eye on our current rising interest-rate environment, which means bonds potentially losing value and a possible erosion of your wealth. An astute team will also keep pace with tax-law changes, or anticipate them, given the changes we can expect from our new president.
Overall, the operative word here is “astute,” which prompts this final thought: Loyalty is admirable, whether to friends, a spouse or business associates, including advisors. And it is understandably difficult when you realize that a long-time advisor is not equipped to handle the affairs of a once-tiny business now worth millions of dollars. But hard decisions must sometimes be made.
Whether we are “accumulating” or “managing” our wealth, we must see our ultimate loyalty as being linked to our legacy, and to our efforts to ensure that all that hard-earned success ultimately benefits our favorite charities, our children and our children’s children, and their children, too.
This is intended for informational purposes only and should not be construed as personalized investment advice. Please see your financial professional regarding your specific situation.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Investing involves risk. Investment return and the principal value of an investment will fluctuate, and an investor’s shares, when redeemed, may be worth more or less than their original cost. Advisory Services offered through Strategic Financial Group, LLC (dba SFGI, LLC in Illinois), a Registered Investment Advisor.
This article was originally published in the February–April 2017 issue of Worth.