Archive for August, 2017

You’ve Planned for the Future of Your Wealth, but What About the Future of Your Financial Advisor?

Posted by Jeremy Walla

What to Expect from Financial Firm Succession in an Aging Wealth Management Industry

All businesses must concern themselves with succession planning, especially in the years to come, and wealth management firms are no small exception. For example, according to the American Institute of CPAs (AICPA), 75 percent of CPAs will be retiring within the next 15 years, and you should expect to see a similar trend across all key advisory industries.

Fortunately, financial advisors are in a great position to fully understand this type of transition, and how to do it right, so your wealth management needs remain in good hands.

How to Navigate the Uncertainty of an Advisor Transition

As an investor, you’ve likely spent your adult life saving and planning for your financial future, and it can be easy to forget that at some point, your advisor may be retiring. There are many types of wealth management firms out there, and you should be sure yours has its own succession strategy.

When meeting with your advisor, remember that the conversation is a two-way street. Your portfolio and plan are obviously the focal point of any discussion, but do not be shy in probing your advisor about their future as well.

Here are three key questions to ask:

1. Have they determined a target date for their retirement, and if so, how far off is that date?
2. Does their staff have the capacity and the ability to take over your relationship seamlessly?
3. Will they be looking to sell their book of business to another advisor?

A caring advisor will keep you in the loop, and they know the last thing you want is a big surprise when they leave. There may have been many team members who worked on your relationship over the years, but there will typically be one individual who has remained a constant, and they are the pillar that holds up the roof over your head. Do not let them leave you hanging.

How to Prepare for the Future of Your Wealth Management Needs

No matter how your advisor hands off the relationship, you will inevitably face something new. As younger advisors rise through the ranks, they bring with them new approaches to doing business and interacting with clients.

Technology has already fundamentally changed the way that we interact with each other. But have our advisors kept up? With a younger workforce of financial advisors on the horizon, there will be new methods introduced and implemented to increase efficiencies, improve communication, and connect you more effectively to your investments.

It’s also important to be aware that as financial advisors retire, they will likely not be replaced on a 1:1 ratio. Without technology, these potentially larger workloads and increased client bases would be difficult to manage. However, new systems are moving the financial management industry in a more efficient direction.

Your financial future is what matters most, and any succession within a financial advisory firm should be focused on maintaining that commitment. The implementation of new technologies and methodologies should not compromise the integrity, ability or personality of your advisor. You should always feel as though you trust in the process, no matter how new it may be, and that you have an advisor to reach out to with questions or concerns.

Embracing the Succession Strategy of Your Financial Firm

Asking the right questions, and being aware of what lies ahead are key to being prepared for change.

Retirements and firm consolidations will undoubtedly impact you in one way or another, but you are not alone. You have entrusted your future with your advisor, and they should never take that lightly. In finding the right successor, they should welcome the opportunity to introduce you to something different, but equally appropriate.

At Lake Street Advisors, we became a member firm of Focus Financial Partners. Through this partnership, we were able to put in motion a change that will ultimately serve to protect and preserve our client relationships indefinitely. We welcomed Buddy Webb and Melissa Olszak as new partners within the firm, and we will have the flexibility to continue growing while remaining true to the core values that clients have come to know and appreciate.

Learn more about our approach to financial management.

Understanding the Value of Your Advisor

Posted by Jeremy Walla

Breaking Down the Differences Between Advisory Models

In the wealth management industry, there are many variations of financial advisors, and it can often be challenging to distinguish one type from another. On the outside, most advisors may appear very similar in that they offer one overarching service, financial advice and oversight. However, when you really break it down, each advisor will likely offer such advice under one of three primary models.

Of these three models, two (for the most part) fall under something called the Suitability Standard, while the third falls under the Fiduciary Standard–and these two standards are quite different.

This distinction is important to note, though it is ultimately up to the client to determine their comfort level with either standard.

As we look at the three primary individual models, there is the traditional brokerage firm, the dually-registered advisor, and the fee-only fiduciary (Registered Investment Advisor – RIA). Within each model, the individual firms are understandably unique, but their structure determines how they get paid, and how they present information to their clients.

Brokerage Firms are:

Affiliated Advisors are:

Registered Investment Advisors are:

Many have argued that each model has potential pitfalls, but if you do your research, you can come armed with the tools to ask educated questions, and ensure that you and your family are in good hands. Below are a few sample questions to get you thinking:

1. Do you know if your advisor is a Fiduciary?
2. Has your advisor ever disclosed potential conflicts of interest to you, whether verbally, or in writing?
3. Do you know and understand your advisor’s professional background?
4. Does your advisor file a Form ADV?

A Form ADV is actually a two-part filing that most firms are required to submit to the Securities and Exchange Commission (SEC) on a yearly basis. In doing so, they must also provide their clients with all material updates to the document from year to year. The ADV Part 1 includes specifics on the business, the types of clients served, any affiliations of the firm, and most importantly, any disciplinary events that have involved individuals, or the firm itself. More recently, the SEC has added a Part 2 requirement, which must be written in “plain English.” This document serves as the lighter, more direct source of information for the average investor. If your advisor files an ADV, you should absolutely read it and review changes from year to year. Additionally, if you are contemplating a switch, or looking for your very first advisor, you should know that all ADVs can be found on the SEC website.

The bottom line is that most advisors are driven by the goal of making you more money and keeping you happy, but they approach this goal from different perspectives. The three models described may all contain some variation of a common fee component (typically the charge based on a percentage of AUM), but it is important to note how else your advisor may be getting paid. You may be their client, but there are incentives and standards in place that may not necessarily result in the most effective use of your assets. After all, it is your money, and you should entrust it to advisors with whom you feel comfortable working.

6 Common Estate Planning Mistakes Made by High-Net-Worth Families

Posted by Rachael E. Bator, CFP®

High Net Worth Estate Planning Tips for Successful Wealth Preservation

Securing your future through a professionally and thoughtfully executed estate plan is one of the best ways to protect yourself, your family and your wealth for years to come.

While estate planning is a necessity regardless of one’s level of wealth, it is especially important for high-net-worth individuals and families – not only to ensure your peace of mind, but also to preserve the high quality of life you’ve worked so hard to attain.

Understanding the proper execution of your personal estate plan is a vital part of the overall process, offering the comfort that comes with knowing your wishes will be carried out effectively while safeguarding your wealth for future generations or charitable bequests. Unfortunately, there are some common estate planning mistakes made by high-net-worth individuals and families that can prevent the successful execution of their estate plans. The good news is that these mistakes can be avoided. Educating yourself about them now can help you to make informed estate planning decisions now and in the future.

The Top 6 Most Common HNW Family Estate Planning Mistakes and How to Avoid Them

Leaving Family Members Out of the Loop

One of the major objectives of an estate plan is to provide for your family after your passing. When family members are excluded from the discussion about how family wealth will be used in the future, it can create considerable discord and unrest, especially if you have family members who may not get along. If any of your family members are expected to take on a significant role in your estate plan, it’s also important for them to understand the mechanics of your plan and the expectations of them in their role(s).

While the topic of estate planning isn’t always an easy one to discuss, have an open discussion with your children and all involved family members about your estate plan and the decisions you’ve made. Encouraging them to share their feelings and expectations of your estate plan can potentially avoid any future litigation of the will or trust – and may also raise issues or concerns you hadn’t considered before. Once they’re in the loop, keep them there! Ongoing communication can help you prevent hurt feelings, animosity, and future disputes.

Failing to Plan Family Asset Distribution

While it’s important to consider and include your family in the estate planning process, your plan must be focused on how that wealth will be passed down – determining which assets a chosen beneficiary will receive is only step one. You can be strategic in your estate planning to pass on your assets in a way that minimizes your tax obligations while preserving more of your assets for your beneficiaries.

If you own a family business (and intend to keep it in the family), important consideration must be given to the distribution of these assets to your surviving family members. If some are currently involved in the business but others are not, you may want to distribute assets based on a family member’s contributions to the business, or you may want to divide business assets equally among all heirs. The estate tax implications when transitioning a business ownership interest to relatives must also be considered.

Planning Portions of Your Estate Independently of One Another

High-net-worth individuals may sometimes work with multiple wealth advisors, with each advisor in charge of a different subset of their estate plan. Even though your advisors are no doubt very skilled, a divided team responsible for the same pool of assets introduces an element of risk that may delay or prevent the successful execution of your estate plan.

By working with one team of advisors, not only are your assets more likely to be managed in alignment with your estate plan, but the consistent oversight of your overall wealth plan also fosters a more efficient plan-monitoring process – meaning issues are identified more quickly, leading to timely adjustments that may prevent pitfalls down the line.

Failing to Review Your Existing Estate Plan

If you already have an estate plan in place – especially one created years ago – it’s important to remember that ironically, estate plans are “living” documents. Major life events (such as a death, marriage, birth, divorce, changes in your financial situation, or even legislative changes) could impact your estate and the direction of your wealth.

An outdated estate plan can lead to increased tax (and other) liabilities, or diminished protection of the wealth you’ve worked so hard to secure. It is also another way to create conflict between family members if it is not properly updated to account for relevant changes. Reviewing your estate plan at least every three years, and especially after a major life event occurs, can ensure your wealth is protected in an efficient and effective manner.

Under-Utilizing Trusts

While trusts are often utilized as a primary estate planning vehicle for a number of reasons, they do not constitute a comprehensive estate plan and should not be considered a substitute for a will – rather, they should be designed in conjunction with your will and other estate planning documents to complete your estate plan.

Trusts allow high-net-worth individuals to assign management of wealth to a trustee upon his or her death. This trustee is responsible for distributing the trust’s assets according to pre-determined terms. There are many types of trusts that may help you to carry out your unique estate planning objectives, including trusts focused on charitable giving, providing for those with special needs, and estate tax minimization.

Failing to Select the Best Trustee or Executor

Naming a trustee or executor is one of the most significant decisions you’ll make when designing your estate plan, due to the complex nature of the named individual’s responsibilities. There are several factors to consider when choosing a trustee, including the potential for conflict among family members about the decision, and whether the named individual has the capacity to fulfill the role effectively. Responsibilities for both trustees and executors can include but certainly aren’t limited to opening financial accounts, approving investment decisions, distributing assets, filing tax returns, and of course acting in your best interest, or the best interest of your beneficiaries.

It’s not uncommon for an individual to quickly choose one child or sibling over another, given their relationship, professional occupation, personality, accessibility, or other prominent factors. Open discussions with your family members about these important decisions may solidify your choices, or even surprise you.

If you are uncomfortable with the prospect of a family member or friend fulfilling the role of trustee, you also have the option of hiring a professional trustee who will oversee your trust in a fiduciary capacity.

High-net-worth individuals and families have more complex estate planning needs than others. The tax landscape in which your wealth exists is a complex and ever-changing one. Federal and state estate tax laws also change frequently, and you should be aware of how those changes can impact your estate plan. Communication, careful thought, and technical expertise from qualified estate planning attorneys and wealth advisors are imperative in avoiding these common estate planning mistakes.