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The Importance of Financial Literacy for the Next Generation

Posted by Jeremy Walla

A critical part of wealth planning is involving the next generation

Shirtsleeves to shirtsleeves in three generations–or so the saying goes. Believe it or not though, there’s actually truth to substantiate the claim.

Almost 70% of second generation families have exhausted the accumulated wealth of their parents, and nearly all families have squandered the wealth by the time it gets through the third generation.

Significant wealth brings with it amazing capability and flexibility: the freedom to live a comfortable life, to provide limitless educational opportunities for your children, and to enjoy the moments and experiences in life that you cherish most (hobbies, travel, etc.). However, over time, no amount of money is endless if spending is left unchecked. Vacation homes, luxury cars; they all add up. With luck, a good estate attorney and financial advisor will help you manage your lifestyle to a reasonable level. As you can imagine, “reasonable” is deliberately vague, but should be interpreted to mean that you will still have substantial assets to pass on to your children, grandchildren, or other relatives.

Through the estate planning process, you and your advisors may come up with a fantastic plan to transition assets in a number of ways, but all of that planning goes to waste if your children have no understanding of what they’re receiving. They’ve enjoyed the advantages of a generous upbringing, and in most cases, they’d like to keep up that very same lifestyle indefinitely. Perhaps it’s possible for this to happen, but only if they work through the same level of planning that you completed, and the earlier they do this, the better. The plan will inevitably change, but the logic and the building blocks remain the same. To be successful, the second generation needs to have a firm handle on the basics of personal finance, an area that often gets overlooked when money is no object.

You started out from the bottom and worked your way up, eventually reaching a point where financial decisions became easy. Remember, you have flexibility and capability. The second generation knows they have flexibility, but do they have the capability?

The questions are endless, but the answers are critical to success.


Communication is Key When it Comes to Next Generation Wealth Management

In a recent post, we explained that a little education goes a long way. Conversations around money have always been awkward, no matter the level of wealth. For the ultra-wealthy, their reasoning for hiding inheritance figures from their children is often two-fold. They feel that divulging the information would be inappropriate, or would alter the behavior of their child(ren) (for the worse), and they often don’t even know how to go about addressing the topic. The tough part is, ignorance is bliss, and leaving children out of the conversation could set them up to “win the lottery” when the inheritance is passed on to them. Bear in mind, we all know how lottery winners tend to spend their money!

Remember, start with the basics, as these are the areas that will help limit risks for your children when it comes to the transfer of wealth.

While generational wealth can be a blessing, it can also be a curse. Diligence and education are your best bet at maintaining the status quo, or improving chances of greater success over the long term. History has shown us families who did it well, but the list of those who made and lost fortunes is far longer. Regardless of your level of wealth, the livelihood and financial future of your children depends on their capabilities. Some have more flexibility than others, but those who are more capable have the greatest advantage.

Financial Technology is Changing Wealth Management

Posted by Jeremy Walla

How the FinTech Industry is Influencing High Net Worth and Ultra High Net Worth Wealth Management

FinTech, the clever portmanteau of financial technology, has been the buzzword of the decade when it comes to financial management and investing. The advent of mobile trading apps, cryptocurrencies, and especially robo advisors has changed the landscape of wealth management. But there are still segments of the market that have lagged on the innovation front.

For high net worth (HNW) individuals with wealth in the millions, or ultra-high net worth (UHNW) individuals whose assets reach the tens or hundreds of millions, much has been unchanged over the last 10-20 years. Their complex investment strategies, and relationships with dozens of managers or custodians, results in a lot to keep track of; multiple, disparate accounts and plenty of paper statements and tax documents that easily pile up. The more money you have, the more difficult it is to produce accurate and timely reporting and advice–until now.


The Challenges of an RIA-Client Relationship That Doesn’t Leverage Technology

Until now, Registered Investment Advisors were so focused on the influx of office work required for larger clients, and as a result, more personalized relationships were difficult to foster. RIAs must manage tons of data entry, constant paper chasing, and agonizingly long waits for quarterly data. Without technology, there exists a constant time lag because information isn’t centralized. Advisors in the UHNW space were (and still are) data aggregators, gathering information from a plethora of sources at varying speeds throughout the year.

After far too long, the world of HNW and UHNW investing is finally beginning to see much-needed change. RIAs are beginning to see a flood of new technology that makes their jobs faster, easier, and more relationship-focused.


Leveraging Financial Technology (FinTech) to Streamline HNW and UNHW Investing

There are now some incredible solutions available, and firms should start taking advantage of the efficiency gains that will eventually be commonplace. Two major areas where technology is making improvements include Customer Relationship Management (CRM) and Document Management systems. Both systems have been around for a while now, but have traditionally been focused on internal data gathering and organization. More specifically, CRM systems were almost exclusively built for organizations that were transactional in nature, and primarily sales-focused. Think Salesforce; the name alone indicates the initial intent of the system. However, CRM systems now have a plethora of native functionality, as well as endless customization potential, either through manual build-out, or the addition of plug-in applications. Gone are the days of pulling data from one system and entering it into another.

Although not perfectly seamless, system integration is improving at lightning speeds, and customization is allowing firms in the UHNW space to build out a technology stack that finally serves the complexity of their client base. Satellite systems were the first step in centralizing chunks of data, but we’re seeing some fascinating opportunities to link up multiple databases to create one true home for information. Finding that right combination of parts can be a lengthy and strenuous process, but the gains are seemingly endless. Data from the CRM can now simply be pushed to document templates held in the Document Management System. From there, these documents can be “checked-out” for e-signature by the client, and then “checked-in” when done. What previously required cutting and pasting, printing, FedEx-ing, scanning, and re-filing now just requires a few mouse clicks. In addition, there are now solutions out there that will even download bills or account statements automatically. The process of gathering data is getting ever easier, and although there is still often some data entry, Artificial Intelligence (AI) solutions appear to be on the way to make this piece better as well.


FinTech Innovations Aren’t Just for the RIA

The life of an advisor is improving considerably thanks to financial technology innovations, but what about the lives of their clients? Documents and reports may be arriving faster, and e-signature is likely appreciated by some, but what’s really in it for the client? Where is the value-add, and why should they continue paying the same amount, if not more than they already do?

Clients who have always looked to receive customized attention should be your biggest cheerleaders. With the advances in technology, both HNW and UHNW advisors have more information at their fingertips than ever before, and that should mean faster, more accurate information when or before it’s needed. Rather than being primarily reactionary–gathering data and reporting on it, advisors are starting to become proactive advocates for their client. Better yet, operational tasks can become standardized and systematized, which leaves time for true strategic financial planning. As projects begin to take less time, that leaves more time for a client’s projects.


Working Through the Challenges of FinTech Toward the Ultimate Goal

New possibilities are coming to light daily, and the benefits of all this work are still tough to nail down in the short term. As we continue to implement and improve our processes, it’s clear major changes won’t happen overnight. Challenging projects require time, money, and careful planning, as we are always committed to meeting our clients’ unique needs. Some of these projects can take more than a year to reach completion, and while it does take time, implementing technological innovations to help grow client relationships is highly worth it in the end.

Here at Lake Street, we have worked diligently to monitor industry trends and focus on the solutions available in the market. While we may not be interested in being on the leading edge of technology, we do strive to find tested, vetted systems that can improve our own daily operations. In doing so, we find ourselves implementing solutions that have added great value to the productivity of each department within the firm, but our ultimate goal is producing time and opportunities to enable better client service. With that in mind, we have certainly had our share of small victories since beginning this initiative, and we look forward to adding these up and capitalizing on more exciting projects in the years to come.

Trusting Your Wealth to a Multi-Family Office

Posted by Jeremy Walla

The Benefits of Working with a Multi-Family Office Wealth Advisory Model for Wealth Management

Wealth comes to people in many ways, but regardless of how it happens, a critical component of your financial future is your team of advisors. There are several paths to choose in assembling that team. In addition to your legal and accounting professionals, there are brokers, investment advisors, multi-family offices, and single family offices to help you protect and grow your wealth.

You want to know you’re getting a comprehensive perspective you can trust, while avoiding the burden of acting as the coordinator of discussions and transactions among your advisors. You might accidentally find yourself taking on a more active role in your wealth management than you would like given other areas of interest.

If you have net assets over $20 million (often classified as ultra-high net worth), you should try to familiarize yourself with the differences between firms and advisory models that are available for you in this higher segment of the market.

Hiring a Multi-Family Office (MFO)

For the ultra-high net worth, an MFO is a logical path beyond the brokerage world’s “investments first” approach toward a more sophisticated, holistic family wealth management strategy.

An MFO is made up of multiple families, and services are typically pre-defined. They can offer “a la carte” investment management, financial planning, household management, or a combination of these services. More importantly, they offer shared experiences that can be an advantage over a single family office silo. Issues impacting one family will be addressed by the MFO, and any other families that could be impacted will benefit from the experience. An MFO advisor is well-positioned to either proactively address issues or at least identify a problem early and implement a solution that draws on the experiences of those applied to other families. MFOs also work closely with a variety of external professionals, so clients have access to an even wider network of advice and expertise, if needed.

Benefits of an MFO over other advisory business models include:

Perceived Versus Actual Needs–How an MFO Can Help You with Blind Spots

Your family may not feel like a business, but as wealth hits higher thresholds, it creates greater complexities that mirror those of a business, requiring you to essentially run that business in addition to your daily life.

An MFO should be able to help ease that burden. MFOs offer a breadth of services and advice that is flexible and can offer enhanced risk management over putting “all your eggs in one basket” with a single family office. A single family office can be expensive and you may feel like you’re running another business. With an MFO, you’ll feel much more like you’ve outsourced, and you won’t need to worry about being nickel-and-dimed for asking questions or spending more time on the phone with your advisor. Even better, your MFO team, along with their professional network, is working for you, serving as your chief financial officer as well as chief operating officer. There’s no substitute for the experience and knowledge of a financial planner, investment advisor, CPA, and estate attorney. An MFO team can help you evaluate existing relationships and guide you through a comprehensive analysis of your overall situation to be sure you choose the best path forward for your financial future.

Regardless of wealth level, everyone seems to worry and struggle with day-to-day management of finances. Don’t spend your time chasing down loose ends when you can entrust those tasks to a team of dedicated experts who will work together to ensure you’re getting the attention and the service you and your family deserve.

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.