Wealth, Actually Read online

  Look Twice at “The Client Comes First”

  As a wealth management client, when an advisor or brochure says, “We put the client first,” you should take great pains to ensure that is the case. Every pitch book and advisor will say the client comes first. Great wealth advice comes from focused and attentive professionals, and the industry is chock-full of good firms and great people. Financial institutions know this, and their marketing materials imply that their way of doing things is perfect for your situation. Every pitch book will implore you that the client comes first.

  Unfortunately, the financial services industry makes its money from the sale of products, services, loans, and other fee-based situations. You need to ask sharp questions to effectively take advantage of the resources that financial institutions can offer (and to avoid overpaying for advice or products that only marginally benefit you).

  The first step is to ferret out the way the advice is delivered to the client. Financial institutions and their advertisements claim to be focused on the needs of each unique customer. However, in their actions, recommendations, and client relationship structure, the institutions can be “professionally distracted” or focused primarily on selling their own products.

  They say that when you are a hammer, every problem looks like a nail. That saying isn’t limited to carpentry. It can happen in the wealth management world as well.

  For example, when seeking advice from an investment manager with a certain portfolio, a client can expect wholesale changes that align with the investment manager’s way of managing money. That makes good business sense—it’s scalable and efficient. However, the client’s current way of doing things might be an equally good way to go about it. It’s there that the tension exists. A good client and advisor recognize this tension and deal with it in a way that meets the needs of both the client and the advisor. Before moving forward with an investment plan suggested by a new advisor, make sure these questions are answered.

  When dealing with salespeople, we are conditioned to hear that we need more of their product. For example, how often is it that an insurance salesman will tell you that you don’t need more insurance? What if the best advice is different? The best advisors I’ve dealt with in the insurance industry are the ones who have come across a situation and, after some analysis, said, “You know what? You seem to be well-covered. Your current insurance is competitively priced. There isn’t really anything out there that will help you. You probably don’t need insurance.”

  That, to me, is useful advice. It gives the insurance advisor credibility, and I feel better about the advice I’m going to get in the future. In other words, I will feel like I am being advised, not sold.

  Additionally, the best advice doesn’t limit its focus to one narrow area, but instead encompasses information from several different parts of a client’s life. In the wealth industry, this is known as holistic advice. What that really means is that your advisor has taken the time to ask broad questions to find out what you’re looking for and then to probe more deeply to spot the issues that you may not have thought about.

  For example, if a client walks in and asks about something specific and narrow, such as a large cap stock portfolio, I’ll certainly take their request seriously. To provide the best possible advice for that specific client, my initial reply might be, “Let’s consider some broader questions first. What kind of income do you need? What are your sources of wealth?”

  To take the example further, perhaps this client is a recent divorcee who is accustomed to having their spouse’s income to fund their lifestyle and now that income is gone. It’s useful to start with a broader discussion to uncover those needs and ensure they’re taken care of long term. This helps to avoid the potential dangers of myopic management that may be tough for the client to recover from in the future.

  It is important to remember that not all clients are for every institution. When an advisor understands where a potential client is coming from and where he or she wants to go, the advisor can ascertain the fit of the client with their business model and gain the ability to say yes or no with conviction. This discipline is good for everyone involved. When an advisor is focused solely on selling products or putting a square peg of client into the round hole of their business model, it ends in a poor long-term experience for the client. It also reduces confidence in the wealth management industry.

  Confidence in the wealth management industry is important. The industry has changed significantly with the widespread adoption of the internet. Clients now have much more transparency into how things work and how fees are charged. They’re asking tougher questions about the value added for the fees they pay, and they’re gaining a more granular understanding of how the business works. As their worlds become more digitized, younger people are suspicious of the value of an advisor. The experience an advisor provides has to fit within a client’s changing world, and fit well.

  While not an easy future, this evolution is positive for everyone. It keeps the product providers and advisors honest, and it delivers better advice and appropriate, cost-effective implementation to clients. When an advisor does right by his or her clients over the long haul, it begets success.

  Helping Clients Help Themselves

  The wealth management industry has a lot of useful tools and many smart, sound, well-meaning people to advise clients. The way for clients to access the best parts of the industry—parts that can be maligned, both fairly and unfairly—is to be a better client.

  One of the ways to be a better client is to have a broader and deeper understanding of the “problem” you now face: what to do with your wealth. As a client, putting forethought into your goals and gathering advice from different data points will help you make better decisions. It will help you use the industry more effectively for your own purposes and avoid being used by the industry for its purposes.

  Remember that the concepts that led to success in a wealthy family’s area of expertise may not translate into success in the broader management of their investments. Clients should have a good group of advisors who frequently ask the question, “What do you want your wealth to do for you?” That question should be asked repeatedly. The answers should be reviewed and challenged consistently.

  Listen, Diagnose, Fix…Anticipate

  All of the questioning and advising in the world will not help if there isn’t structure attached to the exercise. Without structure and forethought, it’s easy to veer off course and have important wealth discussions devolve into emotional arguments or veer into wasteful intellectual debates. I try to head this issue off at the pass by introducing a simple framework to the problem-solving process. This is the philosophy of “listen, diagnose, fix,” borrowed from Bill Frist, a former Senate majority leader. He was also a heart surgeon, and his family runs the big healthcare conglomerate HCA. He has been successful in three distinct professions, and I attribute part of his success to the simple framework that he applies to the problems he faces.

  It’s an idea and approach that may not be complicated, but may not be easy either. Those three little words—listen, diagnose, fix—provide the framework that my clients and their advisors can all refer to as we assess, plan for, and solve the clients’ issues. The framework reminds advisors to:

  Listen to the client and hear their issues,

  Diagnose the problem(s) and how they relate to the client’s concerns,

  Fix the situation and lay the groundwork for dealing with future issues.

  The idea is that we as advisors should work hard to listen to the client and their issues, diagnose their needs and wants, and then fix any problems. This framework removes (or at least contextualizes) emotion from the problem-solving process. It reminds the group of what is important as we deal with complicated issues. Finally, those three words drive the group (both clients and advisors) to a solution.

  The Importance of Anticipation

  For my
current clients, I stay involved and focus on anticipating issues before they happen. If there’s one element to add to the “listen, diagnose, fix” philosophy, it would be “anticipate.” Anticipation is important. Even after you’ve “fixed” the initial problems, you’re never done advising a client.

  Anticipating issues is what takes an advisor’s value to the next level, and it’s what differentiates me from advisors who only fix a client’s initial problems. When I anticipate issues for my clients, I take the best information I have, look at where the world is going, and make sure each client’s wealth and personal situation remain in alignment. Even in uncertain times, this maximizes the fulfillment of their goals.

  Anticipation is one of the most valuable aspects of having a seasoned wealth management advisor. Clients themselves can’t expect to be experts in all aspects of wealth management. It’s good to have an advisor and a team of experts who are keeping their eye out for you. Ideally, that advisor has a broad palette of skills, resources, contacts, and experience to work from.

  With experience in different fields such as law, politics, nonprofits, and real estate, I can anticipate a broad array of issues for wealthy clients and proactively apply solutions. That’s a bit different from the rank-and-file portfolio manager, asset allocator, or any type of advisor with a narrower focus and background. The broader sensitivity allows me to see beyond one cycle and have a longer term, multiyear, and multigenerational approach to a client’s wealth and the issues that may be faced in the future. It makes the coordination and delivery of advice a simpler exercise.

  A Unique Philosophy

  When my clients and their team of advisors embrace the “listen, diagnose, fix…anticipate” approach, we are set up for long-term success. The approach focuses on spotting issues and then deploying the best expertise, both within and outside my network, to make sure each client’s unique needs are addressed. The goal—first and foremost—is to help clients identify issues and get the advice they need to move forward with their life. If that means they don’t end up becoming a client, that’s a decision we’ll make together from a business perspective.

  “Job one” is to make sure I have a sense of the client’s wealth (and its restrictions), the client’s timeline, and their current and future concerns. From there, the approach is to see what demands immediate attention. I may be part of a larger team of advisors, or I may be leading the charge. Not everything will come out after a first meeting, but there should be a good handle on who is responsible for what. Once roles are established, we are deep into the “listen” phase and well into “diagnosing” the client’s issues and their causes. I expect a lot of give-and-take, and clients may not have a full handle on their situation. It takes time for trust to develop, and if I’m doing my job well, the expertise and resources I deploy help the clients learn more about themselves.

  Some issues may require immediate attention and deep expertise. In that case, we get to “take the car for a spin,” and the client can get their first experience with the skills and tools at hand. Hopefully, that leads to a nice mutual relationship where we can start to “fix” the client’s issues. Other times, someone comes to me and the fit is not right for one reason or another. The client may not be ready, the firm may not have the right resources, or the client may want someone else to do the fixing. There can be a lot of reasons. That’s the tough part of the business.

  If we do get to the point where we can provide the right solutions in an unconflicted way—and in a way that makes sense for the client financially—then we’re all in great shape. The key is disclosure: the client will know how much our services cost and how we get paid. If the client isn’t comfortable with our arrangement or doesn’t see the value in the service, it’s probably a good time to move on. That’s okay. If the best solutions for a client lie elsewhere, and my best advice leads them away from the institution I work for, then that’s okay too. We can part ways amicably, and if circumstances change (on either side), the fit may be better later. I sleep well at night knowing I did my absolute best for that client.

  Everyone Profits from Great Advice

  In wealth management, the best advice revolves around understanding the people and the personalities behind the situation that’s in place and delivering the right solutions. For many advisors, managing the money is important, and asset management is one of the primary ways advisors get paid. We dive into this later in the book, but ascertaining how advisors are paid and where conflicts exist is important. Being a good client means knowing what you are being charged and why the product or service is necessary.

  If I’m advising people correctly—understanding the family dynamics, the longer-term issues, and the solutions—then the management of assets, the estate planning, and anything else we do to earn money in our industry almost happens as a matter of course. If we’re doing right by the client and understanding their issues, their pain points, and their needs, then we’re providing valuable advice in ways that make long-term business sense for both the client and the advisor.

  Who Should Read This Book?

  At this point, you might be thinking, “Wow, this is a lot to take in. Is this book really for me, or should I just get back to the golf course?” The fact is, if you are wealthy or about to be, this book will be useful to you. This book will help provide structure and context around the issues related to your wealth. Additionally, this book will give you an understanding of what questions to ask your advisors and how to be a better client so your advisors can serve you better.

  What kind of wealthy people does that include? Usual candidates can be people selling their businesses, real estate families, private equity and venture capital investors, hedge fund magnates, and other Masters of the Universe. Other likely people could include retiring corporate executives, lottery winners, NBA first-round picks, trust beneficiaries, or inheritors. Anyone struggling with questions related to their wealth or are facing a change in their circumstances should benefit from reading this book. For instance, divorcees (both male and female) can be hurt by the dissolution of a marriage and can be confused or frightened from an economic standpoint. While there may be substantial wealth in their situation, there may be little understanding about the mechanics of money and planning involved for a new (and separate) economic reality. For that situation and many others, reading this book will provide you with the information and thought process to build (or rebuild) your life going forward.

  This isn’t a book for people who are looking to become wealthy. A lot of ink has been spilled and bytes typed discussing how to become wealthy. I can’t help you with that. I don’t have any get-rich-quick schemes or ways to add inches to your vertical leap. This book is written for those people trying to stay wealthy. This is meant as a primer to help the wealthy adjust to their situation, develop realistic and sustainable goals, and to maintain that standard of living for themselves, their families, and their causes.

  Why Should You Read This Book?

  No playbook exists for people who are blessed with fortunate circumstances and meaningful wealth. It’s perfectly normal (and probably healthy) to be confused about the various issues that come with wealth. This book is meant to provide a starting point for people to think about their wealth. It’s a place to hear an expert talk about the issues of wealth in a judgment-free environment. This isn’t a venue where you have to worry about others saying things like, “Oh, I wish I had that problem,” or “What’s there to worry about? You’ve got tons of money.”

  The problems of the wealthy are real problems. They’re good problems to have, of course, but they’re still problems. They can include (but certainly are not limited to) determining the answers to these questions:

  How do you fill time?

  How do you find purpose in your life?

  How do you structure the wealth so your kids lead meaningful and purposeful lives and then maintain their motivation?

 
; How do you fund causes and charities you find important?

  How do you structure the wealth so you don’t overspend?

  How do you protect your quality of life for the rest of your life?

  I want the book to help you answer these questions and gather information in an educational and humorous environment. I won’t deluge you with statistics and charts, and I won’t drown you in legalese. I want to help you think differently. It’s my hope that you can pick up some tips to further your situation, and provide the mechanisms to be able to make good decisions for yourself, your kids, their kids, and beyond.

  Reading this book will help you use the tools provided by the wealth management industry. The more context you have around the idea of good decision-making for wealthy people, the more you’ll be able to take advantage of the industry’s tool kit, as opposed to being victimized by it.

  Think First, Act Second

  Thinking first and acting second is the kissing cousin of the maxim “Measure twice, cut once.” If you’re going to seek the help of a wealth management advisor, reading this book will help you choose the right advisor for you. The industry has many good people and institutions, but it’s difficult to know which people and institutions to choose. This book will help you cut through the noise of the industry and surround yourself with the people with the right qualifications and temperament to navigate your situation.

  The best planning happens when you’re able to take a step back and understand your fact pattern and goals. Having some forethought makes you a better client, increases the quality of advice you’ll get from your advisors, and sets you up to achieve the goals you want to achieve.