Is Ultra-High Net Worth Advice Different? | AWM Insights #122
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Episode Summary
How do you establish a family legacy that transfers to the next generation? This is the most difficult task ultra-high net worth families will face. Of course, technical expertise is important when creating a legacy that will last generations, but the next generation must be prepared to steward wealth. Waiting until it’s too late is the worst thing you can do as a wealthy family.
If transferring your family culture is important to you, the right team with the right experience can prepare your family for generational wealth transfer decades before it actually happens.
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Episode Highlights
(0:54) Why do you have an advisor? From just starting out up to ultra-high net worth ($30MM+), what is different in the advice?
(1:11) Mo money mo problems. With more wealth, the situation can become complex.
(1:37) Tax planning is essential for everyone but for UHNW it can be a huge impact.
(2:09) For UHNW, should you set up a foundation, or is a donor-advised fund better?
(2:58) The estate tax and estate planning allow you to leave more to your second generation or leave more to charity.
(3:25) If you’re wealth is illiquid, being thoughtful about how to manage that illiquidity is vital.
(3:54) Real estate is an illiquid investment that can take days or months to turn into cash.
(4:15) Determining how you set priorities and who is making decisions is an incredibly important part of the process. This is a complex and unique situation for each family.
(4:46) There are two categories, technical expertise is the most obvious and involves the expertise and team of experienced and qualified individuals.
(5:15) An example of technical expertise: our tax team found a $150,000 missed QBI deduction for a new client because of more eyes and more expertise for the client.
(6:40) The second category is the transfer of wealth. The family governance concept is crucially important to avoid the “shirtsleeves to shirtsleeves” problem where generational wealth is squandered.
(7:36) The next generation is an afterthought in almost all wealth management.
(8:11) Waiting until it’s too late to educate the second generation is a huge error because, by the time they are in their 20s or 30s, they have already established much of their principles and values on money.
(9:02) Our clients, whether on the field or in the boardroom are the best in the world at what they do. We want that same mindset to bleed into every aspect of life. High performance in every aspect of life maximizes the impact you can make in your life and the legacy you leave behind.
(10:42) If multi-generational wealth is important to you, get to the core of how that is going to happen. Technical expertise is a must but there has to be a focus on the transfer of wealth and a stewardship focus for the second generation.
(11:20) Future episodes will focus on the principles and values to help the generational wealth transfer.
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+ Read the Transcript
Brandon Averill (00:06): All right, Justin. Well, welcome back. We just wrapped up that awesome series on pursuing a better investment experience, and for those of you listening, it really just got Justin and chatting on, okay, that's great, we just covered what it looks like to actually design a really good investment plan, really good investment experience for pretty much any wealth level, whether you're just getting started, you've got a couple million dollars. But what about, it started getting us on this topic of what about the ultra-high net worth? The, by definition, 30-plus million or more, and started getting us thinking about the entire spectrum of advice here, and we thought it might just be fun to riff a little bit on some of those topics.
Brandon Averill (00:52): Like why, at the end of the day, do you have an advisor? From even the person starting out, ultimately all the way up to the ultra-high net worth, is there still a reason to have a team in place that's helping, or does more money solve your problems? The old adage, I think it's mo' money, mo' problems, right?
Justin Dyer (01:14): Yeah.
Brandon Averill (01:14): But at the end of the day, we got into this, Justin, maybe hit on for me a little bit what are... We started digesting some of these things, but what were some of the things that came to your mind?
Justin Dyer (01:25): Yeah, there are a couple that, well, more than a couple, a handful that are really still applicable, and even in many cases more important for the ultra-high net worth. So you think about things like tax planning, it is arguably important for everybody, but it can be more impactful for the ultra-high net worth. The charitable side of things, impact, that is such a unique subject to each client, each person, each individual, and making sure you're optimizing for what's important to you. Having those conversations and figuring out the best way to use your wealth, that we're talking about here is quite substantial, is used in the best way possible. Does it make sense to set up a foundation? Does it make sense to just use a donor-advised fund? Something we've been actually talking about a lot today even. So that's one other thing.
Justin Dyer (02:22): We like to reframe money as a tool, and we want to orient wealth towards making an impact and thinking about things in that lens, as opposed to, "Let's just earn more money for the sake of earning more money." If you're going to earn more money for the sake of having a greater impact, hey, that's a win-win-win. Thinking about these conversations and having these conversations with the ultra-high net worth, it's really exciting and it's where we can leave a positive impact, to repeat that word, on the world, or maybe that's on your family. Again, that definition of impact is very unique to each and every person. And estate planning. Most people are familiar at least with the estate tax and thinking about ways in which you can minimize that so you can leave more money to, maybe it's a second generation, that's what's important in a certain circumstance, or maybe it's leaving more to charity, going back to that being where you want to have an impact.
Justin Dyer (03:22): Managing illiquid investment, really, really important topic to think about as well. If something is illiquid, but you have substantial wealth, you know what? At the end of the day, if the liquidity event doesn't happen when you need to spend that money, your wealth doesn't really matter. So, thinking through that and being very thoughtful around illiquid assets versus liquid assets. These are things that are like a private market investment, a venture capital investment, private real estate versus a public stock, or a public bond that you can sell within a relatively short amount of time. I can go into a brokerage account and sell it today, tomorrow during market hours, right? That's a liquid investment, versus an illiquid investment is a piece of real estate, which takes days, maybe months in some cases to actually turn from that asset into cash.
Justin Dyer (04:12): And then kind of wrapping all of this into a single item, it's family governance. How do you effectively have conversations around these different items as a family? How do you set your priorities as a family? Who makes decisions? Is it a collective decision-making process, or is it a singular decision-making process? Again, all of these items are super unique to each and every family, but really, really important for a lasting impact, a lasting legacy and using wealth or managing or stewarding wealth responsibly.
Brandon Averill (04:51): I think that's interesting. When I started to think about it too, it almost falls into these two main categories. You've got the technical expertise.
Justin Dyer (04:59): Yeah.
Brandon Averill (05:00): Which there's incredible value in, and I think even as you think about the wealthiest families in the country that maybe go with single family offices, I think we'd even make the argument that you're losing some diversification of thought, you're losing some diversification of expertise there. Whereas, if you go with more of a multi-family office, you just have more thought process. Diverging thoughts, more research. A great example of this expertise coming to bear fruit, we just had to onboard a new client recently. Our tax team takes a fresh look, they, I would think, I've had a pretty good tax team previously, found $150,000 QBI deduction that wasn't taken.
Justin Dyer (05:41): There you go.
Brandon Averill (05:41): So, real money to the bottom line. To say we're that much better than somebody, I don't know, but we actually ask the questions, more eyes on it, more expertise at the table at the end of the day. You start thinking about those types of things, you think about the execution of the investment strategies, make sure you're allocated in the proper way, in a tax-efficient way, in a cost-effective way. These are all the technical expertise that comes to the table. But you kind of married this, which I think we would probably argue might even be more important, certainly if you have the goal of a multi-generational family, is the transfer of wealth. Right?
Justin Dyer (06:21): Right.
Brandon Averill (06:21): And that comes down to this family governance concept, and the data tells us, unfortunately, the shirt sleeves to shirt sleeves is the saying, but wealth just does not transfer. And the reason behind it isn't that you didn't have the technical experts behind it. A lot of times that is the case, but it's more about how do we actually take these learnings, how do we transform to the next generation? How are they educated, how do they know how to do this? I mean, we're so passionate about it, we hired somebody to help our advisors to make sure that we're highly competent. It's always been a passion. We've always been good at it, but we hired somebody specifically to help us in this kind of human capital and family leadership-type role.
Brandon Averill (07:06): But maybe dig into that a little bit. The families that you've seen, kind of run across, especially the ultra-wealthy, Justin, how has this played a part? You've seen probably the bad and maybe some of the good.
Justin Dyer (07:17): Yeah. To your point, it is really where we get excited and we feel like we can have a true impact on the world and people that we get to work with. The experience really does span the good, bad, and ugly, so to speak, and I think that really stems from the fact that it's difficult. It's not easy, and to your point, it's why we've decided to actively invest in tackling it head-on, so to speak. Whereas, a lot of firms within our industry, the family governance piece, the guidance around next generation education and comfort and bringing them into the conversation is generally an afterthought.
Justin Dyer (08:04): That's one element that leads to some failure sometimes. A lot of examples that you see, or experiences that I've run into, is this being a topic that really comes to mind kind of too late. I mean, it's never too late. I hate making that statement, but it's a lot harder when a family is, I don't want to say the first generation, or even second generation at that point, is knocking on death's door or anything like that, but they're advanced in their career. Maybe they're retired, so to speak, and the next generation already has some lived experience, some life experience. The older you get, you can't teach an old dog new tricks. Even if someone's 20, 30 years old, they have these preconceived notions, and laying that framework for effective wealth transfer, the values around money, whether it's framed as a tool or framed as evil, or framed as like, "Hey, let's just go blow it all tomorrow," that starts early and it takes time and thoughtfulness.
Justin Dyer (09:19): Going back to how we get excited about it, the way I think about it is so many of our clients are the best at what they do. That's generally on the field, in the proverbial boardroom, or within starting a company, or they've started a company, exited it, and then still very actively involved in their community. We want to take that same mindset and make sure that bleeds into every single aspect of life. Be high performance in every aspect of life, and this is an important component of that, and really rounding out that experience and maximizing the overall wealth that you have, the tools that you have, and therefore the impact that you can make.
Brandon Averill (10:03): I think that's a great way to put that whole thing, and for those that are listening that maybe are looking for an advisor, I would beg you to ask these questions. I think, unfortunately, we've gone over this before, but the model, our industry model is just not set up for success in this case, and I think it contributes unfortunately to the lack of success in transferring wealth. But again, you as the client should be at this center of this whole picture, and unfortunately, we've got even independent shops now taking private equity money and putting somebody else at this center, or they're designed for a lifestyle-type practice. They're going to be around until they decide to retire. Maybe there's a succession plan, maybe there's not, but what happens to your family's wealth as it moves generations? And don't even get me started on the wirehouse models, right? There is zero succession there.
Justin Dyer (10:56): Run.
Brandon Averill (10:56): They may hire the family office governance person as the little widget to come in and have the annual meeting with you, but really get to the core of, if this is important to you and you really want to have multi-generational wealth, get to the core of how that's actually going to happen. Take that opportunity, because there are so many things. The technical expertise, you absolutely need it. We hit on this podcast oftentimes about the different things. You started out this podcast today with that, but then moving over to this family governance kind of family leadership side of things, make sure that you have a team in place that is going to guide you through this process, and make sure that it's a firm that does align with those values of multi-generational wealth. I think that's hugely important.
Brandon Averill (11:43): You can tell we're passionate about this. We're going to kick off a little run here, I think, addressing this topic. We'll give you some more tangible things to think about as you're going through this process, really starting to form and shape some of the principles that you want to go off of to help this wealth transfer at some point in the future. So as we do that, we'd love to hear from you. Shoot us a text. As you know, the phone number is 602-704-5574. We'd love to hear what challenges you about this subject, how we can address some of these new topics. And then at some point, we're going to bring on Riccardo Stewart, our new leader in this subject, and we'll have him share some wisdom with you as well. But until next time, own your wealth, make an impact, and always be a pro.