Finding the Right Steward for Your Wealth | AWM Insights #171
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Episode Summary
An advisor who is independent, integrated, and can work through your individuality will increase the odds of your family’s success and help you establish multigenerational wealth.
Independence, and the lack of a corporate structure that places shareholder interests above those of clients, is imperative. An advisor who is there to work for you and views your interests as being their own as a fiduciary will inherently improve the alignment of values and your investment experience.
Integrating different elements of wealth strategy from Investments to Financial Planning and Taxes, enables your advisor to truly take ownership of your wealth and deliver a comprehensive experience that checks all the boxes.
Lastly, the ability to understand and work with your individuality, and not just place you in a mass-produced offering, improves the odds of success based on the tailored nature of service. S, M, and L are great measurements for shirt sizes, but exponentially more complexity is needed to manage something as important as your wealth.
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Episode Highlights:
0:00 Intro
0:41 What are the right ways to vet out advisors and get the best results and experience?
1:46 Ownership matters
4:25 The importance of finding an Advisor that Aligns their interests with yours
8:05 Why the Multi-Family office structure puts the client first and integrates all the experts you need
10:10 Independence, Integration, and Individuality
12:33 Text us!
+ Read the Transcript
Brandon Averill (00:03): Hey everybody. Welcome back to another episode of AWM Insights. Brandon and Justin here. We've taken this journey through this multi-generational wealth formula over the past few weeks. Really broke it down from human capital. What is the different types of human capital? What do we do with that gross income? How do we tax plan around some of the taxes that you may owe? Ultimately to a net income. What do we do with that net income? We spend it, we give it, we grow it. And we talk about the beautiful formula that can be created when we're talking about wealth, and then most recently we talked about the risks. We can build that most beautiful formula there is, but then it can get taken down in a hurry.
(00:48): Where we really want to wrap up this entire series is, okay, this is great. I've got an idea around the formula. I understand the risks I have to avoid. I can't do this all on my own. So who do I turn to? Who do I trust? What are some of the basic filters we can go through? And so for clients listening, hopefully this is a refresh and hopefully a confidence builder that you made a good decision. But then if there are people listening that maybe haven't faced this decision yet or evaluating their current team, hopefully give you some points here to talk about.
(01:22): We're going to go through the different structures of advisory type firms, and then really when you get into the nuts and bolts, the makeup of these companies. How do you evaluate whether they're really built to give you the best advice possible? One place I always like to start is a place that often gets missed. You might not even easily understand why you should ask the question, but really is the ownership structure of the firm that you're working with.
(01:50): We've seen a lot of changes in this over the past, I would say, decade or so. The most obvious is going to be publicly traded companies. Not that they're inherently bad by any stretch of the imagination, but you do have to step back and ask yourself, "At the end of the day, what does this company exists to do?" And when you're a publicly traded company, you exist to maximize the return for your shareholders. We love that on the investment side; I don know that we want that on the service side. So you see examples most recently of a company, used to be a great company in our opinion, but Goldman Sachs. They had to sell off one of their big wealth units because their investment bank was struggling a little bit at the current moment. And so now all these clients, we've seen the fallout, we've talked to some of the advisors, are basically in peril. They just kind of kicked them to the curb and it's done with. They make decisions not to maximize what's in the best interest of the ultimate client, but what's in the best interest of the shareholder. So publicly traded companies is one thing. Our opinion, steer clear. Lots of great options out there.
(03:05): The other is what we've seen is coming in is private equity coming in. Again, another kind of investment driven deal. So not publicly traded, but now if you're an owner or a founder of a firm that took private equity money, you kind of have another master to serve. They want the return out of the company, so you probably can't pay your people as well. You can't invest in things the way that you might want to. There's lots of benefits, there's a huge influx of cash. But again, it kind of takes that client right back out of the center of the relationship. And you got to ask yourself the question, "Can they really produce the returns that make the investor happy and give me the best service at the end of the day?" I won't pass judgment.
Justin Dyer (03:52): That's pretty difficult.
Brandon Averill (03:52): I have clear judgment on that or clear opinion, but I'll let everybody on the call or that's listening to this answer that for themselves.
(04:00): And then ultimately, there's the employee owned firm. And I think at the end of the day, this is clearly what we're passionate about at AWM, but it allows us to make decisions that in our opinion are a lot easier to make and put the client back at the center of the company. So I would definitely ask yourself that question. Ownership structure just matters a lot. It's back to the incentives. What side of the table is your advisory team clearly on? So I'll flip it over to you, Justin. I'd like you to maybe even kind of take that a step further and start to talk a little bit about the structures even beyond the ownership structure. How do these firms actually roll out their service?
Justin Dyer (04:42): What we're talking about here is alignment of interests. What you've hit on is the ownership structure matters. The more owners, the more different incentives that are thrown into that group, the controlling entity, let's call it, the more, in our opinion, incentives are misaligned between the goals of the organization and the goals of the client. What does that actually look like? I'll go through two high level business structures from a regulatory standpoint. The interesting thing is that a lot of what we're talking about here is also codified in rules and regulations. But you can either be a broker, which just so happens to be a lot of these publicly traded institutions, or you can be an advisor, an investment advisor, registered investment advisor specifically, which is what we are. The various different types of ownership structures can still apply to those two categories, but in general, the independent model of providing advice is one that is privately owned and far more aligned with interest. And that is truly how we're set up. We take it a step farther and really want to commit to that employee ownership, a lot for the reasons you hit on.
(06:00): But digging into the difference between an advisor and a broker, we're held, I mean, to different legal standards essentially. One is just called best interest or suitability; the other one is a fiduciary standard. I'm not going to go into a big law class right now. If you're at all interested, look those two things up. They're actually vastly different when it comes to an alignment of interest and how we have to make decisions essentially as though we are you the client listening in here.
(06:26): And then there's all sorts of other interesting options or business structures that can be added in or are typically added in on the brokerage side or really the publicly traded side. They actually take custody of your assets, meaning they're not putting an arm's length's distance between us and the custodian. Schwab, for a lot of you guys listening on here, or TD Ameritrade is one we've used in the past as well. We have a third party relationship with the institution that is largely responsible for the record keeping of your assets.
(06:59): Another big one is commissions. This is a revenue source. Our single source of revenue is dominated by fees paid by our client. It has nothing to do with commissions paid from other investment institutions that are looking to sell products that will compensate us if we do that. That's a big difference between brokers and advisors, I think one of the most important piece of it. Because again, your incentives are misaligned there. Instead of saying, "Hey, I'm giving you advice on your assets and you're paying me for that advice," the equation is essentially flipped. If I'm collecting a commission, somebody else is paying me and I'm telling you you should invest in that. It doesn't mean that good advice can't happen in those structures. Again, you're just not really setting up the cards in your favor or the deck in your favor.
(07:51): These are all really just important items to keep in mind. There's a laundry list of them. I have that in front of me. I'm not going to go down each and every one of them, but just suffice it to say the alignment of interest piece of this and component is really, really, really important.
(08:05): The independent side of it where we sit, and I'll dig into a little bit of nuance here, is a lot better than the publicly traded side of it; the independent investment advisor side, specifically not the independent broker side, which there can't even be that. Again, we don't do ourselves any favors in making this nice and easy to understand, and hopefully we're trying to clarify that a little bit in this podcast today. But the independent investment advisor where they're compensated by the client and they're providing that holistic comprehensive advice, but maybe they're sitting at the center and outsourcing a lot of things to various professionals, that's good. That exists, and that is fortunately something that's growing and becoming more popular. But for the level of complexity and the net worth of the people listening to this, our clients, we really believe strongly that you need something called a multifamily office. So it still is on this independent side of the ledger or the equation, but it's really taking that sense of comprehensive, the team-based approach, the comprehensiveness to the next level.
(09:10): We have our in-house tax team. I know that's going to be a trigger item for you, and we're going to dig into that. We actually really believe strongly that that is a substantial value add piece of it. Having this integrated team so our tax team can talk to our advisors, my investment team can talk to the tax team so easily, and it's all in this really, really synergistic kind of complimentary fashion just to benefit you, the end client, at the end of the day. So the multifamily office structure, the comprehensive coordinated piece to it, the team side of it is really where to take this to the next level and clients of our complexity and net worth really deserve.
Brandon Averill (09:50): Yeah, I think that's a great distinction there. And at the end of the day, I think what we'll leave you with is really sort of a checklist; the three i's, is what we like to call it. So number one, is it independent? Is your solution independent? If it's not, probably don't pass go. Number two, is it integrated? Justin, you hit on this. Tax is going to be my triggering thought. We hear the argument all the time, checks and balances. You don't have your tax in house. This is the worst sales pitch in the history of sales pitches in my opinion, because any education on the other side realizes, "Oh shoot. So I'm really supposed to expect this CPA that files my taxes once a year to call, review my accounts, and tell me if something wrong's going on?" And then the flip side. It just doesn't work that way. I don't think anybody with any integrity could honestly say that that happens. If you want to check like that, you go hire an audit CPA, not a tax CPA. So if that's an argument being given to you, you might as well walk away. The integrity is not there. But anyways, so integrated, it's very important that your team is in coordination so that way you can get the best advice possible.
(11:02): And then the last piece we didn't have on too much, but is it individualized? And so I think the thing about the individualized and a little bit of the integrated is when you look at the team, you also want to make sure that you understand what this team can actually do for you. A big part of that is have they gone through the education, the continuing education, acquired the designations, gone to get additional education on the things that really matter to you? So it's evaluating, do you have CFPs, certified financial planners on your team? Do you have chartered financial analysts at the head of your investment team making sure that they really understand the expertise in their field? Do you have CPWAs, certified private wealth advisors on the team that deal with that higher net worth if you're in that net worth spectrum of $5 million or more? Do you have access to the right attorneys?
(11:55): At the end of the day, all these designations mean is that the person at least had the duty of care to go a little bit further with you. Does it make them the end all, be all? Absolutely not. There are CFPs in jail, there are CPAs in jail, all those types of things. But it is a checkpoint. You got to ask yourself the question, "If they don't have those things, why not? Why aren't they at least dedicating that amount of time to educating themselves and becoming experts?"
(12:19): So really leave you with that, the three i's. Make sure it's independent, make sure it's integrated, and make sure ultimately gets individualized to you and your priorities and everything that we talk about on this podcast. We hope this was helpful for you evaluating their team, hopefully a confidence building for those clients that are listening and why we're structured the way that we're structured. And until next time, own your wealth, make an impact, and always be a pro.