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2011 Wealth Assessment Survey Results

January 10, 2012
by Jack Reynolds

The results of the 2011 Wealth Assessment Survey are in!  Both private investors and professional advisors provided valuable insight into the complexities of managing considerable wealth on behalf of themselves and others.  The 2011 Wealth Assessment Survey is considerably more in-depth than my inaugural 2010 survey and will be discussed in detail over the coming weeks.  This week, I will share with you findings and commentary on:

What are the most influential factors affecting short-term decision making and long-term goals?

When it comes to managing personal financial resources, investment strategy continues to be the number one factor influencing short-term decision making and long-terms goals.  However, with so many advisors, opinions and options to choose from, how can you be sure that the investment strategy you develop today is going to get you where you want to go tomorrow?  Individuals and families with significant means often have complex financial needs that require thoughtful attention above and beyond investing in stocks and bonds.

Diversification, liquidity, asset allocation and/or alternative investments are key considerations.

  • See my recent article on the risks associated with concentrated stock holdings, especially investing in the stock of your employer.
  • The pull back in international assets in 2011 may represent an opportunity to deploy resources internationally, if you have a long-term mission to gain more international exposure in your asset allocation.
  • Liquidity is always important, but it is not a matter of maximizing liquidity, rather it is a matter of managing liquidity thoughtfully in the context of your overall asset structure and your likely foreseeable need for cash.  See too a piece I wrote last year on using credit as an integral part of your liquidity management

In my 2011 survey, spending management is the second most influential factor affecting financial decision making and goal attainment.  When it comes to spending your wealth, are you being too generous or not generous enough with your philanthropic and/or discretionary distributions?  Are you considering the tax consequences of making a large asset sale?  Hypothetically, you could have a solid investment strategy and yet never achieve your long-term goals if your spending rate is not integrated with your investment strategy. In setting your spending rate take into consideration the following factors:

  • The realistic long-term percentage return on your investment portfolio and the high and low points of that return (in percentage terms). Your spending rate needs to fit within these boundaries.
  • Recall too that before you set your spending rate you need to reduce the likely investment return from your portfolio by two other factors:
    • The likely rate of inflation, and
    • The likely rate of income taxes payable from your investment portfolio.
    • Bear in mind too that your spending rate needs to cover lifestyle spending as well as charitable gifts and intra-family gifts.

Interestingly, in my 2011 survey no clear leader emerged from the four remaining factors influencing short-term decision making and long-term goal attainment.  As one respondent commented, “They are all important.  It is hard to order them.”  This is rightly so, as fiduciary services, family dynamics, governance and wealth management are all essential for managing your wealth environment.  Each of their contributions will be made more clear in future blogs.

What advisors do individuals and families with considerable means most frequently consult for assistance in managing their financial resources?

An emerging trend in fiduciary services is that high net worth investors are using multiple advisors to assist them with their wealth management needs.  This is in contrast to 5 – 10 years ago when individuals and families with significant resources tended to use private banks to manage everything from custody, cash management and performance monitoring to investment management, making discretionary distributions to beneficiaries and tax compliance.  Sophisticated private clients are making more use of differentiated professional advisors. They continue to use private banks in their areas of relative expertise, and hire advisors with deep expertise to serve specialized functions. This trend was confirmed in my 2011 Wealth Assessment Survey, where the majority of investors revealed that they depend upon multiple advisors to assist them with managing their wealth.

Not surprisingly, CPAs were overwhelmingly selected as the most frequently consulted resource on an investor’s team of advisors.  Interestingly, no one called upon their CPA for assistance beyond their tax compliance expertise, which may represent an underutilization of this valuable resource.  Investment advisors were the second most frequently consulted resource in the past 12 months, followed by estate planning attorneys (who also sometimes serve as business advisors) and stock brokers who were tied for third.  A word of caution: be careful to illuminate fully any potential conflict of interest that may arise with an advisor who may have a financial stake in the decisions you make.