What is a Wealth Plan?

Everyone has heard the adage from Benjamin Franklin: if you fail to plan, you are planning to fail.

According to Charles Schwab, only 35 percent of people have determined financial goals and documented those goals into a formal plan. However, of that 35 percent with a plan, an incredible 92 percent feel confident they will reach them. Talk about peace of mind to enjoy life!

What can you do to be one of these confident people with a documented plan?

Whether you’re a business owner planning ahead of a business sale, a high-earning executive with significant equity in your company, receiving a sizable inheritance, or have accumulated assets over a lifetime of hard work, a wealth plan is crucial for ensuring the actions and wealth-related decisions you make are helping you work toward your goals. Even if a liquidity event or windfall isn’t imminent, it’s important to have clear milestones to avoid any pitfalls, like overpaying in taxes or misallocating your funds because you feel pressure to take action.

Wealth Planning vs. Financial Planning

Before we dive into whether you need a wealth plan (spoiler alert: you likely do), it’s important to understand exactly what a wealth plan is.

First, people with wealth often wonder – what’s the difference between a financial advisor and a wealth advisor? Is there a difference?

The terms “financial advisor” and “wealth advisor” are often used interchangeably – and by extension, a “financial plan” and a “wealth plan” might sound interchangeable, too.

But when it comes to wealth planning vs financial planning, the truth is that anyone can call themselves a “financial advisor.” There is no standard definition. Both may provide similar services and discuss similar topics, but the needs of the clients they work with are likely very different.

The way we see it, a financial advisor may provide holistic advice to their clients, but the needs of those clients may be less complex. Topics covered under the scope of a financial advisor run the gamut from things like budgeting and how to save to achieve long-term goals to simple investment strategies. The offering may look a bit “cookie-cutter” and lack a deeper dive into the person’s bigger picture and long-term strategy.

On the other hand, a wealth advisor typically works with high-net-worth individuals with significant complexity baked into their financial situation. For example, this might look like a business owner with a sizable investment portfolio, company stock, vacation homes and rental property, a desire to pass down generational wealth, and a clear idea of the legacy they want to leave behind. A high-quality wealth advisor will take the time to understand the big picture and all its moving parts – not just your investment portfolio. They’ll work to understand what the money is for and what needs to be working in concert to give you a high probability of success in achieving your specific goals.

Either way, when looking for an advisor, the credentials of a CERTIFIED FINANCIAL PLANNER™ indicate that the advisor has met the standards for a more rigorous education in complex wealth planning topics and ethics. They are committed to serving your best interests rather than trying to sell you on a specific portfolio or investment products.

Do You Need a Wealth Plan?

The truth is that everyone can benefit from a financial plan. The more complex your situation and the higher your net worth, the more you’ll need that plan to involve “wealth planning” more than “financial planning.” Around $3M+ is the benchmark where you may start to benefit from wealth management over basic financial planning.

We get it – you’re busy. High-performing individuals are heavily involved in their work or spending time with family. Their day-to-day life is quite comfortable, and their situation may not feel urgent despite financial complexity. Looking too closely at the future can be frightening since it may require uncomfortable changes to the current state.

Alternatively, some people have difficulty articulating their goals. They don’t know how to share what the money’s for with someone else, making it hard to connect the pieces to a bigger picture. This proves especially problematic for couples when spouses aren’t on the same page. They need to set goals together or as a family, and a wealth advisor can help facilitate that.

Another point of contention is simply fear: fear of a professional looking into their finances, fear that they should have done it sooner, fear of judgment, and fear of finding out that their goals may not be attainable.

Maybe you already have a financial plan. You know how crucial planning is to achieving long-term goals, so you’ve been managing your own finances and portfolio for years now. In these cases, we find that most people lean on rules of thumb that they heard secondhand. For example, “experts recommend saving 15 percent of your income to retire at a certain age.”

While rules of thumb are a place to start, they don’t apply to everyone. Upgrading to a personalized, holistic wealth plan can take your strategy to the next level and ensure everything is working in concert.

Consider a business owner’s needs compared to a high-earning executive.

For business owners, most of your plan will revolve around the business and your eventual exit strategy. How much do you need following your exit after-tax, and how can certain deal structures impact a post-exit lifestyle?

You will need to look at tax projections, making the most of the advantages available to small business owners, and more. You have different risks to consider: namely, that the majority of your wealth is tied to your business. Your wealth plan will also involve the ultimate fate of your business – will you sell it or pass it down to a child? At that point, will you ease out of the business slowly or step away entirely? Are you even sure you’re ready to let go of the business in the first place?

Looking at how to pass wealth down after the sale of a business may closely resemble the case study of John and Kara’s business sale.

Executives, meanwhile, have a different set of questions to consider. Rather than most of their plan hinging on owner-specific tax rules and a business exit, high-earning executives need to understand how to maximize the impact of their complex compensation package.

After maximizing your HSA and 401k contributions, what should you do with the rest of your salary? How can you best manage the risk of having a concentrated stock position that arises when equity is part of your compensation? When should you exercise stock options or RSUs as they vest for maximum tax efficiency?

The needs of both individuals are different, so their wealth plans would be different, too.

Detailed Cash Flow Planning

Where does your money come from and where does it go? Your current cash flow drives all the recommendations for specific actions you can take.

For example, depending on your goals for a detailed cash flow analysis, we may recommend actions such as:

• Putting more money in a taxable account after maxing out retirement accounts.
• Front-loading 529 accounts to fund future education expenses for your children.
• Selling restricted stock as soon as it vests to reduce the risk of building a concentrated position and provide the cash needed for tax payments on vested stock.
• Contributing the maximum to your health savings account.

The cash flow planning will drive the construction of a customized portfolio based on your unique situation. There are no cookie-cutter allocations here, though there are some best practices you can follow.

While we employ a systematic approach and have our own in-house investment models, no two clients’ portfolios will ever be the same. Instead, we construct a portfolio based on our understanding of the current and future needs and goals.

For example, goals for lifestyle sustainment in retirement, managing multi-generational wealth, or building a charitable legacy will likely require a portfolio to grow in addition to providing income to meet day-to-day needs. Plans more focused on lifestyle sustainment without major legacy goals may be more focused on income generation in the portfolio. It might have some element of principal preservation for any future needs that arise like long-term care or health events.

Ultimately, we believe that cash is king when it comes to the imminent needs of a portfolio. If we know that you will need cash from your portfolio in twelve to eighteen months, we will always advocate for having those funds in cash equivalents that may allow you to earn some income without incurring market risk.

Estate Planning

Estate planning is another important component that everyone should think about, regardless of age. In addition to planning for your personal wealth management, you should also have a clear and specific estate plan that’s flexible to any life or policy changes. In reviewing an existing estate plan, we’ll help you make sure that everything is titled correctly and in line with your wishes, noting any changes that need to be made as soon as possible.

You should also consider the estimated size of your estate at the end of your life, which can be done with the help of cash-flow-based planning. This can guide decision-making on where to allocate those funds to avoid or reduce estate taxes, allowing you to maximize your financial legacy for your beneficiaries.

If you don’t already have an estate plan, we will assess what you need to put in place, if anything, beyond the basic documents to protect your interests both in life and after your death. We partner with the trust and estate attorney to write the documents to help ensure a seamless process. At a minimum, you should likely have a will, power of attorney, medical directives, and revocable trusts to shield your wealth from probate and unexpected life events, like incapacity. Every situation is unique – a trust and estate attorney is an invaluable partner in providing specific legal advice.

Tax Planning

Are there ways to improve your overall tax situation not only today but well into the future? We believe in lots of ongoing tax planning and encourage our clients to really think about the long-term when it comes to their tax plan.

We might advise on topics such as how to divide your contributions between different retirement savings accounts like Roth contributions versus traditional ones on your 401(k). Our private wealth advisors can also help ensure you have the most tax-efficient investment portfolio with tax loss harvesting where it makes sense. You might also consider Roth conversions to reduce the risks of uncertain future tax policy and provide flexibility in future tax management.

Many business owners and executives are charitably inclined. This is an area where we spend a lot of time assessing vehicles for charitable giving, such as Donor Advised Funds, and how best to reduce taxable income where possible in conjunction with charitable giving.

Again, every situation is different. We empower our clients to have informed conversations with their accountants to get specific advice and recommendations.

Risk Management

As with many of the other components of a wealth plan, risk management is different from client to client. You may want to consider your various insurance needs including life insurance. Do you have enough and is it the right type of insurance? Do you even need life insurance based on your current situation and goals? Who can we help connect you with to get the proper coverage without hassle?

Another form of insurance that many clients can benefit from is property and casualty insurance (P&C). Liability is a huge risk to wealth that is often underestimated. We help our clients understand where they may have gaps and what actions to take to protect themselves and their valuable assets in partnership with insurance experts.

If you want to ensure that your ability to successfully meet your goals is protected from unexpected events like disability or death, we’ll help you assess whether you are properly covered by insurance to lower the risk that these events derail your plans.

Revisit Annually

At a minimum, we recommend revisiting your wealth plan at least once a year. A plan is never really “finished” or set in stone after the first recommendations are made – life evolves and changes, and it is always good to know where you stand as the market changes, too. If you have a major change in your cash flow or life situation, such as a new family member, marriage, divorce, or job change, your plan should be reworked to account for those changes and determine what actions to take.

How can you get back on track if something goes off the rails? What changes do you need to make to accommodate an influx of cash? How do you balance new short-term goals that may come with the longer-term goals we’ve been planning for? These are just some of the questions we can help you answer to give you peace of mind that you are making progress toward meeting your goals, whatever they may be.

Plan for Tomorrow with Confidence

Are you thinking about what you might need from wealth planning? Let us help you create a more robust wealth plan with honest, transparent advice for complex financial situations and portfolios. You can learn more about our approach in John and Kara’s case study where we built a custom portfolio based on their shifting goals, optimized tax planning, and helped them connect their legacy goals for their family to specific estate planning solutions to execute on those goals.

Curious what we can do for you? See if we’re a fit for your wealth planning today!