FAMILY INVESTMENT GOALS.
Custom-made plan may be best route to go
‘We were immediately attacked by some businesses who said, ‘Yeah, you’re just loading another holiday on us and we don’t see why it’s necessary.’ As I recall, I had to take on parts of my own caucus who said, ‘Aw, come on, we don’t want to do that.’
“In the cabinet room or in the caucus room, I stood up and walked around the room, saying, ‘Goddammit, we’re gonna do it,’ ” — Don Getty, former Alberta premier
Other than falling on what is usually the coldest time of the year, I love Family Day long weekends as it puts the focus on the importance of family values in today’s society. Interestingly, it was first celebrated in 1990 as an Alberta holiday by premier Don Getty and despite initial pushback as an unnecessary financial burden, it has since spread to include most of the other provinces.
While each family comes with its own amount of complexity, in the end, the strength of the family unit is what is paramount especially when it comes to helping the next generation not only become self-sufficient but also able to contribute in a positive manner.
So it makes a lot of sense that a family should each have its own plan, identifying what its specific goals are and therefore how its wealth can be managed in the most efficient manner to achieve them. While these goals will vary from family to family, there are some broader commonalities that can be a great starting point in this process.
According to a 2005 report entitled “Cultivating the MiddleClass Millionaire” by Russ Alan Prince and David Geracioti, the No. 1 issue keeping both middleclass and high-net-worth families awake at night is wealth preservation, with the second most-important issue being tax mitigation.
However, when surveyed only 15 per cent of advisers believe that 20 per cent or more of their clients are concerned about losing their wealth. Therefore, it really shouldn’t be surprising that their clients react quite negatively to market events such as what transpired in 2018.
For example, according to TrimTabs Investment Research, investors pulled a record US$152 billion from U.S. equity and bond mutual funds in December, which was one of the fastest pace of withdrawals on record — also selling ahead of what was the best performing January in decades.
Part of the problem is that the investment industry, especially in Canada, encourages this type of activity as it is geared to selling financial products and those with strong near-term performance ending up on the first page of many investors’ portfolio statements regardless of what the investor is really trying to achieve.
We’ve personally witnessed this among the hundreds of pages of statements we’ve been asked to review. Another common problem is the use of automated investment programs involving templated portfolios, despite many families warranting some form of customization and factoring in issues such as tax, cross-border, citizenship, investment structures, corporate liabilities, etc.
While deriving a family plan will deal with a lot of these challenges, unfortunately, this is rarely done as it involves a lot of work and it’s simply much easier to sell a client a financial product (preferably an in-house one). Consequently, when things head south and markets roll over many look to their advisers for comfort in the form of reassurances that the market will continue to rebound, that they will be able to select those segments of the market that will outperform in the near term or they will be able to time the market with allocation decisions.
When these promises are not delivered upon and more damage is done to the family’s wealth they in turn end up picking up the phone and start searching out a new adviser — who will likely undertake the same process and set of reassurances.
Rinse, lather, repeat. We believe a much better approach is to break this cycle, and instead of worrying about the past why not look to the future by using this holiday as a chance to have a discussion about what’s important to you and your family — and then talking to your adviser about it to see if your investment portfolio reflects these goals.
Sometimes all it takes for positive change is telling yourself “we’re gonna do it.”
IT MAKES A LOT OF SENSE THAT A FAMILY SHOULD EACH HAVE ITS OWN PLAN.