GOAL KEEP­ERS

Forbes - - Bezos Unbou - BY HA­LAH TOURYALAI AND ASH­LEA EBEL­ING

What’s your re­tire­ment num­ber? Who cares? Amer­ica’s Top Wealth Ad­vi­sors are dan­gling sec­ond homes, char­i­ta­ble foun­da­tions and lav­ish va­ca­tions as they bor­row from be­hav­ioral science to re­write their ad­vice play­books.

When a long­time client an­nounced she wanted to buy a mil­lion-dol­lar va­ca­tion home on Martha’s Vine­yard within the next ten years for cash, nan­cial ad­vi­sor Lori Van Dusen didn’t inch. e woman and her hus­band, then both ysome­thing sur­geons, were al­ready sock­ing away enough to main­tain their life­style in re­tire­ment. And Van Dusen, founder of LVW Ad­vi­sors in Pitts­ford, New York, ex­pects clients to share their goals, even those that might seem like a stretch.

at’s be­cause she man­ages her clients’ money (about

$2 bil­lion of it) in three in­vest­ment buck­ets: one for essentials (putting the kids through col­lege, main­tain­ing life­style in re­tire­ment), one for as­pi­ra­tions (that luxe va­ca­tion home or round-the-world trip), and one for legacy (phi­lan­thropy and be­quests). Martha’s Vine­yard was an “as­pi­ra­tion,” so Van Dusen started investing the woman’s an­nual bonus in a port­fo­lio with a more ag­gres­sive as­set al­lo­ca­tion than the cou­ple’s ba­sic re­tire­ment kitty. e sur­geons were okay tak­ing the added risk, the ad­vi­sor says, be­cause “they knew even if the money was lost, it wouldn’t change their life­style.” A er just six years, they had enough to buy the house.

Van Dusen, ranked 69th on our an­nual list of Amer­ica’s Top Wealth Ad­vi­sors, has prac­ticed this sort of goals-based wealth man­age­ment for three decades, mak­ing her an out­lier. For most of those years, the con­ven­tional ap­proach was to de­ter­mine a client’s over­all risk tol­er­ance (based on an­swers to a questionnaire, age and to­tal wealth) and then man­age all their money as one di­versi ed port­fo­lio, de­signed in line with mod­ern port­fo­lio the­ory to max­i­mize re­turns for that level of risk. Ad­vi­sors might help clients bud­get for goals, but it was a sep­a­rate func­tion.

Now, how­ever, big rms such as UBS, Ray­mond James and Bank of Amer­ica’s Mer­rill Lynch are push­ing their ad­vi­sors to adopt some vari­ant of Van Dusen’s goals-cen­tric investing ap­proach. is shi has a lot to do with eco­nomics—both the eco­nomics of the ad­vice busi­ness and the grow­ing in uence of be­hav­ioral science on nance.

Aca­demics such as Richard aler, who won last year’s No­bel prize in eco­nomics, have per­sua­sively de­scribed how “men­tal ac­count­ing” leads peo­ple to re­gard money di er­ently de­pend­ing on what it’s to be used for. ey’ve also ex­plained how hu­man ten­den­cies (e.g., hind­sight bias, loss aver­sion) lead too many in­vestors to buy at the top and sell at the bot­tom.

on in­tended use. And to­day’s com­put­er­ized as­set al­lo­ca­tion makes it easy to man­age mul­ti­ple in­vest­ment pots.

Ex­actly how goals-based wealth man­age­ment works varies by rm.

is year UBS rolled out to its 7,000 ad­vi­sors a plat­form that draws on both be­hav­ioral nance and li­a­bil­ity-driven investing—the tech­nique pen­sion-fund man­agers use to match pools of money with li­a­bil­i­ties due at di er­ent dates. e so ware com­bines plan­ning and money man­age­ment into three “strate­gies”: liq­uid­ity, longevity and legacy.

For a re­tiree, the liq­uid­ity pool cov­ers three years of spend­ing, funded with a bond ladder, in ad­di­tion to So­cial Se­cu­rity, pen­sions and an­nu­ities. ( The idea is to pro­tect clients from need­ing or want­ing to sell off equities in a bear mar­ket.) The longevity bucket in­cludes stocks and is de­signed to cover ex­penses, in­clud­ing long- term care, that come due af­ter three years, un­til the end of life. The legacy strat­egy, for char­ity and heirs, might in­clude an even more ag­gres­sive equities port­fo­lio, plus a donor- ad­vised fund and con­cen­trated ap­pre­ci­ated- stock po­si­tions that make sense ( for tax rea­sons) to hold un­til death.

Note that both UBS and Van Dusen em­pha­size “legacy.” Very-high-net­worth clients o en want to give money away, but only once they’re sure they have enough le for their own needs.

A widow in her mid-50s, with a $30 mil­lion net worth, came to Katie Nixon, chief in­vest­ment of­fi­cer of North­ern Trust Wealth Man­age­ment in Chicago, for ad­vice. Her es­tate plan pro­vided $5 mil­lion for a pri­vate foun­da­tion her daugh­ters would run. “She told me,

‘ The only thing I re­gret is I won’t be there to see it,’ ” Nixon re­counts. “I told her, ‘ That’s the worst plan I’ve heard of. Why don’t you do it in your life­time?’ ” Us­ing North­ern Trust’s goals-based soft­ware, Nixon was able to show the widow how she could cover liv­ing ex­penses and her other non­char­i­ta­ble goals for the rest of her life and fund her foun­da­tion now.

AMER­ICA’STOP 250 WEALTH AD­VI­SORSA record bull mar­ket has most in­vestors smil­ing to­day. But when the tide turns, Amer­ica’s Top Wealth Ad­vi­sors will lean on re­la­tion­ships and in­no­va­tive strate­gies like goals-based man­age­ment to hold on to as­sets. Below are 100 of Amer­ica’s Top 250 Wealth Ad­vi­sors. For the full list, go to www.forbes.com/top­wealth-ad­vi­sors.

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