While the title may take you back to the classic rock era and create a sense of nostalgia and fond memories of how things used to be, the reality is that life as we know it has changed. Yes, we said it. Each day, we see and feel the effects the current pandemic has on our lives. Things we never before had to think about are our new normal. We now ask ourselves, “Did I remember my mask to wear to the grocery store?” or “Did I review my child’s lesson plan before they attend class via Zoom?” One thing that is certain: 2020 is a year that most of us did not expect.

A natural byproduct of this is the literal pause in many areas of our lives. Some of these hiatuses are dictated by the restrictions in effect, and others are borne out of fear of the unknown or a desire to wait for things to “return to normal.” But something that has not changed, or could be more important than ever, is the need to navigate the current financial landscape.

My friends, we are afraid we may be watching opportunity pass us by if we wait for things to get back to where we were. It is commonly accepted that the reopening of society will not take us back to where we were as we welcomed 2020. Social distancing will remain the norm, and we will all have to adapt to how we manage our daily lives.

A good example of this can be found in something as simple as checking the mail. Previously, if someone in our office was away for a couple of days, there was a healthy pile of unopened mail to greet them. However, when they were away potentially for a week or more, there was relatively little. When we pondered the lack of logic in this outcome, we were struck with a realization — when the rest of the team knew the employee would return soon, it was acceptable to delay action, so the mail piled up. But when the team knew it was a longer trip, they knew items had to be completed to not delay or miss an opportunity. Indeed, with today’s news changing not only daily, but almost hourly, these are the times to not just wait but to take advantage and move forward.

Here are some of the items we have helped our clients through during these unprecedented times to not miss an opportunity:

1. Low Interest Rate Environment
   • Mortgages — Some major banks offer a one-time rate adjustment to your mortgage. You might have to pay a fee up front, but you are able to reduce your mortgage rate without the hassle of doing a total refinance and go through underwriting. But if this is not an option, it is a good decision to weigh the costs of doing a refi vs. your current mortgage rate. This could lead to big savings compounded year over year.
   • Intrafamily loans — The IRS publishes rates every month known as Applicable Federal Rates (AFR), and these dictate the amount of interest needed to be paid for a loan to not be considered a gift. These rates are at unprecedented lows, between 0.25%-1.15% (May 2020), depending on the term. If you currently have any of these loans outstanding, a refinance should be reviewed, or it’s also a great opportunity to maybe help your child purchasing their first home.
2. Roth IRA Conversion — If you believe your taxes will be higher in retirement or you have irregular income streams, you should look at converting a portion of your IRA to a Roth. This can take advantage of the current market decline and potentially pass on reduced taxes to your heirs.
3. Grantor Retained Annuity Trust (GRAT) — If you currently hold low value assets (either liquid or illiquid like a closely held business) but want to take advantage of the anticipated recovery, maybe a GRAT would be right for you. In basic terms, a GRAT is a trust that receives a gift of assets and repays the transferor an annuity for a term while the appreciation stays captured within the trust. Low interest rates and decreased valuations of securities make this an ideal time to consider this strategy.
4. Tax Loss Harvesting — This is the act of selling losing investments to offset capital gains and then reinvesting the cash in a similar yet different investment to take a tax loss but also to be invested when the market rallies. An advisor with a keen tax eye can review your portfolio with an eye for efficiency. Even if your portfolio doesn’t have capital gains, you can deduct $3,000 against ordinary income and carry it forward into future years. We often see advisors who only review portfolios for this opportunity in December, but it should be evaluated whenever there is volatility, such as we saw in March and early April.

If your advisors are not helping you to identify opportunities such as these, then a change may be in order. And while we would prefer things to return to normal in order to pursue this, we are facing the same predicament as it relates to important decisions. While we all prefer to make important decisions with input from our advisors and in-person meetings to reach these decisions, our ability to do that is going to be limited or completely impaired for an undetermined amount of time. We must, for the foreseeable future, adapt to conducting our business and decision-making in new ways via phone, video chat, etc. to ensure an opportunity is not left untapped.

Further, the very uncertainty that is creating this challenge is the same uncertainty that is presenting opportunities for our advantage that will, when things get back to normal, have evaporated. So, while our current situation is far from ideal, we must remember to surround ourselves with a team who will help guide us to accept our new normal.

Disclaimer

The media is flooded with advertisements and debates about which is the best way to manage one’s wealth.

There are countless providers, service offerings, implementation vehicles and associated fees. The providers can be broken down into a handful of categories: traditional brokerages, investment banks, trust companies, Registered Investment Advisors (RIAs) and discount brokerages. The services offered are not as clear cut, obfuscated by marketing and seemingly interchangeable terminology. All of this reminds me of a conversation I recently had with a client, who turned our value proposition on its head when he joked to me, “If you’re a genius, don’t hire Waldron.” This made me to wonder, who, in actuality, shouldn’t hire us?

One of our founding principles is that wealth management is only truly delivered when an advisor understands and manages the entirety of a client’s balance sheet. While this may seem obvious, the business models of many firms are built solely around the management of liquid assets. As a natural result, this causes many providers to focus only on those assets. Which brings me to the first customer who shouldn’t hire us, the do-it-yourselfer. This person is focused almost entirely on his or her investment portfolio, and returns. They most likely are keen observers of financial news networks, monitor asset performance on a daily basis and have a short-term time horizon for their positions. This is exactly the opposite of how we approach investing, in more ways than one. First, we view investing as part of a comprehensive strategy for supporting a client’s goals. Second, we have a long-term time horizon that is integrated with a client’s cash flow management, tax planning and long-term objectives, things that are not affected by short-term volatility. Third, we are not reactionary when it comes to rebalancing a portfolio. When daily events send a ripple through the markets, we remain focused on the long-term big picture, not the daily fluctuations. If someone is watching CNBC and consistently hears stories that inspire them to act, that is not a client we can help. We understand that the investment management marketplace is facing substantial pricing pressure and that many investment gurus emphasize the importance of finding the lowest cost service possible. And if all that is being delivered is investment advice, there is some merit to this argument. But such a paradigm is antithetical to our comprehensive perspective, and “investment only” is not an ideal client for us.

While investment management is extremely scalable from an operating business perspective, wealth management is not. Which brings me to another type of client who may not be a good fit – the client with a patch work of advisors, who they must coordinate to manage their wealth. An individual with multiple brokers to handle their portfolio, an attorney to handle their estate plan, an advisor to manage their business holdings and another advisor to help with insurance and retirement planning. This individual has essentially named himself or herself as the quarterback for all of the moving parts in their financial life. In our perspective, integrating and coordinating a comprehensive strategy to support a client’s goals is the job of the financial advisor, and if someone prefers to manage this process on their own, while limiting our ability to communicate and coordinate how everything fits together, the relationship will not be satisfactory for us or the client.

The third type of client who wouldn’t want to hire us is the brand conscious, retail client. We are a boutique firm that takes on a limited number of select clients. Our approach to wealth management is a comprehensive one which requires a very low client to staff ratio, currently better than 5 to 1. For someone who values the name recognition of an investment bank or a Wall Street address, we are not the firm for you. Our focus is on helping our clients achieve their goals, not marketing or meeting quarterly earnings figures. We will concede that point without protest.

Understanding the complexities of wealth can only be achieved when a team of advisors can operate in an environment that affords them the time to deeply understand all the moving pieces of a client’s situation. These integrated services can include planning the ownership transition of a business, identifying optimal cash flow sources based on their tax structures, understanding asset protections and how best to protect the family’s wealth from outside liabilities, developing appropriate investment portfolios to support client goals and educating the family about how to manage wealth across generations.

We are an RIA firm, and our business is built on providing exceptional service at a fair price. Our boutique nature allows us to price engagements in creative and flexible ways that can be composed of consulting fees, assets under management fees or a combination of the two. The nature and terms of the pricing are driven by the value we are able to provide through the coordinated management of your entire balance sheet. If you are looking for the lowest cost provider that will only deliver part of what you need, then we are not the firm for you. If you are looking for a comprehensive, customized approach, and appreciate value, we are here to help.

Disclaimer

Most of us have heard the saying “Shirt sleeves to shirt sleeves in three generations.”

And you may be tempted to pin this squarely on the estate tax, but the adage holds true in countries across the globe, with or without an estate tax.

Over the years, I have witnessed both great failures, and great successes in the transfer of wealth between generations, and have noticed that one popular approach often results in complications which are a little counter-intuitive. While many parents have the best intentions for keeping their cards close to the vest when it comes to sharing information about family wealth with their heirs, this strategy, let’s call it “financial protectionism”, may not be your best bet for a successful outcome. The following example illustrates some of the potential pitfalls. There was an heir who received a portion of his inheritance while his mother was still alive, but who had no real understanding of his family’s wealth. The heir spent the inherited sum while waiting for the remaining portion of the inheritance, which was distributed upon his mother’s death. The lack of communication between the two generations left the son to draw his own conclusions, and to live his life accordingly. Unfortunately, and we observe this often, his assessment of the total value of the family’s wealth was much greater than the actual amount, and this amount was further diminished after the estate taxes and administrative fees had been assessed. With no other significant source of income, in order to maintain his desired lifestyle, he was forced to sell the home where the family had lived for three generations, and subsequently downsized his residence several more times, all while enduring increasing levels of stress and uncertainty as he approached what were supposed to be his golden years.

This disastrous result is somewhat predictable from a practitioner’s perspective, and unfortunately, all too common. Yet, with improved communication, an appropriate amount of financial education and a coordinated estate planning and cash flow management strategy, a far more manageable, and far less stressful outcome could have been achieved.

So what can be done to facilitate a successful transfer of wealth? One of the key components of our approach to next generation wealth planning is providing basic financial education for the heirs, so that they have a better understanding of the components of family wealth. Equally important is establishing lines of communication between the generations about what the heirs can reasonably expect from their inheritance, setting expectations necessary to keep the transition on track, and maintaining an open and respectful dialogue about both generations’ vision for the family’s wealth.

Would you expect someone to operate heavy machinery without proper training and guidance?  I hope the answer is “No”, but this is exactly the scenario into which we place heirs if we do not share our knowledge and experiences with them before the transfer of wealth occurs.

In families where parents and heirs have prepared for the transfer of wealth, clear guidelines and responsibilities have been set and agreed upon, well in advance of any triggering life event. I have had the good fortune to work with some families where the parents have engaged with their children throughout their formative years, and into adulthood, about their vision of family wealth, and have encouraged an increasing level of involvement in the technical and structural aspects of managing it as they grew older. In some cases, the heirs, to whom cash and other assets had been incrementally transferred for tax planning purposes, played an active role in the planning and management of assets set aside for their own kids’ retirement.  Financially educated heirs, who are engaged in the process of managing family wealth, are likely to experience a greater sense of financial security, and to be contributors to, rather than detractors from, the family’s long term planning and legacy.

Managing wealth correctly is challenging.  There are many complex relationships between the components of family wealth that must be understood, balanced and integrated. Few of us are born with the innate ability to simply “figure it out” as we go along.  And while it is imperative that the younger generation accepts and manages their responsibilities, the bigger challenge can be for the elder generations. Historically, there has been a reluctance for parents to share information about their wealth with their children out of fear it will create a lack of incentive for them to be productive.

One of the challenges to this notion of financial protectionism is that heirs often simply want to know what to expect, so that they can better prepare for their future. Another consideration is that heirs may wish to be more involved in how and why decisions are being made because somewhere down the line, they know they will be the ones making these calls, and first-hand knowledge can be vital. And, as illustrated in the previous example, a lack of communication has the potential to cultivate the double landmine of a lack of productivity spurred on by an over estimation of family wealth. Additionally, the void created by a lack of communication can easily be filled with misconceptions about trust and even love. These crossed signals may be the unintentional result of the older generation simply not knowing how to discuss certain aspects of their wealth, but the resulting misconceptions can cause real damage to familial relationships.

How do we reduce these conflicts and improve the odds of success? At Waldron, we work with our clients to encourage and facilitate discussions around family wealth. This is conducted in a way to share information at a pace with which the senior generations are comfortable, and that educates the younger generations about how and why decisions are being made.  Through open and honest dialogue, family relationships can be strengthened, and the odds of successfully perpetuating the family’s wealth will be greatly improved.

Disclaimer

When many of our clients begin the process of buying or selling a business, we find that they are both excited and apprehensive about the impact the transaction will have on their financial life.

The fear of the unknown coupled with the new components within their estate makes the decision even more complex. This feeling of uncertainty is precisely why it’s so important for business owners to have an advisor who provides coordinated and comprehensive counsel on all aspects of their financial life before, during and after the establishment or sale of a business.

At Waldron, we take a holistic approach to wealth management, and integrate every facet of a client’s wealth to support their unique needs and vision for the future ­– whether it’s valuation coordination, buy/sell agreement consulting, tax planning or succession planning. In addition to managing these processes, we also recognize the value in connecting our clients with attorneys, business growth advisors and other trusted partners to ensure that every aspect of the transaction is managed efficiently.

With that, our experiences have proven that with a little help, owning and/or selling a business can yield significant benefits to the business owner – including the potential to realize significant financial gains.  Let’s break these down to take a look at the advantages of each.

Buying

Purchasing an existing business or building a new one from the ground up can be rewarding in many ways. In our experience, clients seek an entrepreneurial business venture for a variety of reasons. Some, for instance, are simply not meant to work for others and the idea of being their own manager satisfies an internal drive to set their own course in the world. Others might be looking to leave a legacy for their family – and find the prospect of owning and operating a family business that will live on long after they are gone very appealing.

But for the majority of clients, the desire to own their own business is derived from the potential to acquire great wealth. Having the ability to capitalize on their talents and take full control over their own destiny can be quite compelling as well. Another benefit from owning and operating a business can be working together with family members and providing income that can benefit the family now, while building a legacy to benefit future generations as well.

For those who are considering acquiring or building a new business, it’s important to design the appropriate corporate structure, whether that be an S-Corp, LLC or C-Corp, for example. This determination should be made in consideration of appropriate liability protection and with an eye to maximize the tax benefits afforded to the business owner. These benefits can potentially include tax deductions on any property, plant or other capital expenditures transacted to improve the business. Additionally, many other business expenses may receive favorable tax treatment due to their role in supporting the business, while also providing a secondary benefit of enhancing the business owner’s personal life. Owning your own business means taking on costs that you wouldn’t necessarily incur if you worked for someone else (such as insurance, overhead fees, travel and business expenses). Many lines of tax code have been written to soften the blow of covering these extra costs, and you should claim every tax deduction you can.

Selling

Over the years, we’ve worked with clients in a variety of capacities to assist in the sale of a business. In most instances, prospective clients will approach us when they are ready to retire from owning their business or if they wish to create a succession plan to smoothly transition ownership to their family or to team members within the business. In essence, we help clients manage pre- and post-sale transaction planning to maximize the sale of a business and minimize taxes.

One of the core benefits of selling a business is the additional liquidity it generates. Typically, much of a business owner’s liquidity is tied up in the company, until he or she decides to transition that wealth elsewhere. Additionally, if the owner is not ready to step away from the business entirely, the deal can be structured in a way that allows them to remain involved with day-to-day operations.

Other times, favorable economic trends specific to the business’ industry may create a high demand and attract potential buyers. At that point, selling the business could present a more profitable outlook.

Finally, it is important to remember that while great wealth can be created by concentration, wealth is preserved by diversification. If the client’s most valuable asset is their equity stake in a business, turning some or all of those assets into diversified investments is a great way to grow any acquired liquidity.

Disclaimer

Picture this: You’re currently approaching your target retirement age and have accrued a sizable nest egg. You’d like to purchase a vacation home to use as a retreat during your later years, and you’re comfortable with the plans you have in place for your post-work life. It’s time to retire, right?

When devising a strategy to manage cash flow planning at retirement, we often tell clients the question they should be asking is not “Can I retire?” but “Can I retire the way I want?” In reality, there are several factors that go into a retiree’s annual expenses, and it’s critical to have a clear picture of your financial goals before cutting off your primary source of income.

What’s right for one person is not necessarily right for another, so a one-size-fits-all approach is never the solution. That’s why we begin each client engagement by spending a significant amount of time with them to better understand what’s most important to them, and establishing their goals. Once we know what they’d like to accomplish with their wealth, we can then create a cash-flow projection based on current spending levels that predicts their spending during retirement and the impact spending will have on their liquid assets. This process tends to be profoundly helpful for our clients because they’re able to refer to clear data when making important life decisions.

But before we begin forecasting for future spending, there are a few questions we ask our clients to help us project the most accurate results.

How much do you plan to spend annually during retirement?

This is often a difficult question for our clients to answer, because most people do not have a clear grasp of what they spend on a regular basis. As a wealth manager, we sometimes see new clients come in who are 55 years old, have just acquired a significant amount of wealth and want to retire right away. But once we show them that this money needs to last 45-50 years, they completely change their perspective. We then work with them to devise a strategy that extends the life of that money for as long as possible.

Many think their expenses will go down when they retire, but in many instances that couldn’t be further from the truth. In fact, based on the type of retirement lifestyle you desire, your expenses could actually increase. Maybe you’d like to travel around Europe or invest in a vacation property. Did you factor in medical bills? Maybe you should be considering long-term care insurance. These are all puzzle pieces that we try to put together for each of our clients so we can ensure that there is sufficient cash flow during their later years.

Do you have any philanthropic desires?

For some people, leaving a financial legacy means allocating a portion of their wealth for various charities. But when incorporating charitable giving into their retirement planning, many do not consider the tax and personal benefits of gifting to charity. To give an example, we had a client who wanted to donate a portion of their wealth to fund a construction project at a local hospital after they passed away. The new building would be dedicated to the family, bearing the family name in memorial. We reminded them that if they waited until they were deceased, they may not receive the full tax benefits from their charitable contribution and also would not be around to see the finished product. For some, this plan might be fine, but it’s important to keep these thoughts in mind when prepping for the future.

Will you be leaving behind a legacy for your heirs?

Would you like to set up an inheritance plan? How much risk are you willing to take to maximize what you pass onto your children? Do you know when that transfer of wealth should occur? When approaching retirement, it’s common for our clients to begin asking these questions, but understanding the best approach for your situation is crucial to crafting the right plan. For instance, perhaps you choose to leave your financial mark by naming your children or grandchildren as beneficiaries to your Roth IRA because of the tax-free distributions. Or maybe you’d rather leave the family home to your children. Whatever path you decide, your legacy plan should be completely tailored to suit your goals.

We also encourage our clients to use their retirement years to appropriately prep their heirs for this transfer of wealth. While many families invest significant time and expense preparing tax, legal and estate plans, families too frequently fail to prepare their heirs. This lack of communication can set into motion common but avoidable mistakes. Holding family meetings dedicated to your family vision, engaging the next generation and building trust are key to ensuring that your family legacy is preserved.

How should we be investing to help meet your goals?

When people retire they tend to want to be more conservative with their investment decisions. But it’s important to remind our clients that their decisions should always relate back to their individual goals. How did you respond to the other questions presented above? Have you taken all scenarios into account?

We find that many individuals approach investing backward. To use an analogy: When you seek medical advice, your doctor may spend the majority of his or her time diagnosing your issue and only prescribe the medicine at the end. With investing, many investors start with the “medicine,” which is the investment selection, and spend very little time on the “diagnosis,” which is the goal and strategy of the investment portfolio. By approaching investing backwards, investors leave themselves susceptible to both financial and emotional risks.

We often tell clients that when you are in your advanced years, you can’t necessarily afford to be conservative. You need to factor in inflation and a variety of other influences because your purchasing power becomes especially critical later in life. By focusing on the “diagnosis” when analyzing your investment portfolio, you can create a complementary strategy which will support your goals

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