A Guide to a Truly Connected Wealth Plan
This week’s guest blogger is Tom Farrell, an investment advisor with PWM Advisory Group, LLC, an independent registered investment advisor and joint venture of Pinnacle Associates Ltd. and WithumSmith+Brown. 
Does your wealth management plan connect all your dots?
As a child, playing connect-the-dots helped bring an image together that, at first, seemed scattered and perhaps even chaotic. The same can be said when constructing a comprehensive wealth management plan. Often times it is imperative to incorporate a particular area of life that may not seem so obvious when identifying goals and objectives. For example, the live-in nanny who’s here for the summer helping with the kids at the beach house increases the risk of liability. Protecting the wealth that’s been created is a crucial piece of an effective wealth management plan. The “dot” in this example becomes an updated umbrella liability policy.
Goals: some are clear and others are complicated
It’s important to begin to define some of the more complicated goals so they can be combined with traditional topics like retirement age, vacation home and gifts to charity. Many families deal with difficult relationships with the next generation, their spouses or the sale of a business. It’s analogous to fixed and variable expenses in budgeting. A sound wealth plan will consider: when the burden of funding lifestyle expenses will shift from the business or the employer to the portfolio; whether the business sells in two years or five; if the adult children will be treated equally or fairly when it comes to gifts or distributions; even if the charitable goal can be fully funded now versus a more flexible annual approach. Testing for these and other variables allows for a more customized wealth plan.
Needs versus wants/wishes
A good wealth plan will test for funding the goals that are essential to financial independence and peace of mind. This is where the planning should begin not end. Once the crucial goals have been built into the plan they help to serve as the foundation from which further testing can be applied to the less integral “what ifs” assumptions (think vacation home, funding the wedding(s), college funding, and philanthropic endeavors).
Finally, it is imperative to understand how the volatility of investment returns, state/federal income taxes and inflation impact the results of the wealth plan. A wealth plan can often include decades of time until a future date of death and much can and will change as time passes. It is recommended to err on the side of conservatism when creating the plan and incorporate lower projected rates of returns, a long-term average rate of inflation and higher than expected federal and state income taxes. This approach helps to reduce the probability of misleading or “rosy” outcomes in any given plan. In the end a great wealth plan helps to provide confidence that as many of the relevant inputs as possible have been considered and all the “dots” have been connected.
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