The only question with wealth is, what do you do with it?
- John D. Rockefeller
If we command our wealth, we shall be rich and free; if our wealth commands us, we are poor indeed.
- Edmund Burke
Wealth Management is a process that involves more than just managing your investments. It encompasses a broad range of financial, legal, tax and consulting services. It includes a comprehensive, integrated game plan for those who are beginning to focus on the second half of their lives as they move through the wealth cycle from the accumulation phase to the maturing stages of consolidation, asset protection, income distribution and wealth transfer. Many financial advisors coach you how to accumulate and grow assets. This process is frequently characterized by the philosophy “he who has the most toys ….wins. However, a true Wealth Manager develops a much broader perspective over years of retirement coaching experience. Their focus goes beyond growth to include preserving and protecting your assets, converting growth assets into protected retirement income and transitioning residual estate assets in a tax efficient manner to future generations and charitable causes.
Many firms today are advertising a “Wealth Management” service. However for affluent families and business owners, Wealth Management requires a high level of sophistication and complexity that most firms or individual advisors are simply unequipped to provide. Cornerstone Wealth Advisors, Inc. has the experience and expertise to orchestrate this process and will assemble the necessary proven, and qualified subject matter experts to deliver an authentic and satisfying Wealth Management experience to its’ clientele.
The most powerful differentiator is the Wealth Management firm’s ability to develop an integrated comprehensive game plan and implement it. It doesn’t matter whether the implementation is through the Wealth Management firm, one of their strategic partners or one of the client’s existing professional advisors. What matters is whether a well-designed, comprehensive game plan is created and the coaching ability is available to drive the process forward. Driving a group of professional egos to achieve a common goal is sometimes like herding cats! Without a good experienced coach, the best game plan in history will never get implemented.
In essence, a good Wealth Management firm will help their clientele define what is most important to them, what are their overall financial objectives, and the timeframe in which they want to accomplish them, from both a professional and personal perspective. Then, they help develop a comprehensive and integrated game plan, but more importantly, implement the plan, with the client being the owner of the plan and the Wealth Management firm taking the role as the “coach “ or “team leader.” You can’t be the coach if you don’t understand each player’s role and how to keep the ball moving forward.
Today’s affluent individuals need an integrated, comprehensive, wealth management approach. They may work with different advisors as subject matter experts, but they need a quarterback on the team to orchestrate the process. A good Wealth Management firm delivers a consultative and integrative approach compared to most traditional wire house or regional advisors who tend to focus on a single product or area of expertise, leaving it to you to pull it all together.
Some of the aspects that differentiate true Wealth Management firms are:
- Single point of contact for a broad range of comprehensive wealth management services
- Consultative approach that helps educate the client during the comprehensive wealth management design and implementation process
- A personal, flexible and customized approach – one approach does NOT fit all
- Coordination with other advisor professionals
- Keeping the client more involved throughout the process and ultimately more in control of deciding the best approach for them
The core services of most Wealth Management firms are:
- Investment Management
- Financial Planning
- Estate Planning
The more advanced Wealth Management companies also have strategies for:
- Tracking expenses and bill paying services
- Tax Reduction Planning
- Risk Management
- Asset Protection
- Charitable Giving
- Life Insurance Trusts
- Selling appreciated or restricted stock.
- Trust Planning
- Family Succession Planning
- Family Wealth counseling
They also serve the needs of Small Business owners for:
- Buy Sell Strategies
- Key Man Insurance
- Qualified Retirement Plans
- Deferred Executive Compensation Planning
- Business Continuity Planning
- Business Valuations
- Business Re-capitalization
- Family Owned Business Succession Planning
In addition to providing high-level expertise and a comprehensive range of services, Wealth Management firms differentiate themselves in the way they link a multi-disciplinary planning process with the client’s vision and purpose…taking into account a family’s values and aspirations as well as its assets.
Why You Need It
“Science is organized knowledge. Wisdom is organized life.” -Immanuel Kant
“Strive not to be a success, but rather to be of value.” – Albert Einstein
Bob Buford wrote a great book called “Halftime”. Without trying to oversimplify his message, our lives are generally divided into two halves. The first half is about building a family and a career and creating success. The second half is about creating significance, something of value, a legacy.
The ultimate challenge every family faces is remaining in control in a world that is out of control. The second half game plan is all about achieving an organized life. Why do you need Wealth Management? In order to truly enjoy the second half, you need to understand what is important about money and life and what milestones you wish to accomplish during the second half of your life that will create significance in your life, create something of value, and allow you to leave a legacy.
However, you don’t know what you don’t know. The knowledge that brought you through the first half is not necessarily the knowledge you will need to get you through the second half. That’s why you need a coach. That’s why you need someone to help you assemble the resources to create a game plan that is unique to you and help you get it executed and bring order to your life.
Every family is unique in its wealth management needs. Most, share several of the following objectives:
- Accumulate More Wealth
- Control the Distribution of Wealth
- Leave a Legacy
- Reduce Taxes
- Protect Assets
- Manage Retirement Investments
- Protect Retirement Income
- Define and Manage Risks
- Maintain Purchasing Power
- Manage Cash Flow
- Increase Charitable Giving Potential
- Increase Control over Social Capital
- Allocate Assets Tactically and Efficiently
- Manage Family Business Succession
- Protection of Family Privacy and Confidentiality
- Preservation of Family Values
- Determine How Much is Enough?
“What Can Be So Hard About Managing Wealth?”
Entrepreneurs who have built a business, individuals who have inherited substantial wealth, or senior executives who have substantially benefited from their investments and stock options often raise the question, “What can be so hard about managing wealth?”
To answer this question, one should ask another question, “What was so difficult about accumulating my wealth in the first place?” Everyone should be good at what they do for a living; not necessarily good at what they don’t do. You may know how to build a business, but that doesn’t qualify you to operate on your own heart, represent yourself in court, or prepare your own strategic wealth plan.
The capabilities that enabled you to accumulate wealth are often not the same capabilities that are required to select, manage, and evaluate advisers who have the diverse skills related to income tax, wealth transfer, business succession, retirement, risk management, and investment planning. Moreover, without a coordinated team of advisers, studies show that families often lose much of their wealth by the second or third generation.
As wealth accumulates, so often does the number of advisers…attorneys, accountants, investment managers, insurance professionals, trust officers, and private bankers…to the point where you may have assembled a pretty good team of specialists. However, which one is capable of driving the process? If your team lacks a qualified coach to deliver coordinated expertise on your behalf, you need an experienced wealth manager.
At CWA, families expect results from their Wealth Advisors and we will work as hard as it takes to deliver! While CWA can access of the most comprehensive arrays of services for affluent families, how we help them use these services sets us apart. With CWA’s assistance and guidance, you can:
You can use your wealth to move from success to significance – by employing strategies that enable you to:
- Create and implement a game plan for the second half of your life that incorporates your values and establishes milestones for accomplishing your second half goals.
- Work with financial planners who understand the complexities of multi-disciplinary planning.
- Benefit from the depth of experience of advisers who specialize in implementing unique strategies for affluent families.
Integrate Advanced Tools into a Comprehensive Plan – that allows you to:
- Apply creative and cutting-edge ideas not commonly used by less experienced advisors
- Improve both your portfolio and your estate plan to achieve true wealth management integration
- Maintain financial and estate information in a format that keeps all of your advisers “on the same page”
- Integrate the impact of all proposed strategies on cash flow, income taxes, charitable giving, estate taxes and wealth distribution
- Understand the integrated planning effects through attractive and easy-to-follow graphs, tables, and reports
- Easily re-optimize the plan in response to changing goals, asset values, or tax laws
Team of specialists
- Business lawyer guides executives on the legal impact of their business decisions
- Philanthropic Planner redirects tax money to charitable causes
- Insurance Agent manages risk and helps decide how to quantify risk and which risks you need to mitigate and which you are willing to self-insure
- Wealth counselor develops a blueprint or game plan for your second half
- Investment advisor designs tax efficient portfolios
- Accountant prepares tax returns, provides year-end tax planning and provides tax advice on the specific aspects of your game plan
- Lawyer implements tax strategies by drafting trust and estate plan documents
- Wealth Management Coach actually coordinates the various subject matter experts to keep the process moving toward the goal and makes the critical calls to manage the egos of the players and maintain a spirit of teamwork among the players for the benefit of the owner/client.
The business of wealth management demands a disciplined professional approach with clear objectives.
At CWA, we apply a strategic and comprehensive approach to managing your wealth. We look at your entire life picture, a 30,000 foot view, by beginning with an exploration of your values and what you want to accomplish to make your second half significant. . By listening to you, we learn what is truly important to you about money and about life, what are the financial challenges affecting you today, what is your definition of financial security, and how much is enough? .Next we help you define what are the milestones you need to achieve during the second half of your life that will let you move from Success to Significance. Only then can we provide viable solutions to help achieve the legacy you desire to leave behind.
The CWA process involves working closely with you to identify issues, review alternatives, recommend solutions, educate family members so they can make decisions, and assist you in implementing the selected course of action.
In addition to ongoing meetings and conversations with you and your family, CWA provides you with all of the necessary documentation and tools to keep you informed of the planning process and the status of your affairs on an ongoing basis.
By communicating through a disciplined process, we make certain that information, needs and values are shared in an accurate, timely and convenient manner that revolves around the following planning stages and tools.
Step 1: Initial Consultation. Through a Discovery Session, you will meet with an CWA Wealth Advisor to discuss your present financial situation and future financial goals. CWA will provide a perspective on how we can help you with our integrated, comprehensive approach to Wealth Management.
Step 2: Comprehensive Financial Analysis. Using questionnaires and diagnostic tools, we analyze your entire financial portfolio and identify deficiencies and opportunities so we can help guide you closer to achieving your financial goals.
Step 3: Strategic Planning. With your input and our analysis in hand, we will devise a strategic plan and present you with recommendations on areas such as how to improve your overall financial performance, reduce your taxes, protect your assets, obtain cost-effective life, health, disability and LTC insurance, and enhance your estate plan.
Step 4: Implementation. Once you have approved the strategic plan, we put your plans into action and monitor the activity and progress with your entire team of professionals.
Step 5: Ongoing Monitoring and Enhancements. Your life is ever changing and sometimes those changes affect your financial goals and plans. Our periodic reviews with you help us stay up to date with changes that occur, allowing us to adjust the strategy and help keep you on track toward achieving your financial goals.
The foundation of our investment philosophy includes:
- Defining short and long term goals
- Using a disciplined investment process
- Creating diversification
- Controlling risk
- Mitigating volatility
- Having a long-term value oriented perspective on investments
Go to our Investment Philosophy section for further details
What is it?
Since every investment involves taking risk, in managing your wealth we must consider how to manage and mitigate the risks associated with investing. In fact, managing investment risk is equally, if not more important, than building and managing an investment portfolio.
What Are the Essential Risks of Investing?
For every investor, investment risk is the possibility that they will lose money or not make money on an investment. Investment professionals usually define investment risk as volatility of an investment’s return over time around its average return, as measured using standard deviation. A risk free investment is thought to be the three month U.S.Treasury bill.
Loss only occurs when the investor sells when the market is down or the investment value is below its cost. However, over the long term, since 1929, the market has been up 7 out of every 10 years.
There are multiple types of risk every investor faces:
Interest-Rate Risk: Fluctuations in interest rates may cause investment prices to fluctuate. For example, when interest rates rise, yields on existing bonds become less attractive, causing their market values to decline.
Market Risk: The price of a stock, bond, mutual fund or other security may drop in reaction to tangible and intangible events and conditions. This type of risk is caused by external factors independent of a security’s particular underlying circumstances.
Inflation Risk: When any type of inflation is present, a dollar today will not buy as much as a dollar next year, because purchasing power is eroding at the rate of inflation. This is also known as purchasing power risk.
Currency Risk: Overseas investments are subject to fluctuations in the value of the dollar against the currency of the investment’s originating country. This is also referred to as exchange rate risk. However, investors in U.S. companies are also subject to currency risk since 45-50% of the S&P’s profits come from overseas operations.
Political and Legislative Risks: Companies face a complex set of laws and circumstances in each country in which they operate. The political and legal environment can change rapidly and without warning and with significant impact on financial markets and securities. This is especially true for companies operating outside of the United States or that conduct a portion of their business outside of the United States.
Reinvestment Risk: This is the risk that future proceeds from investments may have to be reinvested at a potentially lower rate of return (i.e. interest rate). This primarily relates to fixed income securities.
Business Risk: These risks are associated with a particular industry or a particular company within an industry. Generally, business risk is that a company will go bankrupt or perform below expectations. Every company carries the business risk that it will produce insufficient cash flow in order to maintain operations. Business risk can come from a variety of sources, some systemic and others un-systemic. That is, every company has the business risk that the broader economy will perform poorly and therefore that sales will be poor, and also the risk that the market simply will not like its products.
Liquidity Risk: Liquidity is the ability to readily convert an investment into cash. Generally, assets are more liquid if there is an active market for the asset. For example, Treasury Bills are highly liquid, while real estate properties are not. Investors holding emerging markets or micro-cap funds are subject to liquidity risk.
Financial Risk: Excessive borrowing to finance a business’ operations increases the risk of profitability, because the company must meet the terms of its obligations in good times and bad. During periods of financial stress, the inability to meet loan obligations may result in bankruptcy and/or a declining market value. Financial risk is perhaps the greatest risk faced by high yield bond investors holding bonds rated below B.
Foreign Investment Risk: Investments in foreign securities may be riskier than U.S. investments because of factors such as, unstable international, political and economic conditions, currency fluctuations, foreign controls on investment and currency exchange, foreign governmental control of some issuers, potential confiscatory taxation or nationalization of companies by foreign governments, withholding taxes, a lack of adequate company information, less liquid and more volatile exchanges and/or markets, ineffective or detrimental government regulation, varying accounting standards, political or economic factors that may severely limit business activities, and legal systems or market practices that may permit inequitable treatment of minority and/or non-domestic investors. Investments in emerging markets may involve these and other significant risks such as less mature economic structures and less developed and more thinly-traded securities markets.
Actuarial Risk: This type of risk is covered in exchange for premiums by an insurance underwriter. It takes two forms: 1) the risk of premature death, and 2) the risk of outliving your assets. Investors who have sufficient assets to generate income to support their lifestyle for the remainder of their lives have no real actuarial risk.
Asset Class Risk: Stocks, bonds, cash and real estate are the four major asset classes. If you allocate too much of your wealth to any one class, you are subjecting yourself to asset class risk. This risk is mitigated by diversification. Research, for example, has determined that with at least 12 and preferably 20 different stocks in a portfolio, you can eliminate most company specific risk in a portfolio. However, we also know that you cannot eliminate market risk. Efficient portfolios are constructed using different asset classes that have low correlations to one another. By combining these assets together we see that in normal markets, we can increase returns and decrease risk in a portfolio through diversification. However, in market corrections or meltdowns, these different correlations tend to break down. We have seen stocks in a severe bear market decline up to 50%, while bonds have declined up to 10%. Note: Past performance is never to be taken as an indication of future performance.
Opportunity Risk: This is also known as opportunity cost, which is the highest price or rate of return an alternative course of action would provide. It is the cost of forgoing a safe return such as Treasury Bills or cash for the expectation of making a larger return elsewhere. The most common form of opportunity risk is the real cost of an investor staying in cash over a market cycle when stocks outperform cash.
Emotional Risk: One risk that often gets overlooked is emotional risk. Emotional risk is the risk of letting emotions guide investment decisions rather than using the discipline of an investment policy statement and a well thought out investment strategy. Financial advisors help clients manage their two greatest emotions within the investment arena, fear and greed. Fear causes investors to bail out of the market in a bear market and keeps investors out of the market during the early stages of a market recovery.
Taxation Risk: With the exception of municipal bonds every investment is subject to taxation risk. However, taxation risk for municipal bonds becomes an issue if the security is sold for a profit or interest payments are subject to AMT. How an investment is held will mitigate taxation risk, i.e. if it is held inside an IRA, qualified plan or tax sheltered account. Other strategies include avoiding or minimizing short term capital gains, tax loss harvesting and using tax efficient managers.
What other risks should be considered in Wealth Management?
Wealth Management is a dynamic strategic planning process. It starts with a comprehensive integrated financial plan. After considering the investment portfolio and the risks associated with investing, we need to look at those things that can sabotage or blow up the plan and interrupt the process of converting your wealth to income during retirement; providing your family with uninterrupted enjoyment of the lifestyle to which they are accustomed; and transition of wealth to future generations and charitable causes. Risk management begins with identification of risks and deciding if they can be mitigated or transferred to a third party (insurance) or deciding if you have sufficient wealth to self-insure the risk. Here are some of the other risks that are part of the wealth management process:
Income Interruption Risk: This involves the premature death of the primary income provider or disability of the income provider: Mitigated by 1) term or permanent (cash value) life insurance and 2) .disability insurance. This risk no longer exists after retirement.
Litigation Risk: This risk can disrupt plan execution by depleting plan assets. Stems from liability from three primary sources:
- Automobile Liability
- Homeowner Liability
- Personal Liability
Health Care Risks: Major health care issues can also disrupt plan execution by depleting plan assets. Generally fall into two categories:
- Critical Illness Risk
- Long term Care Risk
These risks are often self insured or they can be mitigated by purchasing sufficient major medical and long term care insurance.
Retirement Income Protection: Retirement income is subject to fluctuation due to market risk discussed earlier. Income strategies are available from insurance carriers to protect income and guarantee income for life at contractual withdrawal rates, even though underlying assets may be dissipated.
Tax Law Changes: Tax laws change every few years and taxes can deplete wealth without proper planning. Strategies include holding assets in appropriate accounts, trust and estate planning and annual tax planning reviews.
Why is it important?
Failure to manage risks properly will result in the dissipation of wealth and failure to maintain current lifestyle during retirement. It will also result in failure to leave the legacy you intended.
How can I mitigate these risk?
The first step in mitigating risks is to identify them which is why we schedule annual risk management reviews with our clients. Each risk is identified and strategies are discussed to either accept the risk, restructure assets to reduce the risk or transfer the risk to a third party, usually an insurance company. Let’s take the risk of litigation for example. Risk of litigation from damage or loss due to personal action, automobile accidents, or real estate ownership, can be mitigated by transferring these risks to a third party insurer by purchasing sufficient current insurance or transferring assets to properly structured asset protection trusts. Comprehensive Wealth Management should include asset protection strategies delivered by competent experienced tax attorneys for protecting your wealth from frivolous law suits and unfriendly courts.
(describe BAI deliverables)
Wealth Management and Stewardship
“Building Wealth on a Biblical Foundation”
What is Stewardship?
Part of CWA’s advisory practice is focused on the Christian Family. Stewardship is the belief that everything we enjoy in this life including our wealth is a gift of God and we are responsible for managing the resources entrusted to us for the benefit of the Master, as a Steward was responsible for his Masters possessions while his Master was away. When our Master returns we will be held accountable for how we managed His resources and what we did with those things that he entrusted to us. This concept is not unlike the concept that a trustee or fiduciary entrusted with a client’s assets and held accountable by the courts for what was done with those investments.
What is a Certified Kingdom Advisor?
Sean Barrett, Principal and Founder of Cornerstone Wealth Advisors, is a Certified Kingdom Advisor. Kingdom Advisors to quote their website: “is a community of Christian financial professionals integrating faith and practice for Kingdom impact. We exist for advisors who desire to:
- Realize purpose and fulfillment in the workplace
- Offer meaningful, eternally focused counsel to clients
- Join with like-minded advisors for encouragement, support and best practices
- Have a positive impact on the financial paradigms in our culture
Go to www.kingdomadvisors.comfor more information on Kingdom Advisors.
Incorporating Stewardship Principles to the Wealth Management Process
The Wealth Management Process for a family that incorporates the principle of stewardship into their value system differs in the following areas:
- There is a difference in the kind of advice you will receive from a Qualified Kingdom Advisor than any other advisor. Go to www.kingdomadvisors.com “Why Choose a Qualified Kingdom Advisor?”
- The initial consultation will identify what is important to you about money? Your principles and values will be revealed during this process and the resulting strategic planning will incorporate these principles and values.
- To the extent that your team of advisors is not like minded, we will help you add or replace advisors who are consistent with your philosophy.
- The major departure in a Wealth Management Strategy for a Christian client from a non-Christian client lies in the cash management, charitable giving and wealth transfer component of the plan. The Christian client will incorporate tithing into the plan and the charitable component will incorporate gifting and charitable trusts to give back to the Christian community.
Wealth Management and Stewardship
“Building Wealth on a Biblical Foundation”
Faithful with Finances, Inc.
CWA is affiliated with Faithful with Finances, Inc. a biblical stewardship training program which is being offered to various churches to provide stewardship training to church members. The program seeks to help Christians overcome the disconnect between one’s spirituality and one’s day to day management of finances.
Faithful with Finances is build upon four core themes:
- God owns everything including our money
- God will provide if we trust in Him
- ‘We must understand the difference between “serving” and “managing” money.
- We are steward of God’s treasures and , with that, comes great responsibilities.
Individuals and churches interested in learning more about Faithful with Finances should
go to: www.faithfulwithfinances.org
- Affluent Families
- Medical Professionals
- Small Business Owners
- Executives Approaching Retirement
- Baby Boomers
Client Solutions We Offer
Wealth Management Elements:
- Net Worth/Cash Flow Analysis
- Discovering Your Values
- Defining Your Goals
- Retirement Planning
- Risk Management Strategy
- Investment Policy Statement
- Risk Tolerance Reviews
- Strategic and Tactical Asset Allocation
Wealth Protection Elements:
- Income Replacement Strategies
- Disability / Long Term Care Planning
- Asset Protection Strategies
- Tax Reduction Planning
- Key Man Insurance
Wealth Transfer Elements:
- Estate Planning
- Charitable Gift Planning
- Business Exit Strategies
- Succession Planning
- Estate Tax Management
- Family “Wealth Values” Counseling