Wealth: How does the Life Driven Wealth Management approach differ from the typical “industry” process?
Mary Ann Sisco: Solutions created through a Life Driven Wealth Management approach are informed exclusively by the investor’s personal, financial and business goals. The financial advisor works with each client to first define, quantify and prioritize each of their goals. The advisor and the wealth management team translate these goals into specific liabilities, then develop a comprehensive wealth management plan designed to help meet each of these liabilities with a high degree of confidence.
Scott Dille: Traditional wealth management practices often do not explicitly consider investors’ financial, business and personal goals in the formulation of asset allocation and portfolio construction recommendations. While a general discussion of goals may occur, asset allocation and portfolio construction recommendations usually are made independent of these specific goals and instead are formulated based on a qualitative assessment of risk tolerance that then leads advisors to select from a limited number of asset allocation models. So there frequently is a disconnect between the explicit and unique goals of each client and the solutions offered.
Life Driven Wealth Management provides a highly disciplined process that directly translates the unique goals and wealth profile of each client into a truly customized solution. A Life Driven Wealth Management solution provides full integration of investment management, credit, wealth transfer planning and family education offerings.
Wealth: What factors led to or revealed the need for Life Driven Wealth Management?
Dille: The consolidation of several of the large wealth management providers over the last few years has created very large firms. While there is some benefit to size, those benefits often involve firm-centric opportunities associated with capturing cost efficiencies that result from economies of scale. Those efficiencies sometimes come at the cost of valuing the uniqueness of each client and family. Alternatively, the Life Driven Wealth Management philosophy honors the “particular”– the important but frequently subtle differences and nuances that make each client special.
Sisco: In talking with clients, what’s most important to them is what their wealth allows them to do, such as providing for their children and grandchildren, supporting specific charitable endeavors or helping provide for a secure and comfortable retirement.
By first focusing on goals and understanding what clients want to accomplish individually, as a family and in the community – and then customizing their portfolio with specific assets designed to help achieve those goals – clients gain confidence in the structure and viability of their long-term plan. Meaning, even if there are fluctuations in the market, clients have the confidence to persevere and stick to their plan because they understand the purpose of every asset in their portfolio.
Wealth: How can clients and their financial advisors pinpoint the goals that should inform their wealth management plans?
Dille: The process is a collaboration between the client and the advisor, with the client’s goals paramount in terms of informing the outcome. The framework we use to identify, quantify and prioritize goals has the following dimensions:
1. Lifestyle expenses. What do clients need in terms of cash flow to support their current or desired lifestyle? Lifestyle needs often are the primary goal for clients, and therefore low-risk assets generally would be most appropriate to fund lifestyle goals.
2. Significant capital purchases. What significant capital purchases are clients considering? This category could include the acquisition of a second home, yacht or airplane, as well as an investment in a business or other entrepreneurial endeavor.
3. Family. What level of educational funding do clients want to offer their children? What level of support can clients provide their parents? What level of ongoing support is desired and available for children beyond their education, such as weddings or first home purchases?
4. Philanthropy. What causes are clients passionate about? What levels of commitment are clients interested in making, and how might that manifest in terms of structure?
This four-dimensional conversation is the base level. From here, there is an opportunity to go deeper, gain additional insight, and enhance the precision and customization of a proposed wealth plan based on a more refined identification and definition of each client’s specific goals and objectives.
Sisco: Drilling down to the specifics is very important. It’s not enough to say, “I want to retire when I’m 60.” Clients need to engage in an honest conversation about what they want their retirement to look like: Do they want to travel, sell their home and downsize or move to another state?
Instead of reaching for numbers out of thin air, we want clients to assess their lifestyle needs in detail and say, for instance, “I need $500,000, after taxes and adjusted for inflation, to support my lifestyle after age 60.”
Wealth: Why is Life Driven Wealth Management more than just a one-time exercise?
Dille: However well designed a client’s current or initial investment solution may be, life happens. Financial markets will have an impact on an investment portfolio, income needs may change or asset monetization opportunities may emerge – and the prioritization and magnitude of various goals likely will change over time.
Whether it’s a modest revision or a complete rethinking, Life Driven Wealth Management is an iterative process that is repeated and refined over a lifetime. With each revision, a client’s wealth management plan will be more tightly integrated with and informed by that client’s unique set of needs, goals and aspirations.
Wealth: How is success determined when financial goals are aligned with personal goals?
Dille: With Life Driven Wealth Management, success is measured by confidence and clarity. Clients are successful when they enjoy a high degree of confidence that they will achieve their goals and have clarity around the rationale for their portfolio design and how their portfolio connects to their goals. This is an important distinction from traditional industry practices, which most often define success as portfolio performance relative to one or more arbitrary capital market benchmarks. A key insight in support of Life Driven Wealth Management is that success or failure in the traditional industry construct has no explicit connection with whether clients achieve their specific goals and objectives.
Scott Dille is senior vice president and national director of client experience in Personal Financial Services. He is responsible for leading Northern Trust’s initiative to deliver a goal-based investing methodology through an enhanced client experience.
Mary Ann Sisco is senior vice president and director of client solutions in Personal Financial Services. She brings extensive experience in providing individuals and families with creative wealth transfer solutions that address areas such as gifting, business succession and transition, retirement, executive compensation, generational and charitable planning.