Some of our largest competitors—even those that offer low-cost investment options for investors partial to the do-it-yourself (DIY) approach—are strong supporters of wealth management firms such as Pennsylvania Trust. In fact, there is new research that aims to quantify the intrinsic value a wealth manager brings to client relationships. This research indicates that comprehensive wealth and investment management may add up to three percentage points of value over time (The Added Value of Financial Advisors – Investor Note. Vanguard). This is in addition to the manager’s investment results and represents services such as portfolio construction, financial planning, and ongoing review and advice.
The conclusion is no surprise to us. The wealth management process is dynamic and encompasses many variables that extend beyond traditional investment management. We understand that it is often difficult to separate life goals from financial goals as the two are both inextricably intertwined and at times may be mutually exclusive. The relationship between client and wealth advisor is crucial, to ensure that clients are considering as many options and outcomes as possible to achieve their goals. We have been actively engaged in this process for 30 years and thought it would be of interest to walk through the steps we employ to advise and manage our clients’ assets. We begin each relationship and conversation the same way: by listening. Before we construct a portfolio it is important we consider the client’s perspective on the following questions:
- What is the client’s investment time horizon?
- Does he or she have a specific, discrete goal (e.g., retirement, college savings, a second home, or a new roof)?
- How does the client feel about market turbulence? Is he or she easily affected by dramatic swings in the financial markets?
- What is the client’s marginal tax rate? In which state does the client live?
- Are there any other assets we should be aware of that might impact our approach?
- Is the client expecting proceeds from the sale of a business or other source?
- How might assets be managed to reflect the client’s estate planning goals?
- Are there any social considerations or themes the client would like to see reflected in his or her portfolio?
- What is the most effective way to support one’s charitable goals?
The answers to the above questions inform our understanding of our clients’ long-term investment objectives. The resulting portfolios will represent the springboard for future discussion and planning. In a real sense, the portfolio review process with our client becomes much more than just a discussion of asset allocation, diversification, and investment performance. While those elements are important, we know that the wealth planning conversation is equally as important. DIY investors may be less able to achieve wealth efficiency as they risk missing an informed, objective perspective on the full wealth management process.
Our clients’ lives are not static, and as a result, their financial goals ebb and flow. As a wealth manager, it’s important that we factor in the many variables that affect our clients’ financial lives. We can then apply our experience and objectivity in tough times, and our prudence and pragmatism in times of euphoria. This recent study of the true value of a trusted advisor serves as further validation of the Pennsylvania Trust model—a model that has brought our clients’ ever closer to their goals since 1986.
by Juliana S. Karnavas
Ms. Karnavas is Executive Vice President and Director of Relationship Management at Pennsylvania Trust.