We continually state that Integral Wealth Management involves more than just asset management. Well, what does this really mean? An integral approach looks at wealth in relation to every aspect of a client’s life: health, retirement, income taxes, investment management, risk management, and well-being. An integral wealth manager assists clients with the whole picture, not just limited parts.
To illustrate, let’s start with some definitions. What is the difference between a stock broker, a money manager, an insurance agent who also serves as a financial advisor, and a wealth manager? A stock broker buys and sells securities based on a client’s request. The needs of the client are viewed in relation to how much cash the client requests from the account each year and what is the best risk-to-reward ratio for achieving gains. Brokers receive commissions based on how many trades they make, and some products may involve a larger commission than others. Brokers are not held to a fiduciary standard, i.e. they’re not required to keep their clients’ best interest in mind. They are required to maintain what is considered an appropriate risk for the client and their first loyalty is to the brokerage firm they work for. A money manager, or portfolio manager, receives compensation based on managing a portfolio of investments. Usually the compensation is based upon meeting certain target returns such as how well the portfolio performs in relation to a particular index. There is an incentive and a duty to help the client grow his/her portfolio. Whether the growth goals are correct for the client is secondary to meeting the targets by which the manager is compensated. Third, insurance agents are compensated by selling insurance (a commission), and in cases where they manage assets, they usually charge a fee as a percentage of assets under management. Once again the standard of care is not a fiduciary standard where the client’s interest comes first. The actual standard is often governed by state laws because insurance products are exempt from federal regulation. Insurance agents who sell securities are regulated by either state security agencies or the Securities and Exchange Administration depending upon the size of the insurance agent’s firm. They sell insurance products from the organization(s) they are affiliated with, which may not be the best product for the client’s needs, and for retirement planning, they are biased toward annuities which are insurance products. A wealth manager looks at four important interrelated components of wealth in addition to investments: risk management (insurance), taxes, estate planning, and retirement. A wealth manager ensures that all of the components are in balance, e.g. not maximizing investments while having inadequate insurance coverage, or vice versa.
So how is an integral wealth manager different from a plain old wealth manager? An integral wealth manager takes into account all aspects of life that financial wealth touches, (s)he doesn’t simply set up goals to fund retirement, education planning and some vacations. While a good wealth manager would and should explore goals before devising a financial plan, an integral wealth manager takes into account how finances impact the client’s whole life. Aspects such as health, well-being, free time, and family relations all fit into the framework surrounding integral wealth. For example, an integral wealth manager pays attention to how a client’s wealth furthers the client’s well-being. Well-being is related to having sufficient funds to be independent but it also is about having enough free time to develop relationships with family, friends and colleagues. It is about making a difference in the world. It is about maintaining good health or funding the support needed to shore up deficiencies in health such as a long term care policy. It is about clients making a difference in the world they care about and having some control over their lives.
It is important to note that every person makes an integral decision about their own wealth. The difference is that some are conscious and systematic about the decision while others are not. Whether someone approaches integral wealth management consciously or not, everyone is practicing it; those who are more conscious about the process have better control over the results and often fewer surprises. A great example of this is the fact that studies show that about 80% of the average American’s health expenses are spent during the last year or so of a person’s life. Planning for this in advance means that it can be funded either through assets or long term care insurance. In reality, very few people have saved enough money to cover those expenses, and families are left with the burden of covering it for them, or depleting the assets and eventually paying for it with Medicaid.
One client was hesitant to purchase long term care insurance, saying that he could simply allocate his assets in the proper way to allow him to qualify for Medicaid. The family history pointed toward needing long term care at some point. A quick survey of the options and what they would mean as far as how much control the couple would lose over their financial wealth led them to decide that the cost of purchasing long term care insurance was less than the cost of losing control over their financial wealth. They realized they would not be comfortable allowing someone else to have access to their funds. The result surprised them and they have been happy with the decision to purchase long term care insurance ever since. This process assisted them in having more control over their assets which helped to maintain their overall well-being.
Clients may not realize how much an aspect such as health affects their financial plan. For example, being overweight increases the risk of Type 2 diabetes, which on average would decrease the overall assets of a client by $172,000 if diagnosed at age 50. Because we practice integral wealth management, we write about, and talk with our clients about the whole picture of health and well-being and how it fits into their financial plan. These conversations aren’t always easy to have, but since they serve our clients, we will continue to have them.
We believe in what we do: providing our clients with unbiased, integral advice which supports them in all aspects of their lives.
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