What Should I Do with My Money?

By Mary Ellen Nichols, CFP

There is a quiet revolution going on in wealth management. And it’s not what you think. An alternative wealth management model is quietly being developed by bank trust companies catering to the emerging wealthy.

Comprehensive wealth management was once only offered by global private banks and reserved for the very wealthy (net worth of $25 to $100 million). Now it is being offered by regional private banks and trust companies to individuals and families with a net worth between $1 million and $5 million. It is a high-tech and high-touch wealth management approach that makes sense for today’s complex world.

For many family business owners, the focus is turned toward the operation of the business, with personal wealth management often taking a backseat. What many people don’t realize is the two are actually so closely tied that comprehensive wealth management is essential. Lack of planning could lead to a worst-case scenario involving the death of an owner, in which the business must be sold immediately to meet the liquidity needs of the owner’s estate.

Self-Directed Financial Management

For many people (or business owners) currently in the wealth-accumulation phase of their lives, a key consideration for wealth management is time (or lack thereof).

Personal financial transactions are executed instantaneously in real-time, with mobile access. This technology creates a compulsion to self-direct our financial life. And, increasingly, brokerage firms offer low-cost, online, self-directed investment tools or apps that allow people to trade with knowledge and confidence. Managing money on your own, however, is not always a successful recipe for long-term personal financial success.

The high velocity rush of investment data can become confusing very quickly for people not involved in the world of investments on a daily basis. A self-directed financial management process often does not include key elements like an investment risk profile or an investment policy statement. Self-directed investing in a turbulent market can lead to second-guessing and uncertainty.

The Family Office Model

For many years, the wealthy have managed their financial affairs using a family-office model. These high net worth families retain financial experts to coordinate an array of specialists to deliver advisory services on-demand and with the utmost privacy. This is all accomplished within the framework of a detailed financial plan that covers lifestyle needs, tax strategies, estate planning, liquidity concerns, and risk management.

Updated continually, this financial plan is executed by specialists under the direction of the family office management team. Many of these specialists include global private banks seeking to work with the ultra-rich. While effective, the family-office model is a high-cost wealth management solution which makes sense to people with a very high net worth.

The New Alternative

The new approach being offered by bank trust companies blends the self-directed method of wealth management with the family-office model used by the ultra-rich to manage their portfolios.

People with emerging wealth or family business owners looking to begin the process of setting up a succession plan will likely tackle wealth management on their own if objectives can be achieved quickly and easily with the help of user-friendly technology.

If the wealth management process is more complex or time consuming, however, the emerging wealthy now can turn to a trusted, knowledgeable advisor for guidance in putting together a comprehensive plan that covers lifestyle needs, tax strategies, estate planning, liquidity concerns, and risk management.

The control and peace of mind they seek is the knowledge that they are “on track” with their plan. This means they want a comprehensive plan available online. Portfolio managers are expected to provide them with impartial access to a wide range of funds or fund managers; low-cost, institutional, non-retail trading; tax strategies; and active liquidity management.

In addition to these services, the model also includes access to a dedicated private banker to assist with bank transactions and offer tailored loans. Finally, in many cases, the financial plan includes a full risk management review conducted by a high net worth personal insurance specialist.

This quiet revolution may be the best answer to the question: “What should I do with my money?”

Mary Ellen Nichols is a First Vice President and Wealth Advisor for First Niagara Private Client Services. She specializes in identifying and coordinating the delivery of wealth management solutions to individuals, families, and nonprofit organizations to help them achieve their financial and estate planning goals. She can be reached at maryellen.nichols@fnfg.com.