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THREE VIEWPOINTS
FROM THE PROS.
By Pam Droog
What’s the best way to manage wealth today? We asked the experts
at a financial planning firm, a bank and a CPA firm their views
about money-management in an uncertain economy—plus advice for building
wealth in the future.
A FINANCIAL PLANNER
“People don’t plan to fail. They fail to plan!” says Don Kukla,
principal at Moneta Group, a century-old financial planning company
with $3 billion in assets. Moneta is “an internal think tank for
clients,” Kukla explains, with CPAs, bankers, trust officers, attorneys,
pension specialists and certified financial planners.
The process starts by developing a plan as “an overall road map,”
Kukla explains. “It covers investing, taxes, estate planning, retirement,
cash management, insurance and college funding if that’s appropriate.”
The plan is based on an individual’s goals and level of risk tolerance.
“Everything ought to be heading in the same direction,” he says.
"THE
PROCESS STARTS BY DEVELOPING A PLAN AS AN OVERALL
ROAD MAP. IT COVERS INVESTING, TAXES, ESTATE PLANNING,
RETIREMENT, CASH MANAGEMENT, INSURANCE AND COLLEGE
FUNDING IF THAT'S APPROPRIATE. EVERYTHING OUGHT TO
BE HEADING IN THE SAME DIRECTION."
Don Kukla
principal,
Moneta Group
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Kukla says a common mistake is to manage wealth piecemeal. “Say
April 15 is coming and you need an IRA, so you go to the bank drive-through
and buy one. That’s not necessarily wrong but it makes the plan
a hodgepodge.”
Moneta’s typical client has a minimum investable net worth of $1
million, Kukla says. He prefers to help clients develop a wealth
management plan “once they see retirement in their sights, maybe
10 years off,” he says. “Then two things happen. First, someone’s
net worth hits a level where it’s appropriate to seek our help.
Second, when you reach retirement, stock options, 401k elections
and pensions kick in. I’m not saying we can’t help people who say
‘I have to make an election tomorrow.’ But people need to make sure
they’re doing the right thing for themselves and their families.”
What’s that “right thing” right now? “It’s still the fundamental
concept of asset allocation. No one has told me anything to make
me change my attitude about that,” Kukla says. “Granted, interest
rates today are a lot lower. But I don’t know that there should
be an abandonment of diversification.”
Kukla says now is a good time to get back to the basics. “It’s time
for a reality check for people,” he says. “Some thought they could
handle the volatility more than they could. But no one knows how
long cycles last.”
It all comes back to the plan, he emphasizes. “People who abandon
the plan and let emotions cause them to buy on greed and sell on
fear will tend to do wrong.” Kukla believes investors who got nervous
and pulled out of the stock market a while back are missing out
on opportunities. “We’re not saying everything’s great,” he says.
“But it’s been refreshing having an up market the last few months.
That creates renewed faith in the process.”
A BANK AND TRUST COMPANY
The three-year-old PrivateBank and Trust Company focuses on affluent
individuals and privately held businesses, explain Allan D. Ivie
IV, president, COO and managing director, and John J. Kang, J.D.,
CPA, managing director, wealth management. The bank, with more than
$1.2 billion in trust and managed assets, has offered wealth management
services in St. Louis for two years.
Our individual clients have investable assets ranging from $100,000
to $30 million or more. “They want us to guide them in matters not
specifically related to investments alone, however. So wealth management
to us encompasses a number of different activities,” Kang says.
He adds, the bank offers a unique approach in the marketplace. “We
do not hire our own investment professionals, for example. We work
with our clients to hire independent portfolio managers. We think
that offers our clients more flexibility and choice.”
Ivie believes another distinction is “we probably spend much more
time than other institutions understanding the tolerances of our
clients regarding the risk and volatility they’ll accept. It’s difficult
to extract this information from a questionnaire.”
Kang says matching an appropriate asset allocation plan with a client’s
objectives is “central to what we do. If you don’t have a crystal
ball to predict what the next great investment may be, then it’s
important to develop a plan that includes a realistic asset allocation
and to stick with it.”
Kang believes although the economy is in a downturn and has been
for a while, “it’s wrong to sit on the sidelines in cash. There’s
always an appropriate method of investing a client’s assets, although
it’s been a real challenge lately to find vehicles that will generate
an acceptable level of return.”
Another consideration in a wealth management program is tax law.
“Some income tax changes started May 6 and some are retroactive
to January 1. Some will be with us through 2008 and then go away
unless they’re enacted again. And all of this is layered on top
of things like estate tax reform,” Kang says. As a result, “We think
it’s difficult to advise clients on wealth management without including
some assistance in what we think will optimize their position in
terms of tax law changes.”
Ivie adds the PrivateBank makes a lot of mortgage loans for primary
and secondary homes. “We structure lending relationships that may
have an impact on a client’s ability to invest money,” Ivie says.
“We present a truly integrated approach.”
Overall, Kang believes, “clients are more realistic about their
expectations these days. People really got fooled into believing
that 20-plus percent returns on their portfolios would be possible
indefinitely. I think it was up to their advisors to help shape
what would have been a more realistic outlook. Those who had such
advisors fared much better than others these past few years,” he
says. “Those who did not are bringing the tattered remnants of their
wealth management plans to us.”
A CPA FRIM
Frank Megargel, partner at Brown Smith Wallace, LLC, one of the
largest independent CPA firms in Missouri, says, “Our clients maybe
trust us a little more because we have to answer to them monthly
or weekly.”
"OUR
CLIENTS MAYBE TRUST US A LITTLE MORE BECAUSE WE HAVE
TO ANSWER TO THEM MONTHLY OR WEEKLY."
Frank Megargel
partner,
Brown Smith Wallace, LLC
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For Megargel’s clients, a wealth management plan typically starts
with a tax return. “A broker, for example, may not consider everything
on a person’s tax return,” he says. “But because we prepare the
annual return, we can make recommendations on how investments relate
to a client’s tax situation, as well as his or her investment goals.”
Wealth management services at Brown Smith Wallace, LLC are available
to all types of clients, Megargel explains. Many started small and
have added services as needed. The firm employs CPAs, CFPs, investment
advisers and other specialists, and also maintains relationships
with banks, mortgage companies, brokerages, insurance companies,
mutual funds and other financial services providers.
Right now, Megargel says, the big issues regarding wealth management
are changes in dividend and capital gains taxes. Dividends are taxed
at the capital gains rate for 2003. “That will help a lot of clients
who are looking for investments that pay dividends that will be
taxed at the lower capital gains rate of 15 percent.” he says.
On the capital gains front, Megargel says, despite the past down
stock market, some clients have taken advantage of the situation
to build up gains. They can now sell some investments and pay taxes
at a lower tax rate. “But you have to be careful you’re not earning
income that saves you on capital gains, but that other items—such
as incentive stock options, depreciation or unreimbursed business
expenses—pushes you into the alternative minimum tax bracket. Then
you may end up paying higher taxes than planned,” Megargel says.
“This is an example of where the investment and tax side should
be working together.”
Above all, he advises, “Keep closer track of your portfolio. Make
sure you don’t fall into the trap where you never want to sell a
stock and then you see your price go down from 50 to 10.” On the
other side, Megargel says, “Look at the tax considerations. It may
be better to sell something now and pay taxes at a lower rate and
invest in something new for better income. Certain investments may
have topped out and you probably won’t have lower tax rates than
you do now.”
MBC'S
WOMEN CONNECT INTERATES VALUES WITH WEALTH
The WomenConnect program at Midwest BankCentre
offers a unique approach to wealth management specifically
tailored to women.
“For women, wealth management is the same as life management,”
says Anne L. Gagen, MBC executive vice president and WomenConnect
founder. “Women go through life stages that may include marriage,
family, college tuition, divorce and caring for elderly parents.
Each stage creates the need to know about finances. Women
want the sense of security that comes with sufficient understanding
and workable action plans.”
(Left to right): Sandy Litzsinger, Jeanette
Pfeil, Elaine Snyder, Anne Gagen, Jan Orlando
and Jean Rosen engage in discussion on wealth
management for women led by Gagen, executive
vice president of Midwest BankCentre (MBC).
Gagen is orchestrating MBC’s WomenConnect program,
which has created a new financial planning model
specifically tailored to women. |
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WomenConnect provides answers to those needs by taking a holistic
approach to financial issues. The program started two years
ago as it became clear that:
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Women outlive men by seven years, becoming the ultimate
decision makers in estate planning.
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Women head 42 percent of households with assets
greater than $600,000.
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The average age of widowhood in America is 56-years-young.
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According to the Women Philanthropy Institute, 85
to 90 percent of women are left in charge of family
financial affairs. Ultimately, that places them
in the decision-making role for much of the $41
trillion expected to pass from generation to generation
over the next 50 years.
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Women conduct 85 percent of banking transactions.
Despite these facts, Gagen says, “Women are frequently
not taken seriously when it comes to financial decisions.
Traditional financial planning rarely explores the
core needs of women.”
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In contrast,
WomenConnect helps cultivate a unique tendency among women
to integrate values and purpose with material wealth to create
more meaningful lives and legacies of significance. The program
targets women who are family leaders, community leaders, business
owners, professionals and executives. They attend a four-part
series of discussion seminars in various locations throughout
the metro area. As the program grows, a second round of seminars
and special events are being planned. Women do not have to
be current MBC customers to participate.
For more information, visit www.womenconnectatthecentre.com.
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Pam Droog is a frequent contributor to St. Louis Commerce Magazine.
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