Everlake Wealth Protection Guide
Wealth Protection: Helping You Make Informed Decisions about Your Most Important Financial Concerns
A Comprehensive Approach to Your Financial Life
Most of us lead busy lives and must juggle multiple priorities and demands on our time. However, at the end of the working day, each of us is responsible to our families for making the decisions that will determine whether we will achieve our financial dreams. To do so successfully you need what the head of every successful company has, a sound understanding of the challenges you face and a comprehensive approach for addressing those issues
The Five Major Areas of Financial Concern
For many families, there are five major areas of financial concern:
1. Preserving your wealth. Your aim with wealth preservation is to produce the best possible investment returns consistent with your time frame and tolerance for risk. However note that the attributes required to create wealth (entrepreneurship, risk taking and concentrating your time and money in a limited range of ventures) are not the same as the attributes necessary to preserve wealth (diversification and keeping costs and taxes low)
2. Enhancing your wealth. Your goal here is to minimize the tax impact on your financial position while ensuring the cash flow you need to meet your spending requirements now and in the future.
3. Taking care of heirs. This means finding and facilitating the most tax-efficient way to pass assets to your spouse and succeeding generations in ways that meet your wishes.
4. Protecting your wealth. This includes all concerns about protecting your wealth against catastrophic loss, potential creditors, litigants and identity thieves.
5. Charitable giving. This encompasses all issues related to fulfilling your charitable goals in the most impactful way possible.
None of these five areas of concern stands in isolation from the rest. Wealth protection, for example, is often intertwined with wealth transfer needs. And charitable giving can often support goals in each of the other four areas.
To be most effective, you need to deal with each area systematically while maintaining an integrated approach to your overall financial picture. We call this comprehensive financial planning.
Comprehensive Financial Planning
As you may have noticed, many financial firms these days say that they offer wealth management and financial planning services.
The challenge is that the primary focus for many of these firms is typically nothing more than selling investment or protection products. They may offer a few additional services, such as mortgages, but they lack the truly comprehensive tool set to provide a comprehensive financial planning service.. Without this complete tool set, there are areas of your financial life that may not receive the attention they may need.
To define comprehensive financial planning, we use this formula:
Comprehensive Financial Planning = Investment Consulting + Advanced Planning + RelationshipManagement
The first element is investment consulting (IC), which is the management of your investments over time to help you to achieve your financial goals. It is through investment consulting that we address the first key financial concern of wealth preservation.
Astute investment consulting requires financial planners to deeply understand each client’s most important challenges and to then design investment strategies that take into account the clients’ need, willingness and capacity for risk. It also requires financial planners to review not only their clients’ portfolios but also their financial lives on a regular basis so that they can make adjustments to the investment strategies as needed.
The second element of comprehensive financial planning is advanced planning (AP), which examines and manages all the issues beyond investments that are important to clients’ financial lives. We place these issues into four major categories:
• Wealth enhancement
• Wealth transfer
• Wealth protection
• Charitable giving
Naturally these four areas of advanced planning align exactly with the four remaining key financial concerns we described above. In our experience, very few financial advisers address these four concerns in any systematic, comprehensive manner.
Relationship management (RM) is the third element of comprehensive financial planning. To effectively address their clients’ range of overlapping, frequently complex financial concerns, our financial planners build relationships within three groups.
The first and most obvious group is you the client or prospective client. It is only through solid, trusted client relationships that financial planners can fully understand and help manage their clients’ needs effectively over time. The first part of this process is based on a discussion about expectations - what do you have the right to expect of your financial planner? Equally, what does your planner have the right to expect of you? Only when we both fully understand our expectations can we really build the basis for a long term relationship.
Secondly, because no single financial planner has all the knowledge required to manage the entire range of financial challenges, we have a network of financial professionals that we can call upon on a case-by-case basis to help address your specific needs.
Finally, financial planners must be able to work effectively with their clients’ other professional advisers, such as lawyers and accountants. This collaborative approach leverages those advisers’ knowledge of the clients’ financial challenges while helping ensure an integrated and comprehensive approach to their finances.
While our focus in this white paper is on the fourth element of wealth management taking astute steps to protect wealth keep in mind it is just one component of a comprehensive approach to your financial life. In the last section of this guide, we will describe what you should expect from a financial planner who can help you make informed decisions about every aspect of your financial life.
The Three Areas of Wealth Protection Concern
In today’s world, we are all concerned about protecting what we have, not just our financial assets, but our property, our confidential information, and most important of all, our loved ones. Our “wealth” therefore includes everything that we hold near and dear to us.
To help organize your approach, it is useful to break down specific protection concerns into three broad categories:
1. Security of confidential information,
2. Security of financial assets, and
3. Security of property
For a perspective on these concerns, we turn to a study of 427 individuals in the United States each with a minimum net worth of $1 million that was conducted by industry experts Russ Alan Prince, Paul Michael Viollis and Asa Bret Prince.
1. Security Concerns about Confidential Information
Given the prevalence of identity theft and the frequency with which secure databases are compromised, protecting confidential information is a large category of concern. We don’t want others to have unauthorized access to our personal information.
Identity theft is the most prevalent concern in this area, cited by 77.5 percent of those surveyed. This is followed by access to private business information (42.6 percent), access to their or their loved ones’ medical records (41.0 percent), and someone seeking to damage their personal or professional reputation (40.7 percent). (See Exhibit 1.)
Exhibit 1: Security Concerns: Confidential Information
N = 427 wealthy individuals
Source: Russ Alan Prince, Paul Michael Viollis and Asa Bret Prince, Safe & Sound, 2004.
2. Security Concerns about Financial Assets
People work hard for their wealth and therefore are quite concerned with protecting it. In this category, they are most worried that someone may take advantage of their assets for financial gain, with 72.6 percent of those surveyed reporting this as a concern. (See Exhibit 2) Whether they see their children or grandchildren as lacking financial sophistication or just real-world experience, they view offspring as a potential weak spot in their efforts to protect their wealth.
Next in importance is concern about lawsuits from people they know, such as former spouses, ex-employees and former business associates (67.9 percent). Also of importance in this category is concern about being the target of lawsuits from people they do not know (58.5 percent), embezzlement in their companies (48.5 percent) and doing business with unscrupulous people (46.6 percent).
N = 427 wealthy individuals.
Source: Russ Alan Prince, Paul Michael Viollis and Asa Bret Prince, Safe & Sound, 2004.
3. Security Concerns about Property
The third category of concern is about property, with specific concerns about property ranking highest on the list. First is concern about their houses being burglarized (56.0 percent), followed closely by concern about vandalism to their houses (52.5 percent). Next is concern about the loss of valuables such jewellery, artwork and even pets, cited by 29.7 percent of those surveyed. (See Exhibit 3.)
As you review each of these three categories, think about your own level of concern in each. Which holds the highest priority for you? The lowest? How effectively do you think you are currently protecting yourself and your loved ones in each area?
Keeping these questions in mind, we will turn next to the specific ways that you can manage your risks in order to gain greater peace of mind.
N = 427 wealthy individuals.
Source: Russ Alan Prince, Paul Michael Viollis and Asa Bret Prince, Safe & Sound, 2004.
Managing Your Risk
As everyone knows, we do not live in a perfectly safe world. Risk is everywhere. We cannot eliminate the threats to our wealth, but we certainly can take informed, measured steps to substantially reduce their likelihood and potential impact.
There are essentially two ways to protect your wealth. First, you can mitigate risk. This means taking actions that will minimize your exposure to a risk and/or, should that risk occur, reduce its impact. As you will see, there are many ways to mitigate risk, depending on the situation.
Secondly, you can transfer risk, or shift it away from yourself and to another party. The most common means to transfer risk, though certainly not the only way, is to purchase insurance.
In each of the areas of wealth protection concern, we will present a brief overview of the primary ways in which risk is mitigated and transferred. Because every situation is unique, no single set of solutions is right for everyone. However, you should be aware of the range of options so that you can begin to make decisions about what you need, what you can implement on your own and what you may need assistance in implementing.
1. Protecting Your Confidential Information
Here, your main concern is defending your private information from those who would use it for financial gain and, in the process, hurt your own financial standing and reputation.
MitigatetheRisk
Be smart about keeping secrets secret. Be ever-alert about guarding your information by taking these actions:
• Protect your personal information. Never provide sensitive personal information unless absolutely necessary. Do not carry your PPS number, passport or birth certificate with you unless there is a specific reason. Keep photocopies of your credit cards in a safe place. Carry only the cards you will need. Never provide personal information to anyone in response to an unsolicited request, including emails.
• Protect your documents. Shred all documents containing personal information that you do not need to retain. Secure personal information in your home, especially if you employ outside help.
• Protect your communications. Guard your computers with up-to-date virus- and spyware-protection software. Do not use easily available information, such as your mother’s maiden name, for the passwords for your online accounts. Password-protect the wireless connection at your home
Monitor your credit cards and financial statements. Scrutinize both for any unusual activity. Consider signing up with an identity theft protection service, which will monitor the use of your personal information and alert you when something is amiss.
React swiftly when a problem occurs. If you do become the victim of identity theft, you should place fraud alerts on your credit cards, close accounts that have been tampered with and file a report with the Gardai.
Identity Theft crime penetrates all levels of society, affecting all ranges of age, education and income. Approximately 90,000 people in Ireland have been victims of identity theft as reported in a survey commissioned by Fellows for National Identity Theft Fraud Week (Nov 2009).
TransfertheRisk
Obtain the proper insurance. It may be appropriate to obtain identity theft insurance, which will cover you for the costs associated with recovering your financial identity. If you are already covered, determine whether the coverage is adequate.
2. Protecting Your Financial Assets
In this area, your goals are to shield your assets from creditors, litigants and others who seek to unjustly take your wealth as well as to ensure that you have sufficient resources to cover your liabilities.
MitigatetheRisk
• Conduct background checks on financial professionals. Make sure that any financial adviser you are entrusting your money to is indeed trustworthy. An excellent starting point is the Financial Planning Standards Board (FPSB.ie) which maintains a register of Certified Financial Planner professionals.
• Investigate potential business partners. As with financial professionals, it’s prudent to make sure you know the professional history of anyone you may be going into business with.
• Get second opinions on major financial transactions. Even when you are dealing with credible people, you should still determine whether they are making intelligent financial recommendations. Before making any large financial transaction, get a second opinion from a trusted tax adviser, lawyer or other appropriate professional.
• Leverage asset-protection strategies. There are a number of strategies that can be used to protect assets from possible future liabilities. These are just a few examples:
o Specific forms of business ownership, such as Limited Companies
o Asset protection trusts
o Buy-sell agreements
o Gifting of assets
Asset-protection strategies are complicated and it is crucial to work with a Lawyer who can recommend the most appropriate strategies for you and then implement them ethically and effectively.
TransfertheRisk
• Verify that your life insurance is adequate. If you do not have sufficient assets to fund all your liabilities (and potential liabilities, should you pass away), life insurance is one way to protect your wealth. It can be a complicated product, however, so work with a financial planner who has the expertise you may need.
• Verify that your health and disability insurance is adequate. These two types of insurance protect one of your most important assets your earning power. The health insurance marketplace in particular is undergoing significant change in Ireland, so work with a specialist who can obtain the best rates for the coverage you need.
Consider the cost of providing long-term care for yourself or even possibly for other family members. You may have adequate assets to self-insure for long-term care however, it still pays to examine all the issues and make informed decisions.
3. Protecting Your Property
In this final area, you are concerned about guarding not just the physical security of your home, but also the financial security of your property and business interests.
MitigatetheRisk
• Design and implement a comprehensive security system. A well-secured property has robust systems in place for every part of the property. These are just some of the possible components:
o Perimeter security elements, including gates; fences; lighting; alarm system; camera system; access control system; and detailed access protocols for family, guests and staff
o Interior security elements, including alarm system, video surveillance, safes, interior lighting, access controls, emergency first aid and fire equipment, and safe rooms
o Security personnel, employed either by you or by a security firm
TransfertheRisk
• Assess your personal insurance coverage. Work with an insurance specialist to make certain that you have ample coverage. Remember that as you accumulate wealth, the mass market solutions that used to suffice are often no longer adequate. Review your coverage in each of these applicable areas:
o Homeowners insurance
o Car insurance
o Art, jewellery and other collectibles insurance
o Yacht insurance
o Aircraft insurance
o Assess your commercial insurance coverage. If you have commercial interests, you should also review your coverage in key areas, including these:
o Business insurance, including commercial property and premises liability
o Directors and officers liabilities
o Professional Indemnity insurance
o Keyman insurances
The Protection-Planning Process
As we have just seen, the list of potential protection solutions is long and many solutions are quite complex. And, as we said, no single set of solutions is right for everyone. For these reasons, we urge you (or professionals you work with) to conduct a methodical protectionplanning process that includes these steps:
1. Assess your risks.
2. Evaluate possible solutions.
3. Select the most appropriate solutions.
4. Create an action plan to enact protection measures.
5. Implement the measures according to the plan.
6. Follow up periodically to ensure that your changing needs are met over time with the latest technology and strategies.
You may recognize that your wealth protection concerns are serious and complex enough to warrant the services of experts.
If you work with a financial planner, he or she should have these experts in his or her network of professionals:
• A lawyer who can design and implement astute asset-protection strategies
• An insurance specialist who can make optimal insurance recommendations
• A security consultant with deep technical expertise and experience addressing the protection concerns of people like you
• A tax consultant who can structure your arrangements to minimise personal and corporate taxes
Working together as a team and in close consultation with you, these professionals can create and implement the solutions that will make sure that you and everything that is important to you is better-protected than ever before.
Disclaimer
This document has been prepared for educational and information purposes only and does not represent a specific recommendation for an individual to follow.
Taxation
References to Taxation have been obtained from sources which we believe to be reliable and are based on our understanding of Irish Tax legislation at the time of writing. We cannot guarantee its accuracy or completeness. The rates and bases of taxation may change in the future. We recommend that you obtain specific tax advice for your own personal situation. We will refer you to a suitably qualified tax consultant on request.
Investments
As with any investment strategy, there is potential for profit as well as the possibility of loss. Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors’ interests.
Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken.
Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies.
We do not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk and investment recommendations will not always be profitable.
Warning: the value of your investment may do down as well as up. This service may be affected by change in currency exchange rates. Past performance is not a reliable guide to future performance.
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