In
DEC 2021 EDITION
Conversation
SCOTT D. ZELNIKER CRPC®, CRPS® SENIOR VICE PRESIDENT–WEALTH MANAGEMENT PRIVATE WEALTH ADVISOR SENIOR PORTFOLIO MANAGER AT THE ZELNIKER DORFMAN CARR & HERITAGE GROUP, UBS FINANCIAL SERVICES INC. PRIVATE WEALTH MANAGEMENT
RETIRING GRACEFULLY
IN CONVERSATION WITH SCOTT D. ZELNIKER ON THE FINANCIAL STRATEGIES OF PLANNING FOR RETIREMENT INTERVIEW FACILITATED BY WES ROBERTS | COMPILED BY BARBIE HEIT
SHARE WITH OUR READERS A BIT ABOUT YOURSELF AND YOUR ORGANIZATION. SCOTT D. ZELNIKER: I’m the founding partner of the Zelniker Dorfman Carr & Heritage Group. We’re a financial advisory firm with offices in New York and Florida. We run our private wealth management operation out of New York, catering to ultra-high-net-worth families. Here in Sarasota, we work with alternative investments, institutional consulting and new business development. Over in Gainesville, we have a group that runs the sports and entertainment part of our business.
So between us, we have an expertise in a lot of different areas. If you think about it from our seat, as we’re helping people through their finances, there’s really three ways to get wealthy. One is to have a very high salary and put your money away. One is to inherit it, that’s the multi-generational families. And then the third would be through a liquidity event whether it’s through a sale of business, sale of appreciated stock if you do well in the market. But really those are the three ways to get wealthy and when you think about the structure of what we have, we can cater to all three of those.
WE HAVE READERS OF A BROAD RANGE THAT READ OUR MAGAZINE. HOW WOULD YOU SPEAK TO EACH GENERATION? Rule of thumb, we encourage people to contribute to retirement plans as early as possible. Studies show if you invest in a retirement plan in your 20s, through the decade of 20-30 and never put another dollar in, you’ll end up with more money than people that invest from 30-60, and that’s just the power of compounding. If you have $10,000 in a retirement plan and you make 10% on that, you make $1,000. Over time, if your balance grows to $100,000, that
same 10% return gets you $10,000, so the earlier the better. When people ask, “How much do I put in?” We always advise to put in as much as you can. WHAT LEVEL OF INVESTOR DO YOU WORK WITH? Typically on the private wealth side, we deal with $10 million and up relationships. It could be someone that has $10 million liquid today or someone that might be able to bring us a couple million dollars today but has the ability to get to 10. Maybe they’re a business owner with most of their money in the business. Maybe it’s someone
ENGAGING READERS THROUGH BRANDED STORYTELLING.
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SRQ M AGAZ I N E RET I RI NG GR AC E FUL LY : : DE CE MBE R 2021
IN C ONVERSAT I ON
ABOUT SCOTT D. ZELNIKER Sco has been creating tailored solutions for his clients’ financial lives since 1992, when he began his career in the industry at Merrill Lynch, developing a practice centered on the needs of private business owners. In 2016, Sco and his partner, Peter Dorfman, joined UBS, where they transitioned to the Private Wealth platform to draw on the firm’s vast resources to find optimal solutions for their clients. Sco holds the Chartered Retirement Planning CounselorSM and Chartered Retirement Plans SpecialistSM designations awarded by the College for Financial Planning. He has been named a Forbes Best-In-State Wealth Advisor in New York for 2020 and 2021. He earned an undergraduate degree in finance from Boston University, and an M.B.A. in finance and business management from Hofstra University. Sco focuses on macro strategic planning, investment oversight, portfolio construction and wealth planning. He also helps provide solutions to his business- owner clients’ needs with an emphasis on exit strategies and liquidity events, as well as their contributions to overall financial and long-term estate planning strategies. With experience in wealth planning, asset management, risk management, business succession planning, philanthropy and family governance, Sco is an integral piece of any professional advisory network. As a Private Wealth Advisor, he coordinates direct access to the global resources of UBS, including the intellectual capital his clients need for complex liquidity events and long-term estate planning across generations. The Zelniker Dorfman Carr & Heritage Group. UBS Financial Services Inc. Private Wealth Management Sarasota City Center, Ste 900, 1819 Main St., Sarasota, sco .zelniker@ubs.com
that knows they’re getting a big inheritance later. We also have people on the team who specialize in the $2-$10 million space and then we have some younger advisors on the team that specialize in the $500,000 to $2 million space. Under that $500,000 level, there’s not a lot we can do because the situation isn’t that complex yet from an estate planning perspective or from a gifting perspective. So the larger the estate and the more complex, the more need for us. For people that come in below that threshold, we will guide them and send them to another institution where we think that they could be catered to better but we’ll keep that relationship. We want to be in the prospective client’s life because you don’t know when things change. WHAT IS YOUR ADVICE TO THE YOUNG PERSON JUST STARTING OUT? We tell them to start saving. Sometimes our clients have grandchildren that just started in the workforce and they’ll say, “My grandchild wants to talk to you.” I’ll happily get on a call with them. Typically they’ll say to me, “I have $20,000 in my bank account now and I’d like to start investing.” My question to them is, “Do you have a retirement plan at work?” And if they say yes, I say, “With all due respect, I’d rather see you invest in your retirement plan and not put the money with us at this point.” The advantage to them is that money is going to a tax deferred bucket. If they earn one dollar with us in a taxable account and that one dollar of earnings becomes 70 cents to them because the government is going to take their share. In a retirement plan, that one dollar will compound, and remember we talked about that power of compounding, so it becomes very meaningful for them.
FOR THOSE INDIVIDUALS WHO DO HAVE A RETIREMENT PORTFOLIO WITH YOU, WHAT IS THE CONVERSATION LIKE WHEN IT COMES TO RISK? There are three buckets of peoples’ money. There’s liquidity, there’s longevity, and there’s legacy. So using those three buckets, we’ll say to people, “In your liquidity bucket, you can’t put in a retirement plan because you’re not going to be able to access that money penalty free until 59 and a half. So we want you to have enough money outside of a retirement plan where you could still grow it for retirement, but we want to keep it available to you for your liquidity needs. When we talk about your longevity, money you’re going to need after retirement, that longevity bucket is what we want to grow for that time frame when there’s not a paycheck anymore. Then people reach a third stage where we start talking about legacy. Is the goal to leave all your money to your kids if you have kids? Is your goal to leave some money to the kids, some to charity? Do you have philanthropic intent now versus when you’re no longer here? We try to get people thinking of those three buckets because each one has a distinct strategy as to what we’re going to be doing with it. YOU BRING UP PHILANTHROPY AND DONATIONS. HOW DO PEOPLES’ DONATIONS WORK FOR THEM FINANCIALLY? When clients give a donation, they can really do it in a couple of ways. They can donate cash, they can donate appreciated stock. We know the markets had quite a run here over the last decade or so, so if somebody donates a dollar, that’s good and they will get a tax deduction for that dollar. But if a client donates $10 but their cost basis on the stock is a dollar, they will get a tax deduction on the $10 and they won’t have to pay the
capital gains tax on the sale. Many times, we encourage clients to gift appreciated securities as opposed to gifting actual dollars. There’s a couple of tax advantages for them there. The other thing we ask is ‘do you want to give while you’re alive or do you want to give as part of your estate? Because if you give money as part of your estate, the money that goes to a 501(c)(3) charity after your death will not be subject to the estate tax in your estate but if you give that money during your lifetime, that money won’t be in your estate either but you will get a tax deduction during your life.’ Let’s say there is someone who’s 90 years old on their deathbed. They have a greater benefit of actually writing the check or gifting the securities while they’re alive because they’ll get a tax deduction for it in addition to it being out of their estate. DO YOU HAVE CLIENTS THAT WORRY ABOUT CATASTROPHIC SITUATIONS? Yes, they worry about a myriad of things. Structurally, the way we run our business is we have a quarterly call with every client where we talk about everything. Many are worried about the infrastructure bill. They’re worried about the debt ceiling. They’re worried about interest rates. They’re worried about potential government default. They’re worried about tax rates. They’re worried about social security. I’ve been doing this for 30 years now. When the tech bubble burst it was a very uncertain time. 9/11 was an extremely uncertain time. The debt crisis, the banking crisis in 2008 was a time where there was a lot of fear. March 2020, a very scary time. We didn’t know if we were ever going to leave our homes again. When we start to talk through all of these issues with our clients, we lay out a worst case scenario. For instance, right now, if they
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don’t raise the debt ceiling and the government were to default on debt, what does that mean? Where can you put your money in an event like that? The natural inclination in times of crisis is to put money in the treasury. That’s the safe haven. But that’s the exact security we’re worried about defaulting. You could hold it in dollars but if the U.S. government defaults, what’s the value of the dollar going to be? Some things are too big to worry about and you can’t bet on the end of the world because it’s a million to one shot. If it happens, none of this matters, and if it doesn’t happen, we have to have you positioned for business as usual. WHAT ABOUT PLANNING FOR HEALTH CARE EXPENSES AND LIFE INSURANCE? Health care costs are probably going to be the biggest variable in retirement spending habits. There’s a couple of routes you can go. Some of our clients have enough money to self fund retirements because statistically once you would turn on a long term care policy for instance, your average life expectancy drops dramatically, probably in the three to four year range. So you look at the costs of insurance and then you have to weigh it against whether or not you can self fund. For other clients, there is a conversation about getting supplemental insurance. It’s a variable that people have to account for, sure. Life insurance serves a couple of purposes. The first one is income replacement. When you’re a sole wage earner in the house, you would need to insure the wage earner. Another reason for insurance is to cover the costs of the estate taxes if their estate is big enough that their lifetime exemptions don’t cover what would be taxable. You would then buy insurance that covers that estate tax to your heirs.
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ARE THERE THINGS THAT SURPRISE YOUR CLIENTS THAT MOVE TO FLORIDA TO RETIRE? I’m hearing less and less about people retiring to Florida and more about moving to Florida. People are really re-defining what retirement looks like and retirement seems to mean doing something philanthropic, doing something part time, doing consulting work, maybe dabbling in a new business. I see it all the time. People that are here and retire are excited about playing golf daily and then after two weeks, they say, “All right. How much golf can I play in 85 degree weather every day?” I guess that would be the surprise people have that the thing they thought they wanted to do isn’t necessarily it. SOCIAL SECURITY AT 62- VERSUS 65-YEARS OLD. WHEN SHOULD YOU TAKE MONEY OUT OF RETIREMENT PLANS? There’s no hard fast rule on these things. Every situation is really unique to the person’s net worth, their liquidity needs, and their expectations for the future. As far as social security, we keep hearing about the solvency of it. The reality is, social security, most of the money that gets paid out is being paid in. It’s the surplus that’s running out and AARP says that’s not going to be an issue until 2034 and even then, there’s things that could be done in the meantime. You might get social security but in a lower payout. They might increase your income level that they tax for social security. So there’s ways to keep it solvent. That’s not a big concern of ours. DURING THE PANDEMIC, WHAT SHIFT DID YOU SEE IN THE PEOPLE THAT WAS COMPLETELY DIFFERENT? The pandemic changed everything. It changed peoples’ perception of retirement. Every person I talked
to in that 45-60 range, I don’t care if they’re a doctor, a waitress, it doesn’t matter. Everybody in that age group has basically said, “I’ve had enough.” Because they feel they’ve spent a lot of time working, building up their status in their companies, building up a little nest egg, and then they realized how quickly it can be taken away. It made people reevaluate their work life balance. When it first started, financial markets went down and people had a loss of value on paper. That was pretty dramatic. Fortunately, a lot of that did reverse itself and come back. We took an approach with our clients that we were going to stay the course. We rotated portfolios to get out of areas that looked like they were going to be greatly affected and into areas that looked like the money was going to flow, so we made changes but we stayed the course of the broader plans and coming back to that concept of if the world is going to end it doesn’t matter anyway so you may as well plan for the world to come after it. But the relationship with peoples’ children, not being able to see their children, their relationship with their philanthropy changed because all of a sudden healthcare became such a more prominent part of peoples’ lives and what they see, and I think just the general being home and losing things that people took for granted really changed their outlook. And the way accounts are doing day to day, I don’t think it’s as important to people as it used to be. Human life really has become more important to people. Families, friends and events that people really took for granted means a lot more now. I definitely see that change. SRQ
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