The Family Office Chronicle January 2023

Unresolved Resolutions

Did you know that January is National Financial Wellness Month? A dogged Google search has failed to come up with the origin of this observation, although it has been taken up by any number of financial institutions, some as a marketing tool and others as a purely educational one.

January is filled with remembrances and celebrations. There are daily ones, like National Hangover Day (Jan 1), National Cheese Lovers Day (Jan 20), and Opposite Day (Jan 25). Weekly observations include Letter Writing Week (Week 2), Children’s Week (Week 4) and, of course, National Resolutions Week (Week 1). 

The month of January celebrates a wide range of diverse cultural interests, including Bath Safety Month and Soup Month, among many others. January is also the month that many people make their New Year’s resolutions: to eat healthier, drop bad habits, get in shape, and, as noted above, get their financial houses in order. 

Every day, week and month of the year celebrates one thing or another, and on most days, there are several, often very different things being remembered. These things are by their nature fleeting. A poll conducted by OnePoll determined that February 1st is the day that the average American gives up on their New Year’s resolutions. 68 percent don’t make it that long.

Thirty-two days is a tiny fraction of the 15,705 days that many people have to prepare for retirement, presuming they start at age 22 and retire at 65. So why do so many people quit the thing that can have such a profound impact on their golden years? 

According to the poll, the most common reason is a lack of discipline. Reason number two is a lack of time due to busy schedules. 

Noob Gains, a fitness website, finds that 80 percent of people who join a gym in January quit within five months. Fourteen percent quit by the end of February. This is not unique to the New Year’s resolution crowd: 50 percent of all new gym members quit within six months. 

What do financial wellness and gym memberships have in common, beyond both being common areas of resolution every January? We believe, and studies show, that both of these vital personal concerns — health and wellness — are improved by getting professional help. 

A study by Steven R. McLaren, published in Sports Science Medicine in 2003, showed that “one-on-one personal training is an effective method for changing attitudes and thereby increasing the amount of physical activity. Secondly, it seems that using problem solving techniques is of value for successful behavioral change.”

A study by Northwestern Mutual in 2019 found that “people who work with financial advisors are more likely to report happiness, confidence and stability in their financial and personal lives.” Moreover, “92 percent of Americans say nothing makes them happier or more confident than when their finances are in order.[1]”

The study has other interesting data points, and here’s a big one: only about one-third of the Northwestern survey respondents said they have actually worked with a financial advisor. Eighty-five percent of those who work with a financial advisor say they feel financially secure.

We suggest you don’t need a rock-hard six pack to feel healthy, and you don’t need Bezos’s money to feel financially secure. But if you are among the two-thirds of Americans who don’t work with a financial advisor, perhaps it’s time you resolved to do so.

Resolutions That Pay Off

Finding the right financial professional is a fraught process for many people, but it’s not for a lack of choices. In fact, it’s the overabundance of choice that can make it so difficult, due to a behavioral phenomenon known as “choice under conflict.” 

Amos Tversky is something of a demi-god in the world of behavioral finance. Along with his colleague, Eldar Shafir, he found in 1992 that “the tendency to defer decision, search for new alternatives, or choose the default option can be increased when the offered set is enlarged or improved.” Meaning: the more choices one has, the more likely one is to freeze and choose to do nothing.

If you live in a large metropolitan area, there are thousands of financial institutions and professionals hoping to work with you: stock brokers, financial planners, asset managers, insurance salespeople, mutual fund complexes, and so on. Even in a small town there are often many competing firms and people. 

Rather than making the choice easier, all those options can make it nearly impossible to choose. After all, they may all suggest that theirs is the one best path to financial security — but that can’t be right, can it? They can’t all be the best, or even produce equal outcomes as they take such different approaches. And many, if not all, are trained in the art of persuasion, which can tickle a subconscious flight instinct. 

There is one category of financial firm and professional that won’t advertise and very likely is not interested in working with you, and that is the family office. Family offices support a single, ultra-wealthy family. There are thousands of family offices in the USA. However, if you could work with a family office, you might find it to be very beneficial. After all, the wealthiest Americans can work with whomever they want, and they overwhelmingly choose the family office. Here’s why:

  • Family offices are true fiduciaries. They operate free from conflict, and their objectives are precisely aligned with the goals of the family that employs them.
  • There is zero selling in a family office. Decision making is objective; the members of the family office aren’t compensated by a financial product or services company.
  • Rather than selling to the family, they buy for them. First they identify the best solution, then they scour the marketplace to find the best solution provider.
  • Family offices operate in total transparency. The family is always aware of the strategy and clear on why that strategy is good for them.
  • Family offices first determine the most efficient tax strategies, and only after that is established do they create their investment policy. Taxes, particularly estate taxes, are of vital concern to these wealthiest families for the simple reason that taxation can be by far the most corrosive threat to wealth preservation.
  • The result of a taxes-first strategy and a conflict-free decision making process often produces the lowest-cost and highest net return result. In addition, family offices pay close attention to diversifying away risks, and aligning the portfolio with the values of the family.

You may be thinking that you would like to enjoy all those same benefits. That your insurance person only and always offers insurance-based products. That your banker only deals in bank products. That your stock broker may not be as transparent as you wish. And if you work with all three, wouldn’t it be nice if they worked together for your benefit?

Diagnose, Then Prescribe

Any competent doctor is going to want to check you out before writing you a prescription. A good lawyer will go through substantial discovery before developing your legal strategy. And an effective financial advisor will review your financial wellness before recommending any changes. 

This is where we can help, and that help is free from cost or obligation. Armed with your financial statements, we can use public sources to calculate your total costs for financial services, and we can review your tax efficiency. We will look for risk exposures that may be diversified away, and we will calculate what your maximum downside loss exposure is. 

All of those things, combined with an estimate of potential tax savings from the implementation of prudent tax-avoidance strategies, can be a very powerful diagnostic tool for you. Armed with this information, the search for right financial help can be greatly streamlined, and may very well produce a better result. 

This type of diagnosis is consistent with the family office approach, and could result in cost and tax savings as well as improved risk management and greater transparency. All of those things can contribute to greater financial security for your family. 

To get your free report, make an appointment. I can help you gather the information we need to create your report. 

Here’s to the success of all your resolutions, and to a happy, prosperous and peaceful 2023.