The Perspective Blog
Chairman’s Message: The Rise of the Integrated Advisor
I recently wrote an article for the 25th Anniversary Edition of the Journal of Wealth Management (Summer 2023) called The Rise of the Integrated Advisor. This article looks at the origin of the integrated advisor, what are the common characteristics of these people and firms, which families need such an advisor and how they can find one, and the opportunities and challenges of providing integrated management to ultra-high net worth (UHNW) families.
It starts with a story….
MEET THE SPENCERS: A TYPICAL UHNW FAMILY
James and Anne Spencer have been married for 39 years. They have three children in their 30s. Julie and Jen both have successful careers and families, while Bob is still living at home and trying to sort out his future plans. James and Anne started a small manufacturing business shortly after their marriage and have grown it into a thriving company with over 200 employees. They've worked hard and are delighted the business has turned into such a success. They have a lot of plans, such as traveling more, funding the grandchildren's education, and starting their own charitable foundation. Anne just joined the local hospital board, James is actively involved with some new venture start-ups and committed to improving his golf game, and both of them are keen to spend more time with the family.
But, along with the Spencers' success have come many issues. So many things demand their attention. They have multiple bank accounts, two brokerage relationships(one of their financial advisors is Anne's brother), three investment managers, investments in a hedge fund, several small direct private equity investments, a tax shelter (that the government is now auditing), three trusts and a holding company, several different life insurance policies, a large house and a ski chalet (with a property next door that is currently for sale)… and they are thinking about buying a winter getaway property in Palm Springs. None of the children currently works in the business, but a few months ago Julie began to express some interest—and then recently James and Anne were approached about selling the company. On top of everything else, James was just diagnosed with Type 2 Diabetes.
The Spencers also are struggling with how much money they should leave the children and how much should go to charity. They wonder whether to give the kids some money now to buy a house, but they increasingly are concerned about Bob, who may have substance abuse issues. They started to hold family meetings, but these were disrupted during the pandemic and haven't gotten back on track. Jen was helping them but recently has been occupied with her family's move to Switzerland. Anne's mother has dementia and lives in nursing home an hour away, and James' 82-year-old father just got remarried to a much younger woman.
They have multiple professionals advising them—tax, accounting, estate, insurance, investments. However, the advisors don't all know one another, and no one really knows the whole picture enough to assure that the Spencers have the best strategies and investments. James also has considered using the company CFO to help in his personal financial management, but he's not sure that's a good idea. Their executive assistant at the office can help with some of the administrative tasks, but many are too complex or too personal for her to manage. It seems to be up to James and Anne to stay on top of things themselves—and they are beginning to feel tired of doing it. They know sooner or later something is bound to go wrong.
This is a common family scenario—significant wealth, an active business, liquid and illiquid assets, a complex structure, multiple unrelated advisors, significant administration, growing complexity, no clear strategy, no clear leader, multiple family issues (including older and younger generations), health concerns, a desire for freedom, and frustration with all the oversight required.
THE ROLE OF THE INTEGRATED ADVISOR
The Spencers have good advisors, but they tend to be specialized in their own areas; none appears capable of providing overall leadership, or is allowed todo so by the firm for whom he or she works.
Over the past several decades, a new professional role has emerged to address the complex, multi-faceted needs of wealthy families. We call it the integrated advisor. This role grew out of the frustration families had with the traditional service models that were siloed and product-oriented, lacked a central strategy, and ignored the dynamics within the family. The role has evolved in different ways in different corners of the industry, but now it is coming into its own as a professional discipline and it is poised to be a growing presence in the family wealth landscape in the years to come.
Think about a family that wants to build a custom home. In Option A, a customer can draw a plan, hire all the individual trades (electrician, plumber, drywaller, etc.) and manage the project. That leaves the customer to find the best providers, make sure they show up on time and bill properly, coordinate among them so a decision the electrician makes doesn't mess up the plumber's plans, deal with municipal approvals, and handle all issues as they arise. When the family goes with Option A, they often don't know exactly what they're building, and no specific plan is ever developed.
Option B is to hire a general contractor to take on the management of the project, coordinate all the trades, and liaise with the customer.
The management of family wealth is very similar. The Spencers seem to have chosen Option A, probably by default. Their family and financial lives are complex and everchanging. Their individual advisors may collaborate, but they don't have someone playing the general contractor role to develop a plan, coordinate the project, and ensure family goals are met.
Some families have the interest, time, skills, and experience to manage their own custom home build or their own wealth-related issues. But most don't. As wealth and complexity increase, more families try to find professional management and oversight. There also are many wealthy families who still aren't aware that the integrated advisor model exists. They don't realize they should look for professional management and oversight. In essence, they don't know what they don't know.
If you are interested in learning more about an integrated advisor and whether it would be beneficial for you and your family, click below to complete the self-assessment.