First and foremost, wealth management means structuring a portfolio designed to meet your objectives. We implement cost-effective strategies that are expected to produce the greatest amount of return given your desired risk tolerance and cash flow requirements. However, at RCL Advisors, we take this process to the next level by looking for opportunities to create additional wealth through minimizing taxes, interest costs, insurance premiums, and/or professional fees. In addition, we seek to assist you in maximizing the benefits of your cash and debt management process, your employee benefit selections, your risk management choices, and/or your gifting strategies to better achieve your objectives. We will partner with you to assist in taking advantage of all the opportunities you have available to you through a systematic process designed to regularly address every aspect of your personal financial situation.
Once you have achieved financial independence, or it is obvious that you will be able to do so, it makes sense to assess the pros and cons of the many wealth transfer strategies available and determine which could best meet your needs. We frequently help our clients determine which wealth transfer strategies to implement and then assist them in maximizing the benefits of those strategies.
For example, many of our clients regularly create GRATs with a two year term in an effort to transfer some of their portfolio wealth to their children tax-free. If this makes sense for you, we will assist you in maximizing the benefits of these GRATs through our unique GRAT management process which is designed to take advantage of market volatility. This process begins at the time each GRAT is created and continues until each GRAT’s termination during which time we seek to maximize the amount of wealth you transfer estate tax-free and minimize the income tax burden as well.
To implement our unique GRAT management process we:
- assist you in identifying assets in your portfolio with the greatest opportunity to increase in value over the next two years at the time of the establishment of each GRAT
- have the applicable assets transferred into one or more asset class GRATs and work with your attorney to compute the annuity amounts
- assist in determining the amount of your wealth transfer goal for each GRAT as well as the point at which you’ll determine that the GRAT will not be successful
- establish a process to regularly monitor the value of your GRATs to determine whether these specific high or low point amounts have been reached
- substitute cash or short-term bonds you hold outside the GRAT for the GRAT assets when the high or low point have been reached
- work with your attorney and trustee to promptly re-GRAT the assets transferred to you from the GRAT(s)
When the assets in the GRAT have increased significantly and reached their designated high point, you are able to “lock in”. This will help achieve your wealth transfer goal by exchanging the appreciated assets for assets that will maintain that high value until the end of the GRAT term. On the other hand, if the GRAT assets have fallen in value to their designated low point, you are able to potentially transfer even more to your children tax-free at the end of the new GRAT’s term. This is attained by removing those assets when they are down and transferring them to a new GRAT prior to the termination of the GRAT. We also assist you in determining which assets should be transferred back to you and/or sold to minimize the amount of unrealized capital gain transferred to your children.
The best way to save for retirement is by establishing a process where the money that goes into your checking account is limited to the amount you need to pay your bills. Excess money in checking accounts has a way of always getting spent, even for our most disciplined clients. To help with this process, many of our clients have their pay checks deposited to their investment accounts rather than their checking accounts and then have the amount needed to pay their bills transferred to their checking accounts, as opposed to the other way around. If this process makes sense for you, we will establish a system whereby we would routinely ask you how much of the amount remaining in your investment account is investable and provide you with our recommended investment proposal to get this money invested promptly.
Taking full advantage of the benefits of your employer-provided retirement plans is another excellent way to save for retirement. We will assist you in:
- determining any specific risk and/or excess return attributes of each of the retirement plan(s) offered by your employer so you can prioritize them
- understanding the cash flow implications of making contributions to the retirement plan(s)
- contributing your desired amount to the retirement plan(s) in priority order each year
- familiarizing yourself with the types of assets available in the retirement plan(s) and their income tax advantages and disadvantages
- assessing the pros and cons of the specific investment options available in the retirement plan(s)
- selecting the investment option(s) that are most appropriate to achieve your portfolio objectives in a tax-efficient manner and monitoring their performance
- making sure that all your retirement plan accounts are well integrated and are part of your overall investment strategy
Your employer may provide you with the option of contributing to a Roth account. Roth accounts can be fantastic tools for achieving retirement goals. Although you forgo receiving an initial income tax deduction, like with traditional retirement accounts, you still receive the same tax deferral benefits with the addition of never having to pay income taxes on future withdrawals. While this makes a great deal of sense for many of our clients, there are always additional circumstances to consider. Part of our services include analyzing your current versus future expected tax rates and the number of years until you plan to retire to illustrate the potential benefits of a Roth election. In addition, we will assist you in considering the pros and cons of making non-deductible IRA contributions each year as well as converting current IRA assets into a Roth IRA.
Your employer may also provide you with the opportunity to contribute to a Heath Savings Account (HSA) if you are covered by a high-deductible health insurance plan. We consider HSAs as the most tax effective retirement plans available, because you receive a current income tax deduction for the contributions. You may never have to pay taxes on future withdrawals as long as your health costs are at least as high as the amount you withdraw from your HSA over time. To maximize the benefits of your HSA, we recommend keeping the funds invested for as long as possible during your lifetime. Therefore, we typically recommend selecting the plan’s riskiest investment option.
As your trusted financial advisor, we at RCL Advisors, LLC strive to focus on every risk that can derail your financial plan. This includes not only the risks associated with the capital markets, but other financial risks which can destroy wealth. For instance, gaps in your liability insurance coverages, underinsured property, and/or casualty exposures can create a potentially large loss. We will be happy to perform a comprehensive review of your insurance policies to ensure that your excess liability (umbrella) insurance coverage deductibles are properly coordinated with your underlying homeowner’s and auto policies’ liability coverages. We want you have the amount of coverage you desire in order to manage your property and casualty loss risks cost-effectively.
In addition to your property and casualty insurance, we can assist you in determining how much life insurance you need and whether permanent or term insurance best meets your needs. We will be happy to assist you in selecting a specific life insurance product and managing any investment choices as well. We can also assist you in considering the benefits of purchasing long-term care insurance for you and/or your spouse. Our duty is to find a plan that best fits your needs.
Other non-market risks you may face include obligations to your extended family. We can assist you in determining what steps you could take now to reduce the financial burden of important items such as caring for elderly parents and/or any special needs children or grandchildren. We attempt to identify every risk you face and develop a plan to mitigate them to ensure you stay on track in meeting your objective and maintaining financial independence.
Many clients are looking for ways to align their core values with their investment strategy in order to make a positive impact on the world. This can range from environmental issues, such as carbon emissions and water scarcity to social issues such as gender and diversity. Other issues include corporate governance such as the composition of a corporate board and having prudent political contribution policies in place.
Choosing investments that generate social and environmental value as well as financial return has the potential to complement philanthropy and government intervention. It can also be a potent force for addressing global challenges. This trend has been intensifying over the years. RCL Advisors has been on the forefront in identifying viable solutions to meet our clients’ objectives. We find it particularly rewarding to assist clients who consider making a global impact while also meeting their own financial objectives as one of their goals.
For corporate executives, the company stock they hold presents a unique challenge in designing and maintaining the investment strategy to meet their objectives. Our decades of experience analyzing investment pros and cons as well as income tax implications for various company stock plans allows us to have special insights in integrating them into the overall financial plan of corporate executives. Considering the cash flow, income tax as well as portfolio diversification ramifications in a risk-adjusted manner is critical in maximizing the benefits of company stock awards when managing incentive stock options, non-qualified stock options, restricted stock awards, and performance share units.
If company stock is part of your compensation package and/or you have a concentrated stock position in your portfolio, we will assist you in developing strategies designed to maximize the benefits and minimize the risks. In doing so, we will be cognizant of any company holding requirements, blackout periods, SEC Rule 10b5-1 requirements, and any SEC Rule 144 or other restrictions. We can also assist in maximizing the benefits of Employee Stock Purchase Plans and net unrealized appreciation of company stock in qualified plans, if applicable.
Financial literacy is an important issue for us. We recognize the importance of getting the next generation up to speed on financial matters that will help them achieve their own goals and dreams. The days of corporate pensions are basically over with the burden of achieving financial independence shifting to the individual. This creates a call to action to self educate and be diligent in creating and sticking to a financial plan. At RCL Advisors, we encourage our clients to get their children involved in their own financial decisions. We also encourage teaching their children key issues and helping them implement their own plans. We focus on teaching the next generation basic topics such as budgeting and debt management as well as putting together a plan to save for short, intermediate, and long term goals. We educate them concerning their company-sponsored retirement savings plans as well as the opportunities available in utilizing additional savings plans such as Roth IRAs. We are happy to spend the time teaching them the basics of investing, showing them what is involved in developing a diversified investment strategy, and helping them assess the numerous solutions available to them when implementing their portfolio. Helping them understand income taxes is another critical component of our educational program, along with topics such as insurance planning, buying a home, leasing versus buying a car, managing student debt, maximizing employee benefits, estate planning, and the financial considerations associated with starting and raising a family. These are are some of the areas we are prepared to address as we strive to make sure our client’s children are as prepared as possible for the important decisions they will need to make throughout their lives.
One way to have more control over your portfolio’s results is by following a disciplined approach to investing. Diversified portfolios that are regularly re-balanced to maintain their desired asset allocation have a high likelihood of achieving the return expected by their designated investment strategy over the long haul. Investors who adhere to their long-term strategies during volatile times and market corrections almost always walk away with their anticipated results over the long term. It is the impatient investor who shies away from his/her strategy during market declines or dials up the risk during market highs who often jeopardizes his/her ability to achieve the expected long-term results. Unfortunately, many investors become impatient at the wrong time as can be seen by mutual fund flows over various time periods. At RCL Advisors, we review our clients’ investment strategies, long-term expected returns, and risk information with them to confirm that their portfolios continue to meet their objectives. We believe this is critical in ensuring that our clients do not try to time markets or fail to re-balance their portfolios as we strive to enable them to achieve their long-term expected results.
Another way to have more control over the results of a portfolio is through the utilization of derivative strategies. Derivative strategies have helped several of our clients create more tailored results for their portfolios or for sections of their portfolios. These strategies can be implemented through an active or static approach and can seek a variety of specified results. However, it is important to note that these strategies can be complicated and often come at a cost to the client. While an option in some cases, these strategies need to be considered in great detail to evaluate the costs and benefits of their implementation in achieving the specific client’s objectives.
A critical art of our process is making sure portfolios are structured and maintained in a manner that allows our clients to feel comfortable during market declines. Studies have proven that individual investors tend to sell “low” and buy “high” due to emotional factors, so managing these tendencies is important as we assist clients. We have found that thoughtful portfolio construction coupled with education allows clients to stay disciplined during volatile times.
At the end of the day, an investment strategy will be successful if it delivers the cash flow and/or growth desired by the client during its time horizon. When structuring portfolios, we consider the risk and return desires of our clients as well as the ability of their portfolios to meet their cash flow needs. For our clients who are no longer in the wealth building phase of their life, we typically work with them to identify an appropriate approach to meet their cash flow needs based on the amount of distributions they anticipate needing from their portfolios each year, the annual income generated by their portfolios, as well as the amount of low risk assets that are contained in their portfolios. We explain that the portfolio income and low risk assets coupled with any outside income create a “runway” so he/she can understand the length of time they can survive a market downturn without having to sell any risky assets. We have found that by structuring portfolios with sufficiently long “runways”, our clients feel comfortable staying invested according to strategy in even the most volatile market periods.
For clients with substantial assets or modest portfolio withdrawal needs, keeping a certain dollar amount of their assets in a “vault” can be a good approach to allowing them to feel comfortable sticking with their investment strategies when markets decline. The “vault” is comprised of a specific amount of extremely safe assets and/or other non-correlated liquid securities, such as gold, that the client wants to maintain as a baseline level of assets in case of an “Armageddon” event. While this “vault” amount might be an arbitrary number, it is often equal to the amount needed to fund future living expenses or the specific amount the client desires to pass on to beneficiaries and/or to charity. One of the advantages of this “vault” approach, is that it can assist clients in better defining the ultimate objectives for their assets and ensuring they will meet those objectives in absolute dollar terms.