Why you need a wealth manager

Marc Lowlicht is annoyed. The head of the wealth management division at Further Lane Asset Management is tired of people confusing what he does with mere investment management. The latter is more or less confined to picking the best stocks, bonds, exchange-traded funds, mutual funds and the like for clients. But for wealth managers, he says, that's only where their job starts.

What are some of the responsibilities wealth managers take on, in addition to trying to find good investments for clients? Here are just a few, Lowlicht says.

For starters, wealth managers are actively involved in their client's retirement planning. This can mean, among other things, updating and changing your client's investment profile based on where they are in their life cycle, with older customers being moved into more stable investments.

While asset allocation is a fairly basic concept in any sort of financial planning, wealth managers also coordinate clients with accountants and attorneys. In addition, they help with trust planning, insurance requirements and managing clients' risks. One example of wealth management, Lowlicht notes, is helping medical doctors figure out where to purchase their 529 liability insurance. For example, it turns out that there is often better liability protection in Alaska or Texas for New York doctors.

In comparison, most employees who work at large financial institutions, aka wire-houses, are typically not going to get involved with their client's financial planning to this extent, Lowlicht says.

The concept of wealth management is also near and dear to the heart of P. Brett Hammond, the chief investment strategist at TIAA-CREF, which helps those in the academic, medical, cultural and research fields plan for and live in retirement. Even though his clients typically have less money than those served by Lowlicht, Hammond notes that many of the principles of wealth management remain the same.

Such help is especially important now, Hammond says, because in these days of disappearing pension plans we are all required to become our own defined benefit plans. We have to also figure out what our own liabilities are. One problem is that few people look at their retirement nest egg in the proper light. Some see it as an ATM to draw from before retirement, others see it as something to chip away from once their work is done, but the real necessity is to get people to understand that they need this money to produce income during retirement, he says. And this is why even middle class, or lower-middle class people should consult with financial planners.

Such an emphasis on having to finance our own retirements shines a new light on careers that, for the most part, had not been considered all that glamorous in the past, such as being a teacher or a police officer. Both such careers offer some of the last real pensions going, and as such offer security that the independently wealthy have to pay many times over for in order to receive something comparable.

Lowlicht sees this individually when he plays ice hockey. Many of the people he plays against are police, and they often compare their relatively slim salaries to his and note how much less they make. But Lowlicht says that their retirement benefits will help make up for a great amount of this inequality not too far down the line. "The reality is, they retire at 45 and have an income for the rest of their lives. And I have to amass so much more money over my life, that even if I retire at 70, I probably still won't have the kind of retirement or the amount of years to enjoy like they will."

What wealth management means

Marc Lowlicht: You know, I keep beating this drum, and I'm going to continue to keep beating it. I think there's a complete disconnect with what the public understands between wealth management and investment management. And individuals can definitely go out and buy some no-load mutual funds and probably do as well as most professionals. Wealth management is not only about picking investments and making sure the allocation is consistent with time horizons. Monitoring to make sure the management stays intact. If it changes, to make changes in who you choose based on your life cycle.

Also, determining what the allocation should be. And also, coordinating that with accountants and attorneys, and making sure that the investments are made in the right structures. If you have trust accounts, retirement accounts, (they clarify) who the beneficiaries are and everything else. So, you think it's very clear. And I think it's very important to be able to get this message across. That the public retrains itself to understand there's a huge difference in wealth management in investment management.

Ken Shubin Stein: I 100% agree with what you said. Would you add to it also the importance of liability management? Making sure they have the right insurance to cover unforeseen events?

Lowlicht: Without a doubt; risk management... I mean, I have you look at property and casualty umbrellas. In the case Ken was mentioning where there are doctors, we look at setting up trusts in places that have better laws. Like Alaska has much better trust laws than New York.

So, if a doctor's going to open a certain type of trust account, and he may be subject to malpractice, I would maybe buy him a 529 (college savings plan) out of Alaska, or other states. I believe Texas is another one, vs. New York. And forgo the tax benefit, where the state law will protect those assets if the doctor gets sued for malpractice. And they can go over and above how he's structured as a business. These are things wealth management takes into account that investment management doesn't. The guy at a large wire house is an investment manager, he's not a wealth manager.

P. Brett Hammond: You know, I think that what I've been hearing the last couple of minutes is absolutely wonderful... The only thing that I think I'd be able to add to this conversation is to sort of back up and go the simplest possible route. In the sense that where I come from, we take care of an awful lot of people who don't have trusts, who aren't doctors. We take care of some, but not like you guys. And yet, almost all of this stuff is applicable, or at least the theory is applicable to them, too.

And the basic advice. And what I mean by that is every individual these days is pretty much their own defined benefit plan. You know, they are the ones who have to figure out what their liabilities are. They're the ones who are going to have to manage their wealth and their investments. Just, you know, starting with the simplest 401(k) plan. And the challenge I think we all face is in the very first instance, before we even get to wealth transfer, is to get people to think about income. And that, you know, the average Joe Six-Pack is going to think about an income and how the wealth is going to relate to an income later in life. And that, again, before you get to wealth transfer.

Lowlicht: Perfectly said. If they get caught up in what we've been hearing for the last 20 years -- which is you've got to build wealth, you've got to build wealth, you've got to and you've got to preserve wealth -- they're not going to think in income terms. And that's going to lead to a lot of the problems that I think we're seeing today.

Forbes: Can you explain a little more about how say, teachers vs. doctors can think in terms of income, and what that really means, Brett?

Hammond: What I'm thinking about is that most people in the world are not going to accumulate huge amounts of wealth in the U.S. or anywhere else. They might accumulate some. But as we've moved from establishing, creating a security for oneself, we've moved from defined benefit plans, where you didn't have to think about it. Somebody else's worrying about the liabilities, etc., etc. In effect, that was a kind of hidden wealth. But what it really turned out to be is income. You were creating a future income for yourself, or your employer was. And there's less and less of that.

Forbes: Pensions and the like?

Hammond: Yeah. There's less and less of that all the time. And as we've moved into the defined contribution, or you know, the model where you build your own nest egg and then have to manage it. What I think we get caught up in is thinking, ah, look at my account balance. Whereas in an old pension, you didn't know what your account balance was. All you knew was that you were creating an income for yourself. And by creating an account balance, and by starting to think, oh, that's my wealth, you may start forgetting that what you're really about is creating a future income for yourself in retirement or whatever.

And you might begin to say, ah, well, I have all this money. And either, I want to spend it on something, like buy that bass boat, or I just want to preserve it. And therefore, I won't think about the liabilities. I'll just think about, well, maybe I'll take a few bucks out every year when I'm retired. And that can lead to big problems. A financial planner would immediately start saying: "Wait a minute, the first thing you need is an income. And then we'll worry about your wealth."

Lowlicht: I can't tell you how many people come to me who are average, everyday people who don't even have wills. And they say "I don't need a will yet. I don't have an estate issue." Yeah, well, who's going to take care of your kids? How are you going to transfer? Make sure that everything is done to your wishes? Do you have a health care proxy? These are all wealth management issues, not investment issues. But they have huge ramifications to whatever you amass during your life.

You know, in answer to your other question about doctors compared to teachers. I would say, teachers are one of the few people left that are in a great position to retire. Because they do have that defined benefit plan. The funny thing is, people will look at doctors and business owners, or even people like myself. You know, I play ice hockey. I have a lot friends who are police officers, just because that's who usually plays ice hockey. Police officers, firemen and me.

So, we always talk, and they're like, "Well, you make so much more than us." But the reality is they retire at 45 and have an income for the rest of their lives. I have to amass so much more money over my life, that even if I retire at 70, I probably still won't have the kind of retirement or the amount of years to enjoy it like they will. So, there's definitely a trade-off between how much you make during the years you're working vs. how long you work and where you retire.