Mallon FitzPatrick heads Robertson Stephens’ Wealth Planning Center, where he has been instrumental in scaling and delivering comprehensive wealth planning solutions for high- and ultra-high-net-worth clients.
Russ Alan Prince: What is your approach to delivering wealth planning to high and ultra-high-net-worth clients?
Mallon FitzPatrick: Not all high and ultra-high-net-worth and family office clients are receptive to wealth planning, at least initially. However, we try to avoid investing our clients’ assets until there’s a plan in place. How can you responsibly invest without a plan? Our approach is comprehensive and iterative, we want to keep moving forward and avoid overburdening the client at any one point.
Clients are motivated to focus on their immediate goals and needs first. From there, we triage and address challenges assessed as a priority until the client’s entire financial situation is deeply vetted. Often, interdependencies require us to address multiple challenges simultaneously.
The first iteration culminates in a “strategic wealth plan.” We present an online interactive plan before or soon after they become a client. Our planning tool allows for adjustments in real-time and to demonstrate the impact of our recommendations or to evaluate client-requested scenarios. We customize the underlying mechanics so that when we discuss sophisticated challenges and solutions the projected outcomes may be evaluated by pushing a button.
In our experience, when clients visualize and understand the impact of decisions, they are ‘hooked’ on wealth planning. During this process biases and behavioral traits tend to surface and help us enhance our final recommendations and increase the likelihood of execution.
The second iteration of the plan occurs one to three months later. We modify the strategic wealth plan to reflect the actions taken. We iterate until all challenges are addressed and we arrive at a cohesive wealth plan, which hopefully provides the highest likelihood that the client will achieve their goals. Wealth plans are fluid and are only as good as the day they are made. We consistently meet with the client and review the progress of the plan.
Prince: What are some examples of complex challenges clients faced and the recommended solutions?
FitzPatrick: One situation that comes to mind is the founder of a company that went public via a SPAC. He was seeking to liquidate his shares anonymously according to an unlocking schedule, mitigate income taxes, achieve a high level of asset protection, and have immediate access to a considerable amount of liquidity.
The solution included identifying a broker-dealer to execute the transactions, a trust company in a trust-friendly state, and an attorney specializing in SEC regulations. It also required creating multiple types of trusts to “stack” QSBS exclusions and ensure that the client had access to the assets with adequate asset protection. The client moved forward with the strategy because we communicated it in an easy-to-understand visual.
Another challenging case from both a behavioral and quantitative standpoint was helping an elderly direct real estate investor simplify their estate and mitigate taxes. The client’s heirs were not interested in inheriting the rentals and the client was concerned about taxes on appreciated properties subject to a significant amount of recapture. The client also feared losing the income from the properties.
We found that the optimal solution was a combination of selling properties outright and others were 1031 exchanged to a DST. We also created a CRUT to receive a tax deduction, spread taxes, create an income stream, and donate to charity. To alleviate income concerns, we showed how a diversified portfolio, with alternative investments, could likely provide a reliable income stream.
Prince: How do you help clients decide to move forward with the recommendations?
FitzPatrick: This is the toughest part of our job as wealth planners. We have been successful in creating interactive visualizations to compare the outcomes of staying the course versus moving forward with our recommendations. I suppose seeing is believing to some extent. Any solution that you want the client to consider must accommodate or address their biases and behavioral traits.
Prince: What should high-net-worth clients keep in mind in this environment and what opportunities are there that they should be aware of?
FitzPatrick: The markets are currently volatile, and it may be helpful for clients to look at short-term events in the context of their long-term wealth plan particularity if the client is anxious. Focus on the things you can control. Set aside at least one year of cash to fund lifestyle, capital calls, tax payments, and other expenses. Avoid drawing down your portfolio at market lows.
Review your variable debt and evaluate whether transitioning to a fixed rate or paying it off is advantageous. Consider loss harvesting as capital losses may be used to offset capital gains. Any unused losses may be used to offset future gains and are carried forward indefinitely until the amount is exhausted.
If you are considering a Roth conversion a market downturn may be a good time to execute. The market may eventually recover and now all or a portion of the IRA assets are in the tax-free Roth.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
