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How Heritage Financial Uses Withdrawal Rates and Alts for HNW Clients

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“We let clients know when it’s time to get selfish,” said Chuck Bean, when referring to one of the five high-net-worth markets his firm currently serves.

Bean, President and Director of Wealth Management with Boston-based Heritage Financial Services, was commenting on inherited wealth, and the tendency for high-net-worth families to want to help their children and grandchildren. All well and good, Bean noted, until it starts to negatively affect the parents. It’s all part of a larger pattern Bean and his team are currently seeing.

“We’re managing clients’ cash flow and spending habits regardless of portfolio size,” he told ThinkAdvisor on Monday. “Managing their expectations is the single biggest challenge we face right now. It’s something that comes up on a weekly basis during our client review meetings and the financial planning committee meetings we hold at our firm.”

“With the stock market up nicely this year, he added, clients feel that their spending habits can increase. But, clients need to realize that within their diversified portfolio, there are other asset classes that are not performing as well.  Their spending level must be consistent with a prudent withdrawal rate based on a long term expected return from the entire portfolio.”

“Everyone has budgetary issues, regardless of net worth,” he emphasized. “For this reason, we employ a simple green, yellow and red light system to show them where they are using our financial planning spreadsheets. We tell them what they can afford and not afford to spend in order to secure or maintain their retirement.”

Heritage manages $825 million in assets for about 300 core families with investible assets “in the low singles of millions to low tens of millions” range. In addition to inherited or family wealth, the other four markets they serve include retirees; single and widowed women; business owners and entrepreneurs; and professionals (with a heavy emphasis on physicians).

Sophisticated clients typically require sophisticated strategies.

“As far as alternative investments, depending on the client, we allocate anywhere from 10-25% of the portfolio in total,” Bean explained. “We have about 10% in managed futures, which have been a sore spot in the portfolio since 2009, but historically has helped hold up the portfolio in bear markets. We also have about 2.5% in gold, which has also been down, surprisingly, even with the government shutdown.  And, some clients have small allocations to hedge funds, private equity and private credit to help enhance risk adjusted returns.”

Aside from alternative investments, he noted, the firm allocates to multi-asset-class funds. While not technically alternative investments, they still act to reduce correlation. These managers have the flexibility to dial up and down exposure to global stocks, bonds, currencies and commodities.”

“All of these things provide more diversity in the portfolio, but more importantly, they also provide more opportunities to rebalance.”

As to the appropriate withdrawal rate for clients — even high-net-worth clients — Bean doesn’t buy the academic mumbo-jumbo, specifically as it relates to “rules of thumb” for retirement income.  

“We don’t adhere to something like the 4% rule because it was constructed at a time when expected rates of return were much higher,” he concluded. “We, like many firms, employ model portfolios, and have target rates of return for each objective. If the long term target return is 6%, and we expect inflation to be 2.5%, then a viable rate of withdrawal might be 3.5%; or if the portfolio has an objective of returning 5%, a comfortable withdrawal rate would be about 2.5%. Anything more won’t keep pace with inflation and maintain the buying power of the investments. Although, we do have clients that are not trying to preserve inflation-adjusted wealth for the next-generation, and don’t mind spending down the principal. But, this can be a risky game of cat and mouse while trying to ensure the assets out last the client. 

“We aggressively stress test the model portfolios in various scenarios, and the withdrawal rate is a constant challenge we deal with, yet we deal with it very successfully.”


Charles Bean will be a speaker at this year’s Think Retirement Income Conference in Boston on Oct. 10 and 11. For more information and a list of other speakers, please visit