The holiday season doesn’t have to mean only stress and deadlines for advisors. It’s also a time to strengthen client relationships.
In a conversation with ThinkAdvisor, Sarah McDaniel, managing director of Morgan Stanley Family Office Resources, discussed how financial advisors can connect better with their clients during this time.
McDaniel leads the ultra-high net worth planning specialists that are a part of Family Office Resources. The specialists are tasked with helping advisors and their clients navigate and curate resources so their clients can make complicated decisions confidently.
Four years ago, Morgan Stanley formed the Family Office Resources Unit, aimed at clients with $20 million or more of investable assets, by combining services it already provided. These include family governance and wealth education, philanthropy management, as well as single family office and “lifestyle” advisories.
The team of about 70 employees has engaged with about 2,000 advisors year to date through November.
Here are McDaniel’s tips on how to make this time of year less stressful and more beneficial.
1. Have an ongoing dialogue to avoid end-of-the-year stress.
“While this time of year tends to be fun because families are getting together, it might be a little hectic because people are trying to accomplish things within a particular year so they feel a little more rushed,” McDaniel told ThinkAdvisor.
To avoid this, McDaniel suggested having an “ongoing process and dialogue that’s memorialized for clients” so there’s not the rush to get things done by the end of the year.
If there’s a plan in place with the advisor and the client, it should “transcend any time of year and hopefully any market environment,” according to McDaniel.
“Because we know what they’re trying to accomplish, we know what the risk profiles are, and it’s more of just checking in to make sure things are on track and that [something] hasn’t drastically changed which would warrant a re-evaluation of the plan,” she added.
2. Make a road map to ease tax-loss harvesting.
“Hopefully people have been doing tax-loss harvesting throughout the year, but sometimes people wait till the end of the year when they’re managing their tax bill in April,” McDaniel said.
Tax-loss harvesting requires identifying which portfolio holdings appear likely to distribute net capital gains before the end of the year while also finding holdings that are likely to sustain losses.
Have a navigation or a map of what the family tree is, what the legal structures are in place, which assets from balance sheets are in each of those entities and who the beneficiaries are, McDaniel suggests.
McDaniel’s suggestion it to make essentially what she calls a “road map of a tax identification number.”
“When people tax-loss harvest, oftentimes they think of doing it within an equity portfolio,” she explained. “They may not think about doing it across the equity and the fixed income and potentially the alternatives, which tend to be a little more illiquid so it tends to be more tricky.”
Advisors may not understand that they are responsible for the taxes for multiple legal entities and they all have the same tax identification number. The advisor could harvest losses across entities as well, McDaniel explained.
“As you pull back … I think you have more tax loss harvesting opportunity because you have a broader base from which to create offsets,” she said.
3. Have philanthropy be a part of the overarching plan.
Charitable donations should be part of an overarching plan or goal for the family as well, according to McDaniel.
“People should always be thinking of philanthropy as part of their overarching goal, but oftentimes some of the legal structures and some of the deadlines for the philanthropic gifts happen towards the end of the year,” she explained.
For example, some trusts have mandatory distributions — like a private foundation with a 5% distribution per year or a charitable lead annuity trust required to make an annual distribution.
“Whether it’s the foundation distribution or whether people want to make sure they get the money into their donor-advised funds or whether there are mandatory distributions that need to come from other entities, people are making sure that all of those are happening before the end of the year,” McDaniel explained.
4. Use the holidays as a way to bond with the client’s family.
During this time of year, McDaniel thinks it is “really important” as well as a great opportunity for advisors to understand the movements of their client.
“People travel, people are in and out of town; just to make sure the advisor knows where the client is and what they might need should something happen, so everyone’s on the same page,” she said.
The holidays can also help the advisor and client bond more.
“Understanding what family members are … aggregating to celebrate the holidays is a great entry point if it hasn’t already happened to understand the family, the family dynamics, and relationships that exist,” McDaniel explained.
According to McDaniel, it’s ultimately that context of how the family works and makes decisions and comes together that informs everything else that the advisors do.
The holidays and family gatherings can also provide an opportunity for the advisor to meet with other members of the family that they haven’t met.
“You can get multiple generations, and you can better understand the family dynamics that way,” she said.
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