A unique Bank of America think tank is teaming up with Merrill advisors to help wealthy clients figure out what to do with their money. Indeed, even ultra-high net worth families worry about overspending and winding up broke.
BofA’s Center for Family Wealth Dynamics and Governance has developed four key questions for creating a robust, effective spending plan. In an interview with ThinkAdvisor, Valerie Galinskaya, managing director, and Matthew Wesley, director, unpack those questions — and reveal more about their focus on helping families to be strategic when making spending decisions.
Within a few months, the Center, which works as an extension of the advisor team, according to Galinskaya, will release a comprehensive framework to be used by and for wealthy clients to develop practical, realistic spending plans.
In an outline for “Considerations for Decision-Making Around Expenditures” (working title), a copy of which was provided to ThinkAdvisor, the Center addresses such components as a “Purpose of Wealth Statement” and recommends that clients move away from the notion of “Can I afford to spend on X?” to “Should I spend this amount on X?”
In the interview, the family governance experts explain the importance of family operating principles, which include establishing financial guardrails, and discuss what happens when the honeymoon is over for the newly rich (They feel like a stranger in a strange land).
Although established officially about six years ago, the Center’s staff has been working for a decade helping families think through the often difficult issues that wealth presents. The geographically dispersed team works with advisors’ multigenerational family clients to create spending plans and to facilitate family meetings.
ThinkAdvisor recently held a phone interview with New York City-based Galinskaya — a former management consultant — and Wesley, a former trust and estate attorney, who is located in Seattle. They say that though the main thrust is developing spending plans for the high net worth because their financial needs are more complex, knowing how to make the right spending decisions applies to all clients.
Here are excerpts from our conversation:
THINKADVISOR: You recommend developing an effective expenditure plan to avoid running out of money. Is this something the financial advisor could develop with the client?
VALERIE GALINSKAYA: Absolutely. We see the advisor playing an integral supporting role in developing the plans and helping to guide them.
MATTHEW WESLEY: In order to create a robust and resilient spending plan, you have to answer four questions. The first: Where are we now? — assess the current state, what the spending patterns are and how they’re playing out. The second question: Where are we going? This is about desired outcomes. Third: How will we get there? Come up with a concrete plan. The fourth: How are we doing?
Is there a follow-up after determining the answers?
WESLEY: Yes. It becomes a cycle going forward asking: Where are we? Where do we want to go? How are we going to get there, and how are we doing? This allows the advisor and client to check in on those critical questions at least once a year to figure out how the spending is doing against the outcomes and goals the client wants to achieve.
Do you expect significantly wealthy clients to keep to a budget?
GALINSKAYA: This isn’t about a budget. We’ve found that people who have taken the time to think about what success means to them and who [identify] their operating principles make the most effective decisions.