The Curious Misalignment of Investing and Tax Planning

By David Miller, founder & CEO of PeachCap, CFP®

In recent years, discretionary hedge funds have been under scrutiny for high fund management fees and charges despite lackluster performance. However, prior to the 2008 financial crisis, returns were good, and investors had no problem paying higher fees and incentives.

A lot has changed for the industry and wealth managers need to consider a more investor-oriented approach to wealth management. Luckily there is one key feature that has always made wealth management for high-net-worth individuals (HNWIs) special.

Wealth management services for investors with over $1 million in investable assets have always been holistic and multi-disciplined, unlike those for investors with a lesser amount. With the growing number of millionaires around the globe, the bar for private banking services has now been raised to $10 million and above, meaning single-digit millionaires can no longer access white glove financial services. In this case, HNWIs are those with over $10 million in investable assets.

Financial planning involves some distinct services all carried out by professionals from different backgrounds; for example financial advisors, accountants, and attorneys. While a financial advisor is responsible for assessing the investor’s financial situation and determining fitting investments, an accountant is responsible for modeling cash flow, tax planning, and reporting. An attorney, on the other hand, takes charge of all the legal matters revolving around wealth management. Integrated investing is all about making these professionals work together under a common goal.

Quality wealth management requires teamwork. What appears to be a good idea in one part of planning may have negative consequences in another. According to a white paper by EY, wealth managers and clients realize significant cost savings when all the components of wealth management are aligned and integrated. The reason wealth management integration is not offered to ordinary investors is that it is expensive and time-consuming.

Financial advisors and wealth managers are only willing to provide these services at premium prices, and only HNWIs can afford. With the rise of robo-advisors, however, the costs and time have gone down significantly, enabling forward-thinking firms to avail these services to the mass affluent.

Back to the question of why discretionary hedge funds have been performing abysmally despite having an integrated approach to investing. The answer trickles down to innovation and technology. We are in an age where big data is the king of competitive advantage, meaning firms that are failing to learn from big data are on the edge of extinction.

Financial advisors who look to remain relevant in today’s investment industry must be ready to embrace technology but at the same time work towards improving investors relation.

According to a forecast report by MyPrivateBanking, hybrid investment solutions will control over 10% of the total global investable wealth by 2025.

While there is no doubt that computer algorithms have grown to become better financial advisors than humans, there are roles that only humans can play, and these cannot be possible without an integrated approach to investing.

Investment alignment is not only about bringing CPAs, financial planners and attorneys together but should also include assessing the investor’s emotional intelligence and helping them set realistic investment goals. Without emotional intelligence, the benefits of investment alignment can never be achieved.

Individuals RIAs and wealth management firms who do not know where to start in offering investment alignment to the mass affluent will lose ground to firms that specialize in such services.

Since 2011, PeachCap Inc has been helping investment advisors and wealth managers to offer white glove financial services to single and double digit millionaires. We focus mainly on Investment Intelligence, Tax Intelligence, and Emotional Intelligence.

Author Bio:

David Miller is the CEO of PeachCap, a full service financial firm offering uber rich services to Main Street millionaires. He believes in making an impact wherever he can and supporting organizations that further the betterment of society. David is a progressive thought leader in the financial services industry, where he has been an integral connector in helping the industry bridge the disconnect with millennials and older generations.

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