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Wealth Management Case Studies
- Two-Career Couple with Three Young Children
- Married Empty-Nester Couple
- Corporate Executive with Stock Options
- Non-Profit Foundation
- Third Generation of Family Business in Transition
- Sale of a Closely-Held Business
Scenario: Two-Career Couple with Three Young Children
A two-career couple has three children, with the oldest entering high school. They have no debt besides a small mortgage on their home, and they have put aside some significant savings. They are concerned about the best ways to save for their children's education and welfare going forward, while still putting aside funds for their retirement.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about long-term objectives in terms of lifestyle, retirement, charitable giving, education, and inheritance
- Verify that strong relationships have been established with a reputable attorney, accountant, insurance agent, and banker to handle all of those needs.
- Protect the family by recommending proper life insurance needs
- Coordinate the work of the other advisors with the client's investment planning
- Analyze the benefits of having the mortgage paid off
- Discuss various means of college savings and set up specific objectives and a plan to reach them
- Review all current investments particularly their company retirement plans to preserve wealth and minimize risk
Results:
- All financial advisors are working together for client's benefit
- Areas such as estate planning, trusts, tax planning, and insurance are all coordinated with long-term investment planning
- College savings are put aside and invested in the most efficient manner
- Current investments are diversified, low-cost, and meet the family's objectives
Scenario: Married Empty-Nester Couple
A married couple has their last child graduating from college, and now has turned their attention to how long they would like to work, what they would like to do when they retire, and how much money they will need to be able to enjoy the lifestyle that they want comfortably once they retire.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about long-term objectives in terms of lifestyle, retirement, charitable giving, and inheritance
- Verify that strong relationships have been established with a reputable attorney, accountant, insurance agent, and banker to handle all of those needs.
- Outline the steps to be taken with those advisors to handle the tax planning and estate planning needs
- Coordinate the work of the other advisors with the client's investment planning
- Assess the clients' knowledge of and tolerance for investment risk
- Run portfolio simulations based on various scenarios of income, expense, investment returns, and risk to give clients a clear picture of how these factors influence their investments
- Review all current investments particularly previous retirement accounts and current company retirement plans to preserve wealth and minimize risk
Results:
- All financial advisors are working together for client's benefit
- Areas such as estate planning, trusts, and tax planning are all coordinated with long-term investment planning
- Investment risk is taken according to the clients' preferences
- Current investments are diversified, low-cost, and meet the family's objectives
Scenario: Corporate Executive with Stock Options
A top executive at a major corporation has been busy building the business and has not spent much time on long-term financial planning. Fortunately, the executive not only has a generous salary, but a lot of stock options. In addition, the individual has a large retirement plan at the company and has also put aside a significant amount of money over the years.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about long-term objectives in terms of lifestyle, retirement, charitable giving, education, and inheritance
- Verify that strong relationships have been established with a reputable attorney, accountant, insurance agent, and banker to handle all of those needs.
- Outline the steps to be taken with those advisors to handle the estate planning, tax planning, and life insurance needs
- Coordinate the work of the other advisors with the client's investment planning
- Analyze the company stock and stock options to minimize tax liability and offset risk
- Review all current investments including company retirement plan to preserve wealth and minimize risk
- Invest non-company assets in diversified portfolio to match needs
Results:
- All financial advisors are working together for client's benefit
- Areas such as estate planning, trusts, tax planning, and insurance are all coordinated with long-term investment planning
- Risk from large holdings of company stock and options is reduced
- Current investments are diversified, low-cost, and meet the family's objectives
Scenario: Non-Profit Foundation
A foundation, which already has one investment advisor for some assets whom they wish to keep, is looking for an additional investment manager who not only will make investments, but also review their other investments, determine overall asset allocation, and handle all paperwork and reporting. The foundation has had challenges in the past where they were forced to sell equities in down markets to meet distribution needs, when they felt the equities were undervalued.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about short, intermediate, and long-term distribution requirements and objectives
- Review all current investments
- Determine optimal total asset allocation including all non-Reinhart managers with trustee input and construct a portfolio to meet their requirements
- Utilize an individual bond portfolio to lock in three to seven years of anticipated distributions.
- Set up a low-cost custody arrangement to handle all administrative issues
- Set up an open access system so the trustees can check portfolio status on-line
Results:
- All managers are reviewed quarterly and asset allocation adjusted
- Trustees have comprehensive and accessible reporting system
- Assets held and traded at lowest possible costs
- Individual bond portfolio matures in lockstep with distribution needs to eliminate sales at market low points for distributions
Scenario: Third Generation of Family Business in Transition
The third generation owner of a closely-held family business is preparing to take over management of the business. Fortunately, the family has benefitted from some far-sighted estate planning by their attorney; however, there are some areas of concern. There are a number of large second-to-die split-dollar life insurance policies on the life of the parents that have not been reviewed in many years. A large percentage of this owner's net worth is company stock, and the client is concerned about diversification of his other assets. He would like to take some steps to enable his children to inherit and work in the business if they wish to do so.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about long-term objectives in terms of lifestyle, retirement, charitable giving, education, and inheritance
- Review each of the insurance policies to decide how to best utilize their existing and future asset value
- Analyze the ownership of the policies and recommend steps to avoid punitive benefit taxes as the insured parties get older
- Create asset allocation plan including the company stock as an important component of total assets, and diversify away from it
- Discuss methods to transfer company stock to children
- Set up a program to educate the children about the business and investments
Results:
- Insurance policies are paid based on family cash flow needs and investment value
- Split-dollar policies are bought from the company before the economic benefit becomes a problem
- Despite major holding of company stock, total family assets are diversified to protect against downturn in that industry
- A comprehensive plan is in place to transfer company stock to children and prepare them for their role in the family and possibly in the business
Scenario: Sale of a Closely-Held Business
The owner of a large family business sells her interest to other family members. She will be receiving large sums of money over time with significant tax obligations. She may buy another business, so she needs to determine how much capital she will have to invest while maintaining sufficient cash flow to support her family in the meantime. The family has a number of investment accounts, including retirement accounts and trusts, but she is not certain how diversified they are in the event of a downturn. She also has other assets, like her home, private equity investments, and life insurance policies, that need to be re-evaluated given her family's new situation.
Reinhart Partners Analysis, Recommendation & Actions:
- Ask key questions about long-term objectives in terms of lifestyle, retirement, charitable giving, education, and inheritance
- Decide on optimal tax strategy for incoming payments
- Determine ongoing household cash flow requirements and costs
- Discuss investment strategy for current and incoming funds, particularly in light of diversification of all assets
- Discuss potential capital requirements for business purchase
- Build a model that incorporates all of the above, enabling the family to enter different scenarios of expenses, investment strategy, and capital requirements to facilitate the decision-making process
- Analyze other investments, including home, private equity, and life insurance; discuss risks, liquidity, and how these fit into long-term goals
- Finalize investment policy statements, consolidate like accounts, and invest funds
Results:
- Family minimizes tax burden on sale, and invests tax obligation money prudently until taxes are due
- Ongoing household expenses reduced and money set aside to cover them
- Investment accounts consolidated and invested in a diversified manner while maintaining sufficient ongoing cash flow
- Funds identified for potential business purchase, and effects on cash flow considered
- Financial model reviewed as necessary based in changes in family needs
- Life insurance policies and payments changed to reflect family's changed status
Wealth Management Team
Todd Krieg, CFA, JD
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Matthew D’Attilio, CFA
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Walter E. Dewey, CFA
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Benjamin N. Dickey, JD
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J. Jonathan Hayes
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Kim M. Molitor
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Gregory B. Pierce, JD
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Bill A. Wernecke, Jr.
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Katherine A. Wohlt
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