Set Your Course with a Sound Wealth Strategy

Doug McLarty is a Partner in MNP's Succession team. With decades of experience, he's helped many families navigate different life chapters. In this article, Doug explains how a wealth strategy helps a family understand where they're headed and how to accomplish their goals.

You've worked hard to build your wealth. How can you protect what you've built and reach your goals? By creating a plan and making changes as your situation evolves. In my Family Office Services work with clients, I see how building a comprehensive wealth strategy leads to the outcomes they dream of, while providing confidence and clarity as they move forward with their lives.

Managing money is not a simple task. Having more of it can add complications to the plan. Through this case study, we'll show you the issues that can arise throughout your life, and how a wealth strategy can help.

Meet Fred and Joanne

Fred recently sold his car dealership, a second-generation family business. Fred and his wife Joanne have two children, a son and a daughter, who have both left home to attend university. He was fortunate to find the right buyer who was a motivated purchaser, leading to an all-cash transaction. For the first time in his life, Fred and his family had a significant amount of liquid assets - $10 million in cash - and some real estate, including the family home and a cottage.

Fred approached me to explore a wealth strategy for him and Joanne. They felt overwhelmed and wanted to understand what steps he should be considering in order to maximize his wealth.

We sat down and built a list of the areas to consider:

1. Financial goals and objectives
2. Asset allocation strategy including diversification
3. Help with Investment Manager selection
4. Consolidated reporting and performance
5. Cash flow budgeting and monitoring

Let's walk through each area.

Creating a financial plan around goals and objectives

Building a realistic and agile financial plan is a foundational component to a successful wealth strategy. When prepared correctly, a financial plan is a powerful tool. It provides Fred with guidance for decisions and lets him understand if the family is on track.

This was a completely new headspace for the family. Fred's family had relied on their business for cash flow. After the sale, their capital needed to provide both short-term cash flow and potentially long-term stability for future generations.

To complete our financial plan, we needed to discuss a range of topics with Fred and the family. For the plan to work, we needed to build around a set of family values and goals, understanding the upcoming major milestones. This includes important conversations about their philanthropic goals, or gifting capital to their children now as a part of their estate planning.

This document formed an important baseline for what comes next. The financial plan included all components one typically expects, including critical integration considerations and family tax planning.

Asset allocation strategy

In this stage, we focus on how we're using the capital. After discussing the family lifestyle moving forward, we knew Fred and Joanne had enough cash flow to maintain their lifestyle. The next step was determining what we do with the remaining money and building a diversified asset allocation strategy.

There were two major expenses to plan around: an addition to the family cottage and their daughter's university expenses.

After factoring the expenses in, there was significant capital available. We discussed higher-return assets, including real estate and venture capital, as potential alternative investments.

Supporting investment manager selection

Fred and Joanne have a small RRSP with a friend but wanted to consider other asset managers with different skillsets. Our firm has invested in research tools and industry knowledge to be in position to discuss various alternatives, helping Fred make informed decisions without any conflicts of interest from us. Fees and integrated tax planning are critical considerations when exploring investments and we want to support our clients as they make important decisions.

Fred and Joanne owned a variety of personal accounts, including a holding company and a tax-free savings account (TFSA). We developed a strategy for how the family can withdraw funds from the various accounts while minimizing the amount of tax they pay.

From here, Fred understood what kind of investment performance he was looking for and started conversations armed with confidence about his path ahead.

Consolidated reporting and performance

After meeting a number of providers, they settled on two managers. Each had different mandates. One manager was tasked to provide liquidity and cash flow, while the other worked to provide capital appreciation.

Between the RRSP, TFSA, and two different asset managers, the family's money was working for them. But they had no way of seeing all of his portfolios at once. We provided Fred and Joanne with quarterly reporting, combining the two portfolios and tying it into the financial plan and cash flow requirements of the family. We also monitored the tax planning aspects.

Cash flow budgeting and monitoring

We prepared an annual cash flow for the family and delivered quarterly summaries.

There were some bumps along the way. The family had never had disposable cash before and splurged a few times. Once we factored these into the cash flow projections and demonstrated the impact of their purchases, these anomalies slowed down.

Evolving as life plans change

A financial plan is only as good as it is accurate. When the family dynamic changes, the plan needs to adapt. Fred and Joanne's daughter created an exciting change: she got into medical school.

They reached out to me because they knew med school was a large expense and wanted to update his plan accordingly. Even though this is a significant financial commitment, the family knew they could afford it and how it would impact their lifestyle because they had a plan.

We made the necessary adjustments and the family adapted to the new direction.

Summary

This is just one example of what we can do for your family. Every situation is different and unique and that's why I feel so strongly that it needs to start with a comprehensive financial plan.

Our work is ongoing. We know situations change, and significant events can shift people's priorities or perspectives. That's why we are constantly communicating with our clients - to help keep them on the right path and reach their goals.

To learn how Family Office Services could help you, contact Doug McLarty, FCPA, FCA, CFP, ICD.D, TEP, Partner, at 613.691.4222 or [email protected], or Tina Di Vito, CPA, CA, CFP, TEP, FEA, Partner, at 416.515.5071 or [email protected]