In a roundtable meet-up on August 19th hosted by Forbes and Shook Research, assistant managing editor Matt Schifrin and I interviewed five of America’s Top Wealth Advisors who manage a combined $23 billion in assets. They shared their wisdom of working with America’s richest families. They are Brian Pfeifler, a lifer at Morgan Stanley in New York City, Raj Sharma, a Merrill advisor in Boston, Jeff Erdmann, with Merrill in Greenwich, Connecticut, Louise Gunderson, a UBS advisor in New York City, and Kevin Myeroff, founder of NCA Financial Planners in Cleveland, Ohio. In Part 2, below, they give advice that goes beyond investing and covers areas like tax and estate planning, advising multiple generations, and the challenges and rewards of running successful businesses. (See also, Part 1: 5 Top Advisors Tell Where To Invest And How To Generate Income In A Low Rate World)
FORBES: There are a lot of pressures facing the wealth management business. How do you create value for people?
JEFF ERDMANN: If we’re taking care of a family’s estate planning and cashflow management and helping them save in many cases tens of millions of dollars over the life of the relationship through the planning process, that’s one thing. And the second thing would be we’re adding convenience by handling all of their private banking and making that process seamless and giving them a set team that takes care of all of that. Couple that with investment management, and due diligence, and access to strategies across the globe. And then put a wrapper around that. Around a boutiquey-type environment where a family has multiple partners taking care of them and the multiple generations. And charge a very, very, very minimal fee for that. I’d say it’s the best value out there in any industry.
LOUISE GUNDERSON: I think it’s about knowing the generations and making sure you’re equipped to be able to meet the different needs, whether it’s a small amount of money or a large amount of money. And then it circles back into the estate planning, the tax planning, the financial planning. It’s key to make sure that we have penetrated the next generation because they’re very different than when we all started out in the business. It’s lowering our minimum. It’s making sure we educate them and give them exposure to the things that they feel are important. Not just what we think are important.
BRIAN PFEIFLER: Every firm is actively trying to address this by having different divisions focus on different wealth categories. You’re seeing all of the big firms say for a certain wealth, we’re going to have to cover those types of clients in a different manner than we’re going to cover ultra-high net worth. And one’s going to be much more technology-enabled and focused.
LOUISE GUNDERSON: Also make sure that your team is broad enough to be able to cover those aspects. Whether it’s a service model, or whether it’s a generational model, or whether it’s an intellectual model of talking about A.I. or investments overseas. You have to have the capacity on the team to now meet all of the different goals on the checklist.
KEVIN MYEROFF: We all looked at robos initially as is this going to be a competitor or not? But it’s really become just another quiver in our bag. We have ETFs, we have individual securities, funds. And there’s robo as just one other thing we could offer to our clients. I heard a person once say, “Robos have cold hands.” When people are scared or when their family is in trouble, they need us.
BRIAN PFEIFLER: And robos have never gone through a bear market.
JEFF ERDMANN: Well, emotions are probably the biggest risk that we all have as investors. And how we manage our emotions in different cycles. We completely embrace robo-investing. It plays an important role for certain investors in certain parts of their portfolio, but it doesn’t get around the emotional piece. We had a new client in last year, someone a lot of people around the world would know, a wildly successful tech entrepreneur. I went to meet with him a year ago, and he pulled out his phone and showed me his robo. I was like, “Wow, let me see that.” And it was cool to go through. I said, “I notice you’re 40% cash.” And he said, “Yeah, I freaked out a few weeks ago. And I got out of the market.” And we talked about that. And then as the meeting went on, we started talking about his two young children, about the fact that he’s locked into his massive $20-million apartment in New York City and how does he get out of that and would I be willing to talk to his wife about schools out in Connecticut. And then we got into philanthropy and all of the other things that matter to this family. And at the end of the meeting, he handed me his phone and said, “You can’t keep the phone, but you can have the money in it.” And he hired us.
JEFF ERDMANN: And I don’t think he’s 35 yet. All these things we’re talking about are giving our clients a better outcome because they’re making us be better. They’re making fees be more efficient. They’re giving us access to different markets we didn’t have. This is all good stuff.
LOUISE GUNDERSON: There’s nothing wrong with ETFs.
JEFF ERDMANN: We just have to keep offering more and doing a better job.
KEVIN MYEROFF: Uber challenged the taxi businesses because they do the same thing. Robo doesn’t do the same thing that we do.
FORBES: Have you helped clients through the Trump tax overhaul?
KEVIN MYEROFF: For my clients, there was no benefit to the Trump taxes. Most of them are paying the same amount of taxes or more taxes. The only people in my opinion that are paying less taxes are the corporations. There’s a real question about if the corporations are doing what they were supposed to do as “Part of the deal” which was to raise wages for employees, which I think they’ve done to some extent, but then to reinvest the money back into the economy to make it run. And I think nobody kept up that side of the deal. But for my clients in the $1-million-to-$20-million range, nobody was skipping. Everybody with like, “What the heck? You know, I pay the same or more than I was the year before, because of all of the deductions lost.”
JEFF ERDMANN: One theme I wanted to talk about was complacency. In the last six-to-12 months, I think a lot of people have gotten complacent in how they think about risk, how they think about their portfolio, how they think about taxes, and estate planning. As it relates to the Trump tax law, no estate lawyer has called their client that I know of in the last six months and said, “Hey, the taxes could change at some point. Have we taken full advantage of the current tax code?” And so we are having a lot of those conversations right now, because there are advantages as to the amount of money that you can get out of your estate now.
LOUISE GUNDERSON: In 2026, [the federal estate tax exemption] goes back to $5 million if nothing else changes. So we’ve got to really sit down and have those wealth transfer conversations. It’s not just a couple-hour conversation. It really is meeting the family, generating, you know, what are your goals and objectives, and making sure that all of the loopholes are covered. So we can pass along wealth, especially if they have the capacity to do it.
See also, Part 1: 5 Top Advisors Tell Where To Invest And How To Generate Income. For the full list of America’s Top Wealth Advisors, visit www.forbes.com/top-wealth-advisors.
FORBES: Are there specific philanthropy vehicles you’re looking at? Or wealth transfer ideas?
LOUISE GUNDERSON: Well, the two ways that we all know are through a private foundation and of course a donor-advised fund. The donor-advised fund is the easiest way because you can transfer a low basis stock. It’s an inexpensive way to do it. They do the bookkeeping for you. And it’s a good education tool to teach the next generation how to be philanthropic. So we’re having more conversations with clients about that particularly because of the run of the market.
JEFF ERDMANN: Some of the key strategies that are being utilized today are things like GRATs, grantor retained annuity trusts, where families are able to freeze the growth of their estate and pass it tax-free to their heirs. And interfamily loans are something that are very, very attractive with low interest rates where you can lend money to trusts and to family. And again, taking full advantage of where we are on your lifetime [gift/estate tax] exemption, and if you can afford to, getting that money out of your estate now, letting all of that future growth happen outside of your estate. So there are some basic strategies that have been around a long time. But I just warn people not to get complacent and forget how incredibly valuable they are from a planning standpoint.
BRIAN PFEIFLER: You see a lot of people that put an estate plan or will and healthcare proxy in place and they feel they’ve done their estate planning. And, you know, we very frequently go to clients about the use of GRATs, and you’d be surprised: A number of very wealthy families have never heard of them. But they always say, you know, tell me about them. Interest rates being so low right now, the cost benefit is just so in favor of the family that’s trying to pass money down, because the interest rate is so low in terms of what you need to have a security portfolio appreciate to make it work. I’m surprised that more people don’t utilize it. And I think it’s just people aren’t thinking about it. So I think one of the things we’re constantly going out, saying, you know, have you considered this?
LOUISE GUNDERSON: Do it now.
BRIAN PFEIFLER: Consider it again? Because it really is a heads you win, tails you don’t lose anything proposition.
RAJ SHARMA: I think estate planning is absolutely crucial. And that’s a way to stand out in the crowd and say these are the kinds of things which would add millions of dollars to your family’s wealth.
BRIAN PFEIFLER: The cost benefit is really I think something that shows that we don’t charge that much really for a lot of the advice we give.
KEVIN MYEROFF: Attorneys create estate plans. They don’t implement them. We are the people that wind up implementing those plans to make sure that everything’s titled correctly, that the money’s going in the right places. I can’t tell you how many times I get new clients, I look at an estate plan they paid $30,000, $40,000, $50,000 for. And they’ve done nothing. They paid for it. They have the document. The attorney just gave them a piece of paper that said what they should do, but they never followed up. And it’s the financial advisors that are saying, give me the document, let’s see where we’re at.
LOUISE GUNDERSON: I think the people sitting at this table would all agree that the three people that are relevant in any wealth transfer are the financial advisor, the estate attorney, and the accountant. So it’s a three-legged stool that we have to keep being part of. Not just an ETF or a robo advisor.
FORBES: Are there other mistakes that you’ve seen when new clients come in?
JEFF ERDMANN: Most of our clients are people that have monetized businesses for a tremendous amount of money. If there’s a mistake that’s been made, it’s two extremes. One is doing too good a job of estate planning at a young age. And you wake up at 55 because you sold your company at 45 and you realize your kids have a lot more money than you do. Or it’s your kids’ kids who you haven’t met yet and you’re not sure whether you like and trust. So in some cases it’s doing too good a job.
And the other mistake we see is where documents are put in place and young adults get money too early. The most common theme that we’re preaching to families is to really have guard rails around all of the family wealth. And to make sure those guard rails provide flexibility, but protect the family from not just the next generation but the following generations. And that takes a tremendous amount of thought and time. We run regular family meetings with all of our families and have these discussions. It comes down to having family votes on whether all of the children will have prenuptial agreements, and what type of income distribution will come from trusts. Can trusts be invaded for the first home? Can they be invaded for education? All of those things. That’s the stuff that matters to the ultra-high net-worth family in my opinion. It’s certainly what matters to me and my wife when we think about our wealth. That’s where I think we all need to spend a lot of time.
BRIAN PFEIFLER: The other thing too is that we are typically in a unique position to provide context for what other families have done and what best practices are. We sit down with a family and say, you know, well, we’ve seen this four or five times before. Or ten or 15 times before. And we’ve seen families be very successful at the intergenerational wealth transfer and keeping the peace. We’ve seen families that have been very unsuccessful in that. And what are some of the things that we’ve seen that have been successful? And what are some of the things that one should shy away from or be very cautious about? Again, that’s only because I’ve been doing it for 30 years. That’s a real value to ultra-high net-worth families. To have somebody that has that context, that they can sit down with, that can really go through, you know, examples of what has worked and what hasn’t worked.
RAJ SHARMA: We came across a $5-million new client in the last six months. The estate plan was written in the ‘80s. And if you recall, lawyers oftentimes did not give full freedom to the wife. In this particular estate plan, the wife is a lawyer. She didn’t know that if the husband passes away, she’s got to go through three people to get the money, including a corporate trustee, to get a withdrawal. And so that is the old-fashioned way of thinking. So you need to convey, what does it do? What happens if my husband dies? Do I get access to the money? Or do I need go to XYZ trust company and two of his friends? So that is one.
The second mistake I see is a lot of estate plans have been written where distributions are made to the children at age 35, 40, 45. And the new thinking is that you keep it in trust forever. You know, provide that creditor protection, marital protection in case of divorces. So a lot of those plans have to be revisited and really simplified. We hired an estate attorney for our team, who is free for our clients. People appreciate that. They hate to pay 1,000 bucks an hour [to an estate lawyer] to get a clarification.
FORBES: It sounds like a big part of a story we ran a few years ago, “Freud Meets Finance,” on wealth managers as the family therapist. It sounds like that’s a really important part of what you do.
BRIAN PFEIFLER: Well, we can be a really impartial, thoughtful observer-contributor. Right? I mean, if you’re going to a lawyer, you are paying whatever-it-is an hour, and I think it is much more of a transactional relationship. With us, we sit down for family meetings. We have the perspective. We have the experience. We’ve been there before with other families. And we don’t have a vested interest in selling an insurance policy or something else. We can really advise on a dispassionate, arm’s-length basis. And I think that’s very appreciated by the ultra-high-end segment. Just a trusted advisor to the family is really what the relationship is about. Now you’ve got to have good performance as well.
LOUISE GUNDERSON: Well, it’s the trusting confidence that you’ve built up over the years. We’ve all been at this a really long time, in good times and bad times. And I think, again, that generational aspect of dealing with the entire family. And also what you do with them. Do you spend time with them personally or just professionally, so they get to know you? There are certain conversations you can have with people if you really are open and honest. I call it getting under the hood. My friends are my family, my family are my friends. If you build that kind of relationship, that trusted advisor, we’re the first phone call they’re going to make.
KEVIN MYEROFF: They come to us with a lot. They should probably be seeing psychologists with some of the things they come to us with. They talk to us about their children and their addictions. They talk about their marriage issues. That all falls on our lap.
RAJ SHARMA: You’ve got to sort of become an expert in prenups. They don’t want to talk to their kids about it. The kids don’t want to talk to their fiancées about it. So, it’s “Raj, can you talk to my son? He said he wants to have no discussion.” So, we exactly had a discussion with the son and the fiancée as to why it’s important for her to sign a prenup. That’s not in our job description, Jeff, right?
JEFF ERDMANN: No. I have multiple meetings a year on the prenups. I break it down into the playbook and the non-playbook side of running a business. And I think we all have a pretty good playbook of how you allocate assets, how much risk you take, how you structure estate planning. I’m guessing that all of us are on the non-playbook side of our business a lot more than we were ten years ago. And non-playbook is where people want the wisdom of the crowd. And they want to know what based on our experience others are doing and what’s the direction we can take. There’s no right or wrong answer. There’s no playbook on raising children. We all do our best. But we have to make decisions along the way. And this is what people value most I find–non-playbook things. When do I give money to kids? How do I structure the trust? Should I talk to my daughter about her prenup? How do I talk to her? This is what matters most to folks. And so it’s a bigger and bigger part of what we do. And it’s a huge value add if, to Brian’s good point, we have access to lots of different families and we can have a perspective. All I can do is give you a perspective. I can’t give you the answer.