Wealth in America
A common thread weaves through the results of Northern Trust’s 2012 Wealth in America survey: the opportunity not only to include life goals in the financial planning process but also to put those goals in the driver’s seat.
The study – which polled 1,700 wealthy U.S. households in fourth-quarter 2012 to better understand their financial goals, investment preferences and philanthropic activities – found 81% of high-net-worth investors view life goals as an important part of the planning process. But only 11% cited creating a financial plan as part of the strategy to achieve their goals.
“It is critical for investors to speak directly with their advisors about their life goals in order to ensure that those goals are intentionally taken into account in the investment planning process.”
—Katherine Nixon, chief investment officer, Wealth Management, Northern Trust
Northern Trust’s Goals Driven InvestingTM, which matches clients’ life goals with the appropriate assets based on each goal’s time horizon and risk preference, aims to close that gap.
“This approach increases our clients’ confidence that they can achieve their goals by aligning each financial goal with appropriate assets and strategies specifically designed around that goal,” says Katherine Nixon, chief investment officer for the Wealth Management business at Northern Trust.
Leading With Goals
The first step in a goals-based financial planning process is defining highly specific life and financial goals. Respondents to the 2012 Wealth in America survey pinpointed their top goals as:
1. Enjoy good health
2. Travel the world
3. Achieve financial success
1. Protect their level of wealth
2. Ensure retirement living
3. Minimize income/capital gains taxes
4. Leave an estate to heirs
While the survey found that high-net-worth investors are less confident they will achieve their financial goals than they were in 2007, they are working actively toward that end. To succeed, most indicate they rely on investment diversification and working with their financial advisors.
In fact, 57% of wealthy investors report they either rely exclusively on financial professionals to make decisions or regularly consult with investment advisors and make financial decisions themselves.
“Of course any successful financial relationship starts with communication, and it is critical for investors to speak directly with their advisors about their life goals in order to ensure that those goals are intentionally taken into account in the investment planning process,” Nixon says.
A Family Matter
The final piece of the puzzle is opening the lines of communication among spouses, partners and family members. “It is so important that everyone is on the same page, communicating well and being open about their financial and life goals,” Nixon says.
While many couples communicate openly about their finances, the 2012 Wealth in America survey concluded that the likelihood a spouse or partner is involved in financial matters is inversely proportional to the level of wealth:
- Sixty-five percent of high-net-worth investors (those with $5 million or more in investable assets) indicated that their spouse or partner is involved in making financial decisions.
- More than 70% of both affluent (those with $1 million to $4.9 million in investable assets) and mass affluent (those with $250,000 to $999,999 in investable assets) segments involved spouses or partners.
“The more wealth you have, the harder those conversations can be,” Nixon says. “But as your financial situation becomes more complex, a financial advisor can help develop those conversations and could play a critical role in aiding communication between family members.”
Women, however, are more inclusive in their household financial decisions. Sixty-one percent say their spouse or partner is very involved in financial decisions, compared with 22% for men. Only 6% say their spouse or partner is not involved at all, compared with 14% of men.
As for discussions with children, more than half of high-net-worth investors with children under age 17 feel it is important to speak about the family’s wealth – and most already have done so. However, 26% of respondents have not talked to their children about wealth; of this group, 35% never intend to.
“While the amount of communication between spouses, families and their advisors isn’t as high as we’d like, we see this as a great opportunity to help our clients in the most meaningful way,” Nixon says. “If we can help clients start these conversations, and make the process a little less painful, then we’ve been successful.”
For more insights on Northern Trust’s 2012 Wealth in America survey, visit northerntrust.com/wealthinamerica.