[This conversation was edited for length and clarity.]
Lucy: What’s something that often surprises people about the work of financial advisors?
Carl: That we’re in the information business more than anything. The first thing we do is gather all of a new client’s information from different sources so that we can create a holistic picture. All of our other work flows from there, including the essential decision-making around risk and return trade-offs.
Lucy: Why is that especially important for the kinds of ultra-high-net-worth clients you work with?
Carl: Our clients are almost always first-generation wealth creators. With that comes complexity. They typically have many entities in their ownership structure, be it corporate entities, limited partnerships, trust structures, etc. Once we have a complete picture of that structure and the investments held within it, we can evaluate their risks and exposures and provide an intentional approach to their wealth.
Lucy: What are some of the common themes that crop up when onboarding new clients?
Carl: A lot of unintentional complexity because of piecemeal decisions. My partner Andrew likens it to a wild forest that grew from a bunch of trees as opposed to a landscape that an architect intentionally planned. They might have 20 bank accounts when they could make do with five, and four brokerage relationships when two would suffice. Or they don’t realize that they are overexposed in an industry—say, technology—which was their foundational source of wealth; or a specific geography because that’s where their office is based.
Lucy: Speaking of technology, how does it help you meet a client’s goals?
Carl: I think the best technology helps its user visualize something. For example, we chose Masttro because it provides two clear pictures: the Global Wealth Map, which gives us a structured view of all the entities and investments held by the client; and the Holdings and other reports, which offer snapshots of investment exposures by asset class, geography, sector and other factors. These two clear pictures allow our clients to really get their arms around their situation. Only then can we start on the journey of changing the status quo to a new program that best meets their objectives. The best technology shows you the history, the evolution and ultimately, via the reporting, the performance.
Lucy: How has your use of technology evolved?
Carl: For a long time, we used a mix of accounting software and Excel, which was neither efficient nor particularly insightful. Now we use wealthtech, which has been a game-changer because it offers three key elements:
First, a visual understanding—a diagram, if you will—as I’ve discussed;
Second, wealthtech offers interactivity, which allows us to drill down into the specific parts that are most relevant;
Third, total visibility, with all data in one place, as opposed to folder structures for each entity and related documents.
Lucy: Let’s talk about a structured view. Why is it especially important?
Carl: The structured picture gives insight into the more complex questions—starting with, are the investments held in the right place? One important example relates to taxes, since they arise from the nature of the investment and the type of return generated. So a client may have to pay taxes on interest income, dividend income, capital gains, etc. There are tax advantages to holding those investments in different types of structures or locations. Working with tax attorneys, we collaborate to optimize structure, the entities, and which investments are held at each. The right technology allows us to extract all of that from a comprehensive source and share it which greatly aids the efficiency of that collaboration.
Lucy: How does that factor into your role as a financial advisor within the ecosphere?
Carl: Our clients have a constellation of professional service advisors. The largest have family offices with a legal structure, and staff who handle accounting and administration but still use outside tax preparers, tax attorneys and an investment advisor like us. In many cases, we coordinate with the existing teams or bring in new people if there are deficiencies, like a proper tax advisor, for example. We describe it as a hub and spoke, with Bitterroot often as hub. Our core functionality is investment, but because the legal and tax aspects impact the investment plan, we also serve an important coordinating role. So in the end, investment is part of this greater concept of managing wealth, which means making sure the structures are right, and that includes tax planning and compliance and charitable initiatives. Technology is key to this approach.
If you are curious to see how wealthtech can deliver meaningful value to your Family Office and operations, the Masttro team is ready to assist. Contact us today.