As a successful executive, you may
spend most of your time thinking
about your company’s bottom line.
But how much attention do you give to
your own financial situation, especially as
your circumstances become more complicated? Often, taking care of your personal
financial affairs can be even more complex
than handling the heavy demands of a corporate career.
Smart Business talked with Stephen
Pappaterra, senior vice president and managing director of PNC Wealth Management,
to learn how personal financial success
depends on much more than the mechanics of the investment process.
What is a comprehensive wealth management plan?
Wealth management is no longer just about
hiring someone to manage your investments. It’s about taking the time to really
understand your life’s goals, both business
and personal, because the two are so closely
intertwined. This approach asks executives
to think about what they want to do with
their life, rather than what they want to do
with their money. It’s about dream-making.
And to help make these dreams a reality, a
comprehensive wealth management plan
will help an executive manage current and
future cash flow, plan for career changes
and/or retirement, maximize their investments, minimize taxation and leave a legacy
that reflects their personality and values.
What are some of the most pressing wealth
management issues facing executives
today?
Holding a highly concentrated equity
position is a common problem among
many senior-level executives. It potentially
exposes their net worth to unnecessary
risk, so it is extremely important to develop a strategy to diversify your portfolio to
make sure your family’s wealth is not
severely and adversely affected by a downturn in the company’s stock.
Another concern is how to turn paper
wealth into real money. There are a number of strategic ways to gain liquidity while managing your risk and tax liabilities,
including securities-based loans and charitable remainder trusts. A financial advisor
can also develop a systematic selling strategy — liquidating shares periodically in an
orderly manner — to help you maximize
the proceeds of your sale.
Equally important is how you decide to
pass on your wealth. A formal estate plan
will not only help to pass on your legacy to
your family and future generations, it can
also help to minimize taxation. According to
a PNC survey conducted in 2004, just 31 percent of individuals with $1 million to $10 million in investable assets have a professionally written estate plan. And an unplanned,
moderately large estate can result in 45 percent or more in federal and state death taxes.
Will you be able to reach your retirement
goals?
People in their peak earning years (aged
46 to 64 years) are more than twice as likely
(42 percent) to be concerned about meeting
their retirement goals than those younger
(16 percent) or older (13 percent), according to a PNC survey conducted in 2004.
These statistics are not surprising when
you look at changes occurring in the work-place. In the last decade, executives have had to take a more active role in managing
their financial assets. Many companies have
moved away from defined-benefit pension
plans and consequently more individuals
are now responsible for making decisions
about how to invest their own money.
Deciding how to invest can become even
more complicated when an executive
leaves a company and receives a lump sum
distribution. It may come as a surprise to
learn that an executive could save on taxes
by not rolling this money into an IRA.
Executives also need to plan for life
changes. For many executives, retirement
no longer marks the end of a career.
Instead, individuals are starting to think in
terms of how they want to spend the next
phase of their lives. This planning involves
looking not just at future cash flow, but
also considering issues such as life insurance and health care costs.
Are there advantages to seeking professional
advice?
Today, financial success is no longer measured by comparing investment performance
against financial indices. Instead, it involves
navigating an increasingly complex investment landscape to help you safeguard your
assets, enjoy your post-retirement years and
leave a lasting legacy. It takes careful planning, continuous monitoring of your financial situation and adjusting your plan as new
events occur in your life.
Having access to a team of experts can
certainly help an executive develop sophisticated and creative solutions to managing
wealth. But it is extremely important to
work with an advisor who will take the
time to really understand your personal
and professional goals and is committed to
providing objective advice to help you
achieve financial success.
This article was prepared for general information purposes only and is not intended as
specific advice or recommendations. Any
reliance upon this information is solely and
exclusively at your own risk.
STEPHEN PAPPATERRA is senior vice president and managing director for PNC Wealth Management based in the
Philadelphia office. Reach him at [email protected]
or (215) 585-6551.