How did you meet Steve and Lisa?
They called us on the recommendation of a friend. Steve and Lisa had recently received a large inheritance, and they were feeling somewhat conflicted because they were both grateful and overwhelmed. They needed to find someone they could trust so they talked to their friends, one of whom is a longtime Morton client. After that conversation, Steve and Lisa gave us a call to learn more. Even though they had interviewed other advisors, they had never worked with one before so they were somewhat unsure what questions to ask or even how to start the conversation.
How did the conversation start? Did they have a lot of questions?
It was as though they were waiting for us to launch into a big presentation with pie charts, graphs, and detailed explanations of how we would invest their money. I think this was probably in response to what we sometimes call the “How before Why” syndrome. Too many investment conversations start with how to invest. But that’s like prescribing the treatment before you even know what the symptoms are!
So we shifted the conversation to help them ask a series of more important questions relating to why you should invest. We wanted to learn about their values—what impact this inheritance could have on their lives. We wanted to help them define their life values and then, by listening to their responses, we could determine whether Morton was a good fit for their needs. Our focus for Steve and Lisa was: how can we empower you to get the most life out of your wealth? We hear you saying you want to feel financial peace of mind and to be confident that your future is secure but right now you have lots of questions and no clear path forward. At Morton, we start by creating a plan based on your life values. Your values drive the “why” that will lead to the “how-to.” By defining those values, we can empower you to make informed decisions and become better investors in the process.
What questions did you have and what did you learn about Steve and Lisa?
We always have a lot of questions since it’s important for us to get to know our clients. For example, we asked Steve and Lisa about retirement. What was it like for them to have retired earlier than most of their colleagues and why had they made that choice even before they received the inheritance? We learned they wanted to travel more, especially in connection with their passion for providing clean water to developing economies.
We asked about family. They have a son and two grandchildren and it’s important to Steve and Lisa to fund activities that instill their values in these next generations. They like to hike and boat and were thinking of buying a vacation home as a place to build memories.
We asked about their investment experience. It turns out they were only using passive mutual funds tied to their age and didn’t really have any experience with anything other than traditional stocks and bonds. They said they didn’t feel comfortable that they knew enough about investing to do anything different. It just had not been their focus.
We also asked about their large position in Amazon stock. They admitted they would love to figure out how to reduce their exposure to Amazon but hated the idea of paying a gigantic tax. So, in essence, the IRS was dictating part of their investment choices!
It sounds like at this point in the conversation you had a pretty good idea of Steve and Lisa’s values. How did you respond to their description of their investment strategy?
We assured them that what they were doing wasn’t really wrong, but it also wasn’t really a strategy. Investing has many layers. It’s important to match monetary values to life values. When you have a strategy, especially one that’s tied to a master plan, you avoid some of the emotional turmoil that comes during downturns. Emotions can be powerful motivators so we talked about how they felt during stock market downturns. It turns out they had both lost some sleep during the most recent market downturns but they hadn’t discussed their feelings with each other. As we explored this a bit further, we learned that Lisa wondered whether they would need to cut back or even go back to work. Steve, on the other hand, had thought about selling out of everything (especially the Amazon stock) and then buying when things looked better. The problem was that he didn’t really know how to define when things “looked better.”
This is a classic example of the importance of investing within the context of a plan and understanding how the financial plan and investment strategy work together. Most successful investors have a deep understanding of the purpose behind their wealth. When you spend the time to define your values, like we were doing with Steve and Lisa, you can stay committed to an investment strategy and become more resilient as investors.
This, of course, led to additional questions. When should they take Social Security? Should they pay off their low-interest-rate mortgage on their home? Could they make large lifetime gifts to family or charity without compromising their own financial security? At this point, it was like having a big jigsaw puzzle with scattered pieces but no real idea of how they should fit together. A financial plan can help fit those scattered pieces into a cohesive picture. They began to see that making all of these decisions would be easier in the context of a plan. And, if that plan had been rigorously stress-tested to survive a variety of conditions, this would allow them both to sleep better at night. They also agreed that having a trusted advisor to talk to during times of financial stress would be comforting.
Did Steve and Lisa want to be actively involved in managing their portfolio?
They were both in agreement that they wanted to focus their time and energy on family and charitable activities. They agreed that having a professional advisor lead their financial planning and investment process was their ideal solution. However, they did want more investment education, especially with regard to why traditional stocks and bonds were no longer enough. We discussed the three tenets of Morton's investment strategy: true diversification, cash flow, and risk management. They were especially curious about risk management in light of their recent sleepless nights, so we spent more time talking about the different kinds of risk. They really appreciated learning about risks they hadn’t even considered, such as the loss of purchasing power. You can’t control inflation but you can control how you invest to counteract the impact of inflation. The level of risk in your portfolio should match both your needs as defined in your financial plan and your feelings about risk.
So at this point in the meeting, you’ve discussed their values and you’ve briefly described Morton's investment tenets. How were they feeling at this point?
They were excited, but they had more questions. It was interesting that Steve had more questions about financial planning and Lisa had questions about the how-to of investing. Steve wasn’t sure they needed to go through all the work of gathering the information needed to create a financial plan as he felt they would probably be okay during their lifetime given the recent inheritance. However, during our conversation, we learned that his family had a history of dementia, requiring extended years of specialized care. They had no idea how much that might cost. We also learned that while they wanted to help pay for some of their grandchildren’s college education, they didn’t feel it appropriate to write a blank check. And they were not highly motivated to leave a large financial legacy for the next generations. So we introduced the idea of strategic use of assets. Perhaps a 529 plan might provide some tax benefits for college funding, but did it meet their preference for control? With regard to the Amazon stock, what about donating stock in lieu of cash, or, even better, what about using a charitable trust to maximize the value of that asset? We assured them that Morton's financial planning team would work closely with their advisory team to explore each of these and many other questions.
We then discussed the phases in financial planning. We start with gathering extensive data and then look at cash flow, insurance, tax, estate, and investments. We assured Lisa that future meetings would include conversations about a wide variety of asset classes that would help her understand how alternative assets can reduce portfolio risk. These future conversations would help meet her goal of expanding her investment education and comfort level.
We also showed them a sample of our financial planning dashboard. Seeing that dashboard as a way to keep track of their progress really excited both of them. Even being retired, they were so busy that finding time to keep track of everything had been overwhelming. By now, Steve saw the value in having a way to explore the long-term impact of major financial decisions. He was especially interested in testing how much he and Lisa could invest in a vacation home and she was especially interested in the right level of lifetime gifting. We again assured them that exploring these ideas would be part of the process. They were both pleased and relieved and they asked about the next steps.
At this point, it was as though their load had been lifted because they found someone to share it with. By having a trusted advisor and a comprehensive plan, they could see the inheritance as the gift it truly was. Through this collaborative process of exploring what truly mattered to Steve and Lisa, we were able to develop an understanding of how we could help create a master plan that would pull together the scattered pieces of their financial puzzle. They were confident that Morton could create an investment strategy that was more intentionally tied to their values and to their long-term goals. We were especially pleased they were both excited about moving forward together and building a long-term relationship with Morton's team.
