This disconnect is creating an opportunity for advisors implementing a unified managed household (UMH) approach that is uniquely positioned to streamline both the accumulation of assets before retirement and then income after retirement. The UMH can increase accumulated assets, income and bequest by as much as 33% through tax optimization, according to an Ernst & Young study. It usually results in advisors managing most, if not all, of the household’s assets.
The UMH goes beyond a single account with the aim of merging all of a household’s investment, retirement and other accounts under a unified platform view, enabling the advisor to provide clients with coordinated planning and guidance.
The wealth management industry constructed the UMH to address how the typical wealthy investor gathers multiple products and invests assets over decades. They buy different investment strategies for different accounts from different advisors for different reasons at different times. Many have committed asset allocation by accident or default and what they own is often a jumble of stuff. As they look to retirement, they wonder, “Who can help me figure out whether what I have is the right option? When I need to cash out, who can help me figure out what to take out and when?”
The UMH helps these investors tackle these issues better by examining all investment holdings and managing the asset allocation and income withdrawals at the household level. It allows the investor to accumulate assets more rapidly by properly locating assets in the most appropriate accounts and take advantage of the natural tax-shelter of tax-qualified plans during accumulation.
During the retirement-income phase, the UMH-focused advisor continues proper asset location while minimizing capital-gains taxes as the investor withdraws money from multiple accounts – all while maintaining the target asset allocation. For the wealthy investor, having this kind of guidance that results in better after-tax returns and income without any additional risk is welcome indeed.
The most opportune time to talk with wealthy investors is within five to ten years of their retirement date, as that is when they are most focused on maximizing assets. Advisors should leverage the UMH structure to consider all of a client’s sources of income such as Social Security, annuities and pensions. The goal is to produce the optimal timing and sequence of withdrawals, including Roth IRA conversions, to produce the best investment result.
The following are potential benefits of a UMH for advisors and investors, as well as pitfalls it may help them to avoid:
More income over time. The typical investor household is not managed in a coherent and coordinated way, largely because those assets are spread among a number of different advisors. Because of this, the method for accumulation and later the withdrawal of assets is haphazard and taxes are not factored into the mix across the household. The result is unnecessary taxes are paid during both the accumulation phase and the retirement-income phase. That results in less money available to support a sustainable retirement.
Greater clarity. Research shows that people near or in retirement would prefer to consolidate their assets into a UMH for the simple reason that they can see the whole picture and have less confusion and paperwork.
Greater comfort and peace of mind. The number-one objective for investors – by far – is achieving a comfortable retirement. If they can see the full picture of their assets and income and are shown that they can either generate more income or a greater cushion, then they can enjoy greater peace of mind and have a more enjoyable retirement.
Ultimately, more assets accumulating in a tax-efficient way, followed by tax-smart systematic withdrawals, can produce more income that lasts longer for high-net-worth clients planning for retirement.