Plenty of Wealth in Valley for Advisers to Manage

YOUNGSTOWN, Ohio — The Mahoning Valley, where the sense of poverty is pervasive, has considerable wealth as evidenced by the brokerage firms and banks here with trust, private banking and wealth management departments.

Banks without such services as recently as a decade ago have since established them, Farmers National Bank, Home Savings Bank and Cortland Bank to name three.

Farmers acquired the Butler Wick Trust Co. in 2009 and renamed it Farmers Trust Co. Earlier this year, Farmers recruited Mark J. Wenick, a regional president of Chemical Bank, to be its chief wealth management officer.

Upon completion of its purchase of Premier Bank & Trust in January, Home Savings Bank acquired its private banking, trust, investment, estate planning and retirement planning operations, most of which it lacked. It also hired Karen Cohen, a CPA just retired from Packer Thomas, to head its trust operations.

The newly formed Cortland Investment Group at Cortland Bank became Cortland Private Wealth Management in January 2016. In its anouncement, the bank said the change allowed it to “offer customers access to a more robust lineup of services, including a full suite of wealth management options [such as] private asset management, financial and estate planning and advisory services.”

Wealth management consists of much more than an adviser offering the thoughts on his research to a client on whether the client should increase or decrease the investments in his portfolio. “The biggest misconception is that it’s only for the wealthy,” Farmers’ Wenick says.

Sidney Jones, head of the Jones Wealth Management group in the Canfield office of Merrill Lynch, notes that young professionals just starting out, such as physicians with massive student debt, could have a negative net worth. But they have the potential to achieve considerable wealth and need his services, so his group would take on such an individual as a client.

As did all the others interviewed for this story, Jones urges those he advises to start early: plan early and begin saving early.

Says Jonathan Lapine, a principal at W3 Wealth Management LLC, Howland, “Even if you’re in debt, you’ve got to plan to get out.”

It’s never too early to start a savings habit. Jones gives his clients with young children or grandchildren a Cat in the Hat book, One Cent, Two Cents, Old Cent, New Cent, a primer on money and how it came about.

“Where does it come from? Can you answer that, please? I will give you a hint. It does not grow on trees!” says the Cat in the Hat.

And wealth management is more than saving for retirement. As W3’s Lapine notes, “In every phase of life, there’s something to plan for. When you’re young, you must plan so you can buy a house.”

As one’s children grow up, parents must plan on how they’ll finance their children’s education. Increasingly, those in middle age are concerned about financing their parents’ needs in old age, Lapine says.

And small-business owners need help in succession planning and administering their employees’ retirement plans, Chris Jordheim, program manager for Cortland Private Wealth Management, says. They also come to him and his colleague, Nate Marshall, vice president and manager of consumer and private bank services at Cortland Bank, about the credit needs of their enterprises.

Estate planning and retirement planning are the components of wealth management that first come to mind, all agree, and 401(k)s and individual retirement accounts, especially Roth IRAs, play a large role. But estate planning is the basis of managing one’s assets – regardless of net worth or annual income – to increase and wisely manage wealth.

As “wealth management” suggests, a client must earn a certain income or have a certain net worth before a wealth management adviser deem it’s to both his and the client’s advantage. That can be as little as $100,000 in annual income and a net worth of $250,000 but is usually more.

W3 Wealth Management is unusual, says principal Andy Moyer, in that it has no thresholds. “For young people, [wealth] is made up of future earning power,” he explains.

The key to increasing wealth, Jones says, “is living within your means,” more specifically, spending less than one earns and adding to one’s savings, an IRA, 401(k) or other vehicle each payday.

It’s hard to begin setting something aside each pay, all agree. While “that first paycheck will be less, you’ll get used to it,” Lapine says.

“Forty-three percent of retirees are supporting their kids,” Jones points out. “A lot of adult children can’t fend for themselves.”

Even families financially comfortable are reluctant to discuss money with their offspring – how much the family has, prudent spending – as their children grow up.

“Parents should teach their children accountability,” Jones says.

A Merrill Lynch brochure says that accountability comes early. “You hand your child a $5 bill for candy and don’t require change. That experience multiplied turns into an attitude that leftover cash is outside the realm of accountability. … You need to counter the idea that money is just for spending.”

Parents are less uncomfortable discussing the birds and the bees than the extent or status of the finances. Such discussions “may be uncomfortable,” Cortland’s Jordheim says, “but it’s one of the greatest things you can do for your children.”

Such discussions should not be merely about how much the parents earn or own but how they use their money, especially support of their house of worship and philanthropy, so their children can follow their example. “Parents have a tremendous influence,” Marshall says.

“Parents are reluctant to open their books to the children,” W3’s Lapine has found. And when they do, “it’s either not enough or too much,” the latter sometimes resulting in siblings’ resentment.

The role of wealth management adviser is always in a state of flux. “I’ve done this 35 years,” Merrill Lynch’s Jones says. “The industy changes every five years. So I’ve had seven careers.”

“We’ve become teachers more and more,” says Jordheim, as he and his colleagues inform (and remind) their clients how financial markets work. A stock market has a sudden spike – up or down – and investors are either elated or panic.

They shouldn’t.

“Ten percent corrections happen all the time,” Jordheim says.

Professionals – physicians, CPAs, lawyers, bankers, insurance agents, engineers, business consultants, full-time real estate agents, a smattering of educators – and small-business owners constitute the majority of wealth management clients. Preferring not to be identified, those willing to discuss their clients’ approach to finances said:

•  Men are more accepting of risk and like to brag about their investments that pay off. Women, more risk-averse, are focused on steady returns.
•  A generation ago, men made most of the decisions about a family’s finances, investments and philanthropy. With two-income households becoming the norm, spouses tend to have an equal say and it’s just as common for a husband to defer to his wife (especially if she’s a financial professional) as the wife to defer to her husband on financial matters. “It’s still one spouse who’s more engaged,” one adviser says.
•  In a household, it’s the woman who tends to determine the levels and frequency of charitable giving.
•  CPAs are the most concerned about, and most knowledgeable of, the tax consequences of the various investment instruments. They tend to ask the most questions about this aspect of investing and often lead the discussions with their advisers.
•  Engineers want the most detail about how their investments are supposed to work.
•  Physicians are not concerned about detail but performance.

Wealth management advisers meet often with their clients – in-person meetings once a quarter seem to be the norm – and are in contact even more often by phone or text messages.

The frequency has increased because, Cortland’s Marshall says, “Now there’s so much information out there. We act as a filter and make sense of the information.”

And wealth manager strive to know the client’s family and the family’s needs.

“We’re involved from the beginning,” Cohen says. As she and her team learn more about their clients, they become familiar with the dynamics of a client’s family, not just its finances.

They’re aware of the financial pitfalls to which each profession is subject and can protect them accordingly. Case in point: surgeons.

Members of the medical profession are especially susceptible to malpractice suits. A domestic assets trust could be the tool a surgeon needs to protect him from creditors should he be sued, Cohen notes. Such a trust can put a large portion of his assets outside their reach.

Beyond their counsel, wealth management advisers provide their clients peace of mind and privacy. They can establish trusts so their clients avoid probate. “The state has written your will if you don’t have one,” Wenick says.

“Probate is a public process,” Cohen adds.

And their institutions can preserve peace in the family upon the death of a client and the distribution of assets among his heirs.

“We keep the kids from fighting,” Cohen says. “We’ll act as trustee without taking control of the trust.”

All applaud the efforts within their industry to be more transparent. “The Department of Labor fiduciary rules are having a huge impact,” Merrill Lynch’s Jones says.

All criticize their counterparts within the industry who oppose the Consumer Financial Protection Board’s regulation that an adviser should put his client’s interests first.

Jones and the members of his group have always taken “copious notes” during discussions with their clients. “We’ve always done that,” he says. Opponents of the CFPB reg that requires comprehensive notes claim it’s overly burdensome and regulatory overkill.

The need for wealth management will only grow, Wenick says, because “People are living longer.” Unfortunately, he adds, “people are still not taking action” until middle age and not getting serious about retirement until they’re somewhere between 55 and 60. It’s not too late, all agree, but by that time their choices are limited.

Copyright 2024 The Business Journal, Youngstown, Ohio.