Banking and Wealth Management- The Commodity of Personal Finances
By Chris Lee, Executive Director, J.P. Morgan Private Bank
In spending my entire career working for banking and wealth management firms I’ve learned that nothing is more personal than talking about your finances. Most people spread their relationships across multiple firms when it comes to lending (residential, commercial, business, auto, credit card), banking (checking/savings), and wealth management (retirement, non-qualified) needs. The more trust that a banker can develop with their clients, the larger the piece of the relationship they will oversee. My role is to keep track of all these balances and develop a plan while working in concert with one’s CPA’s, Attorney’s, and other professional advisors.
When it comes to working with the elderly one of the hardest things for them to do on a daily basis is to manage their finances. Often times they are challenged by having people take advantage of them and their memory/judgement is not as sharp or quick as in the past. Technology continues to improve at a rapid rate so it can take time for one to learn new ways of doing things. Below are some hot topics for the elderly and their support system to consider:
What is the difference between a bank account and a wealth management account?
Bank accounts are traditionally the cash which goes in and out of one’s account. It may be used to make purchases and pay bills either in written format like a check or electronic format through a wire, ACH, debit card, or online bill pay. They are also used to hold liquid reserves in the form of a savings account which can pay you interest monthly. Bank accounts come with FDIC protection which is $250,000 in case the bank goes under.
Wealth management or brokerage accounts are used to hold securities such as stocks, bonds, mutual funds, and treasury bills. Most of the time these funds are designed for longer time horizons in which the value of the funds can go up or down depending on the risk characteristics which should be tailored to you and/or your clients’ needs. Lately there have been some brokerage accounts which contain money market funds comprised of Treasury Bills. These funds are not FDIC insured but rather T Bills are backed by the US government and free of CA state tax. This is a great option for those who want to get a higher yield on their cash while not having the funds tied up for several months to a year.
Who should I trust to handle my finances and what are my options?
Banks have the ability to serve as a corporate trustee in the event one or both spouses pass, and distributions need to be made to beneficiaries. However they are limited on what they will accept to serve as trustee on as most banks have high minimum’s ($10mm+ assets), don’t like to manage non liquid assets (Real estate, privately held business), and shy away from taking on risk where there is risk of future litigation between any trustees and/or beneficiaries. One could hire a private trustee aka private professional fiduciary who can serve in the same capacity as a corporate trustee and much more. Private trustees are less costly than a corporate trustee and they tend to be more personable in capabilities, however they don’t have the perpetuity to serve like a bank department does. The elderly should be wary of giving any financial signing authority to new people, particularly care givers and family members who are not in frequent contact.
Cautionary signs for seniors and their support to be aware of
Banks are trained to look out for financial elder abuse and clients being taken advantage of through scams. In many cases seniors are neglected, isolated, and when family members, charities, and caregivers ask for money they feel obligated to assist financially. Bankers and advisors are told to look for out of pattern behavior and only provide information to signers on financial accounts. Fraud has increased dramatically as technology has improved due to fraudsters’ ability to obtain information and use sneaky email or phone call methods that I designed to trick the elder population.
Conclusion
Having a trusting relationship with your financial representatives is important in many ways. It can be used to help one navigate through complicated and large financial institutions to save time, money, and protect one’s wealth. It can also be used to plan and protect for future goals and objectives. Just like an attorney is an expert in law and a CPA is an expert in taxes, a banker is an expert in all things financial and can be an excellent resource for the elderly and/or their support teams. As health or capacity declines in the elderly a banker should be an important resource to rely upon when having those intimate conversations about money.