We live in a world of social, political and economic uncertainty. And that was before COVID-19 entered all of our lives, creating havoc and chaos. Business leaders everywhere are unclear about what to do about staffing, cash flow and the future of their organizations. During this pandemic, many individuals are worried about preserving their wealth, taking care of loved ones and moving forward after all of this is over.
But this isn’t another article discussing demoralizing statistics about the economy tanking and a financial crisis that is around the corner. In times like this, while it may feel like everything is out of our hands, there are steps we can take to be proactive. By stress testing your wealth plans, you can better understand how much risk you’re holding, if your strategies need optimizing and if you’re in the best possible financial position.
No one knows how long COVID-19 will last or the full financial impacts it will have on any of us. I am not a medical expert or an economist, so I can’t give you definitive insights into the future. I am, however, an expert in helping driven business leaders make smart choices by following the steps of the superrich and ultra-wealthy business owners. Why not learn from the people who’ve succeeded? There’s no need to pave a new road when someone has laid down all the bricks for you.
Are Those Experts Really Experts?
Whether you’re in regular operations or trying to run your business during the COVID-19 pandemic, as a strategic business owner, you likely rely on a team of advisers. Any smart business owner knows that they should go to subject matter experts when they need advice. However, it can be challenging to know if the advisers you rely on are truly experts. When you work with less-than-capable financial advisers, unfortunately, it can lead to costly mistakes for you, your family or your business.
Stress Testing Can Help
In the world of superrich and ultra-wealthy business owners, there is a growing trend of stress testing. Stress testing thoroughly evaluates and assesses an existing wealth plan to see if the strategies being used will actually work to achieve a family’s financial goals.
Additionally, a stress test will help to identify any missed opportunities that would be beneficial to implement.
Lastly, a stress plan looks at the wealth plan as one cohesive picture. Often, a wealth plan has multiple facets that are being run by different people. Perhaps real estate investments are operated by a property management group, a brokerage is running your stock investments and a business manager is analyzing your business operations. If these different aspects of your wealth plan aren’t communicating with each other, it could mean your plan isn’t working as efficiently as it could be. A stress test evaluates these components all together to ensure your wealth plan is performing optimally.
A Stress Test In Three Steps
Step one: Find stress test experts. It’s important to understand that a stress test expert shouldn’t be selling you anything. In fact, after the test, they may make zero changes to your wealth plan. A stress test is an evaluation of your current wealth plan tactics to see if there is room for improvement. You can tell you’re sitting down with a stress test expert if:
• They can explain really well what a stress test is to you.
• They don’t try to sell you anything.
• They outline the possible outcome of the test, including no recommendations for change, some recommendations or a suggestion for a complete wealth plan overhaul.
Step two: Choose an expert who focuses on the human element, too. A stress test can be a cold evaluation of your wealth plan, but it really shouldn’t be. The fact of the matter is the plan should be evaluated based on your family’s goals and objectives, so you want a stress plan expert who understands that and can factor the human element into the equation. For example, it may not be the best financial decision to send your son to the Ivy League school, but if that’s a family goal, then it should remain in the wealth plan. There has to be an understanding that there’s more to you than just your net worth.
Step three: Stress plan experts need to be technically proficient. You come to a stress plan expert because they should be able to add value to your wealth plan in a way that you or your other advisers could not. That means they have to be technically proficient in what they do. They need to be able to do the following:
• Understand and evaluate any type of wealth management strategy you put before them.
• Be able to assess all aspects of wealth management strategies, including cost-effectiveness, efficiency and risk.
• Be aware of any similar strategies so that they can make side-by-side comparisons.
• Be able to offer up different wealth management strategies that perform better (if applicable).
Why Stress Testing Matters
Maybe it’s still not clear why stress testing is essential. Let me outline for you how it played a crucial role in my life a few years ago.
My wife is a dentist and a few years ago, unexpectedly, she started to have some issues with her hands. Dentists’ hands are their livelihood, so this put her ability to earn an income in jeopardy. So my wife and I worked with a vetted team of coordinated professionals and stress tested our personal plans. We discovered some errors in our planning. Luckily, we were able to correct those mistakes before they had an impact on our plans. I am not sure what kind of financial situation we would be in today if we have not caught these problems early on.
And the same may be true for you. You may have costly errors lurking in your plans or you may not be taking advantage of all the opportunities available to you.
You Should Stress Test Your Wealth Plan
If you have doubts about your team or your wealth plan, you should consider stress testing. Approximately 93.5% of family offices have stress tested their plans in the last five years. Regardless of COVID-19, stress testing is a crucial step in securing your family’s financial goals are on the right track.
Timothy McNeely is the CEO of The LifeStone Companies and consults with driven business leaders and select professionals. Connect with him on LinkedIn or visit www.timmcneely.com.