Building wealth usually requires a person to minimize debts while building assets. However, according to HCR Wealth Advisors, it is important to understand that the proper use of debt may allow a person to build wealth even quicker. It is also helpful to know about federal programs that facilitate the accumulation of wealth by avoiding or delaying taxes.
Good debt versus bad debt
Net worth is defined as the difference between the value of a person’s assets and liabilities. A person who has assets valued at $500,000 and debts that total $250,000 has a net worth of $250,000. It would appear, then, that debt should always be held to a minimum or completely eliminated. However, that is not always the case.
Generally speaking, good debts are those that have a low cost or potential tax advantages. For instance, mortgages and student loans may be characterized as good debts as long as they fall within acceptable guidelines. Financial experts recommend that a family’s monthly debt payments be limited to 36 percent of their pretax income with no more than 28 percent of their pretax income going to service home debt. Spending more than that can lead to trouble.
Bad debt is usually characterized as any debt that has a high cost and no tax advantages, such as a personal loan or high-interest credit card. Although credit cards have their place, using them to purchase discretionary items and not paying off the balance can be very costly!
Health savings accounts (HSAs)
Individuals and families have many health plans from which to choose. However, a health savings account (HSA) offers certain tax advantages. Contributions are typically made with pretax dollars in the form of payroll deductions. Therefore, they are not subject to income taxes. Interest and other earnings are also tax-free. Additionally, funds withdrawn to pay for qualified medical expenses are not subject to income taxes. Any money not used in a given year can remain in the fund for use at a later time.
In order to contribute to an HSA, individuals and families must enroll in a high deductible health plan (HDHP) with a $1,350 deductible for individuals and a $2,700 deductible for families. Annual out-of-pocket expenses are limited to $6,750 for individuals and $13,500 for families. Annual contribution limits are set at $3,500 for individuals and $7,000 for families.
Finally, once a person reaches the age of 65, funds can be withdrawn without a penalty regardless of whether the funds are used for medical purposes. However, distributions not used for medical purposes are subject to income tax. For the reasons listed above, many people will find a health savings account to be very useful in accumulating wealth.
When it comes to money, no two people are the same, which means personal relationships are key components of a trusted wealth advisory team. Based out of Los Angeles, California with hundreds of clients throughout the country, HCR Wealth Advisors is a wealth management firm dedicated to providing financial and investment strategies to their clients. HCR’s main focus is building relationships with each and every client, designing a financial plan with tangible goals, and helping clients fulfill or exceed each and every goal. HCR puts its clients first, and always first.
It’s All About the Client
As an independent wealth advisor, HCR has one primary objective: serve its clients. Instead of getting paid to sell certain financial products, or being directed by a brokerage house or controlling company, HCR stands as an independent firm that is client-centric in everything it does.
When it comes to fees, HCR is upfront about its rates. The firm charges one fee, a percentage of assets under management, which is comparable to other industry competitors. This straightforward and transparent rate removes questions about whether clients could be charged hidden or unexpected fees at the end of the year. HCR finds it important to be transparent with its clients in everything it does, which is the only way to build a strong working relationship.
Relationship beats Performance
It’s important to note that HCR is not a money manager, but a wealth advisor. What’s the difference? Money managers simply allocate assets in a portfolio, with their goals being performance-based, picking stocks and bonds in the hopes they will outperform the market. In general, money managers tend to overpromise and underdeliver. So when a money manager doesn’t perform well, its clients aren’t happy and wonder why they bother paying for the services of a manager who isn’t providing returns as advertised. This performance-based model is antiquated and doesn’t serve the needs of clients.
However, as a wealth advisor, HCR takes a holistic approach in getting to know each and every client, making it relationship-oriented instead of performance-oriented. This means taking the time to sit down and get to know their clients, their current financial portfolio, their goals, and possible future events that could change their financial situation. “We are very much in the mode of making sure we are extremely knowledgeable about our clients and what their needs are,” said HCR Founder and CEO Greg Heller.
In this way, HCR provides comprehensive financial planning and asset management, where, “any way money touches the life of a client, HCR is there,” he continued. Because of this relationship-based strategy, HCR estimates it has a 95% client retention rate, with many clients with the firm for years, and often decades.
Dealing with an Array of Clients during Life Transitions
Some clients may come into financial planning with no plan, and others might come in with a detailed plan of their financial goals. Regardless of their preparation, one thing is for certain, life throws unexpected twists and turns at everyone, and it’s important to prepare for anything life has to offer. These sudden life changes can include:
- Marriage
- Divorce
- Loss of a Loved One
- Sudden and Significant Influx of Assets
- Selling a Business
- Starting a Business
- Inheritance
- Retirement
This is why HCR prides itself on helping clients weather these events and the uncertainty of the financial markets by developing a sound strategy to help secure a brighter financial future. Their goal is to integrate client investments, retirement plans and financial targets into one comprehensive strategy that grows and matures over time.
The firm doesn’t simply work with one demographic or type of client, and instead, works with clients at various stages of their lives, into retirement, and beyond. In the same day, an HCR wealth manager could work with a 20-something entrepreneur, and a 90-something retiree looking to maximize the wealth they can pass down to their children. This gives the HCR team a great deal of experience in working with people in any financial and life situation.
Starting with a Plan
“I don’t know how anyone can manage someone else’s money without first setting up a plan,” noted Senior Managing Director Steve Weinberger. Yet, so many advisors and money managers take their client’s money and allocate it according to an algorithm or cookie-cutter design. Not to mention the new robo-advisor movement which takes the human element out of financial planning and wealth management entirely.
HCR doesn’t just want to throw investments at their clients, they want to design a plan and financial strategy, and in turn, make better financial decisions. According to Steve,” by setting up a plan you get to even know more. But people don’t get paid for it, so they aren’t willing to do things they don’t get paid for. We are willing to do it because it goes back to our point that the more we know about you, the better we plan for you so we can make sure your goals are going to be accomplished.”
Unlike other firms which charge for financial planning, HCR sees it as an integral piece of planning and wealth management, and one that should be integrated with the entire customer experience. Heller reiterated, “We do not charge separately to assist with financial planning. We feel this needs to be done whether the client wants it or not so we don’t charge extra for it.”
7 Step Process
Rome wasn’t built in a day, and the same goes for a sound financial strategy. It takes many layers of work to paint a full picture of a client, make financial recommendations, and implement financial changes for the future. This is why HCR employs a framework of 7 steps to help clients build their financial security. These include:
- Lay it all out and determine exactly what you have. Establish goals and determine future objectives
- Identify opportunities and build an “income and needs projection” to determine what you need now and in the future
- Build a framework for the investment allocation which best suits you
- Provide a private client online portal in order to provide 24/7 real-time access to assets, liabilities and net worth valuations
- Periodic review of the investment strategy and track progress to ensure client goals are achieved
- Closely monitor and analyze the portfolio’s growth
- Evaluate and adjust the plan as your life evolves
A Full Suite of Services
As previously mentioned, HCR is a wealth management advisor, which means it deals in much more than portfolio investing. While most money managers want to tout their ability to outperform the markets (which is often overstated), there are much more that factors into the financial success of an individual or business. This is why HCR offers services in four key areas: Financial Services & Wealth Management, Consulting, Business Services, and Insurance Services.
- Investment Management
- Estate Planning Strategies
- Charitable Giving/ Philanthropy Strategies
- Retirement Planning
- Cash Flow Analysis
- Cash Management & Budgeting
- Financial Planning
- Tax Management Strategies
- Active Portfolio Management
- Asset Allocation Analysis
- Stock Options and Deferred Compensation
- Net Worth Assessments
- Multi-Generational Planning
- Real Estate Analysis
- Private Equity Strategies
- Business Management Services
- Significant Purchase Planning
- ElderCare
- Life Transition Counseling
- 401(k) Plans
- Executive Benefit Planning
- Deferred Compensation Planning
- Business Enterprise and Succession Planning
- Stock Options and Deferred Compensation
- Buy/Sell Agreements
- Key Man Insurance
- Business Valuation Consulting
- Insurance Planning/ Group Benefits
- Corporate Risk Management Strategies
- Life Insurance and Annuities
- Long-Term Care
- Disability and Loss of Value Coverage
Investment Strategy
When it comes to investing, HCR uses its intimate knowledge of each client to best tailor their investment portfolio with a mix of fixed income, equities, and alternative investments. Each of these categories is a useful investment strategy given the right set of client circumstances and goals, and are sure to change over time.
Fixed Income
For investors focused on generating income from their portfolios, HCR evaluates clients’ investment time horizons, risk tolerance, and tax sensitivity. Risk is managed in such income portfolios by analyzing the yield curve and focusing on an appropriate balance of risk vs. reward depending on credit quality, the interest rate environment (rising or falling) and length of maturities (duration).
Equity
Equity investing involves the use of both fundamental (quantitative) and technical (qualitative) analysis in the investment decision-making process. This multi-discipline approach allows HCR to craft strategies for nearly any type of client.
Alternatives
HCR carefully selects alternative investments that provide the ability to obtain attractive absolute returns. These investments typically offer performance that is uncorrelated with traditional equity and fixed income. Alternative investments can include private, non-traded securities, hedge funds, private equity, venture capital, and real estate.
Client Engagement
Another tenet of the team at HCR is to engage clients in their own financial future, empowering them to be active participants in their own wealth management process. This means working together with clients to help them better understand their current financial situation, possible future, and how life choices in the present could impact that future.
One way the firm engages its clients is through an online portal. This portal, which is offered to each new client, is used to track all accounts that HCR manages, as well as any outside accounts the client wishes to add. By viewing their entire portfolio and expenses, clients are able to get a full view of their financial situation and see their steady progress towards their financial future. This portal engages clients more, they become more interested in taking control of their own financial life, and as HCR has experienced, “The more we can engage a client, we can forge a much stronger relationship with the client,” Heller said.
The firm also publishes a monthly blog highlighting important financial trends and economic news. This gives clients a resource to stay informed and educated on what is going on in the financial markets. Additionally, every quarter the HCR team conducts a webcast entitled, “State of the Markets”, reviewing the previous quarter’s performance in the financial markets and looking to the future for what is to come.
Adhering to Transparency and Compliance
Any firm that has been in business for 30 years will have seen its fair share of regulatory changes, and HCR is no exception. Heller and the firm understand that, “If you are stagnant in this industry you are not here anymore,” and ensures it goes above and beyond when it comes to transparency and keeping up-to-date with all current and proposed financial regulation.
This is why as the wealth management industry begins to focus even more on client protection, HCR stands to benefit from the approach it has used since 1988. “The SEC is trying to promote more transparency and a simpler way to understand what clients are paying in fees. For us that could end up working as an advantage. Typically large brokerage houses can have higher fees and a potential conflict of interest. Products they are selling are owned by their parent company which they are getting paid a higher commission on,” Heller further explained.
HCR itself is an investment advisory firm that is registered and operates in accordance with the rules and regulations of, the United States Securities and Exchange Commission (SEC). The HCR team is made up of an array of registered financial professionals with the following certifications:
- Certified Financial Planners (CFP)
- Chartered Financial Analysts (CFA)
- Licensed Securities Brokers with FINRA
- California Real Estate License
- Fully Licensed California Life Agent
The HCR Team Approach
As a whole, the financial planning and wealth management industry is a dog-eat-dog world, where advisors generally, as Weinberger described, “eat what they kill.” All the while, clients have never realized this way of doing business can go against their best interests, and hurts them in the end. He continued, “If firms work more together on a collaborative basis it’s better for the firm and its better for the client.”
HCR doesn’t just hand their clients over to one individual who is tasked with decision making, but rather, they give each client a team of three individuals to ensure they obtain the best service:
- Lead advisor — the primary point of contact for the client
- Financial planner — focuses on current and future wealth management planning
- Analyst — focuses on the client’s investments
Even though the lead advisor is the primary point of contact, all three individuals meet regularly with each client and are at the client’s disposal if something comes up. As HCR has experienced, “With the team approach we have seen clients a lot happier this way.”
In this way HCR is ahead of the curve, building a business based on teamwork and trust that is helping to take the industry forward. “We all have to be willing to work together. We have 16 people in this office and everyone is willing to work together,” Heller stated, “and if they didn’t they wouldn’t be welcome at our firm. The future in our industry will be wrapped around more of that philosophy than the philosophy of one.”
HCR, a Client-Centric Advisory Firm
The HCR team has spent the last 30 years trying to stay ahead of the curve in the wealth management industry. By developing sound wealth management and investment strategies and working with clients from all different walks of life, HCR has been able to provide clients with the ability to meet or exceed their long term financial goals, as seen by the firm’s retention rate.
At the end of the day, everyone is worried about paying off a mortgage, not saving enough for retirement, outliving their money, and other financial restrictions. Yet, everyone is different, something HCR fully takes to heart. “We have sat down with hundreds of people and have yet to meet two people who are alike,” agreed both Heller and Weinberger. This has led HCR to provide personal service for each and every client, focusing on developing relationships that lead to long-term financial success.
*This article is for informational purposes only and should not be considered investment advice.
