Image: Stuart Lucas Printed with permission

Image: Stuart Lucas Printed with permission

One of the interesting things about managing your assets is the fact that you have to manage them. Analyzing your wealth management infrastructure is an important part of making sure things are on the right track. Last week, I spoke with Stuart Lucas, a wealth management expert. He runs a wealth management program at the University of Chicago and offers insight into the importance of analyzing your cash flow and wealth management infrastructure.

Protecting yourself as a wealth owner

“There’s this notion that when you have a big pay day, you’ve rung the bell, and now it’s time to relax,” Lucas says. “That’s just not true. The transition to managing liquid wealth is often hard, and can sometimes be counter-intuitive. This is why it is important to have a good wealth management infrastructure in place.”

Lucas recommends that the first thing those wishing to better manage their wealth do is get a little financial education, and then go out and try to assemble a financial and wealth planning team that works well for them. “Even if you have people working to help you manage your assets, you should still have a basic idea of what is going on. You want to be able to understand what others are doing on your behalf. There has to be a good system of accountability, and you can’t have that if you are in the dark. You don’t have to micromanage your team, but you should have an idea of what they are doing.”

One way to help create accountability is to set up a system of checks and balances. Lucas says that parking most of your assets with one person who is responsible for everything can lead to financial devastation. “Part of the problem with Bernie Madoff is that everything — custody, management and brokerage — were under one roof. It made it easier for him to perpetrate fraud. Dividing those up allows a natural system of checks that can diminish the chance of fraud.”

Being responsible as a wealth owner

As a wealth owner, it is also important that you consider your next moves. Your wealth management philosophy should be based on your core values. “You need to understand the space in which you are operating,” Lucas points out. “Figure out what motivates you, and set some goals. Do you want to secure a legacy of multi-generational wealth? Do you want to help charities? Do you just want to be able to live your life in retirement without worrying about money? Or are you looking for a little of all of these?”

Lucas suggests you consider your resources, including human capital, and identify what you can do with them, and how you can develop them further. Once you have your motivations figured out, and you know your resources, it’s time to create a plan. “You are responsible to help your wealth management team develop an investment strategy and stick with it for the most part, along with occasional tweaks according to the economic cycle,” Lucas says.

When you are analyzing your wealth management infrastructure, and developing a plan, you need to also consider your costs. “Be realistic about your return objectives, and know the relationship between return and what you actually get after leakages. And there are always leakages, including what you pay your wealth management team, what you spend, taxes and other expenses.”

In the end, it’s all about figuring out whether or not your wealth management infrastructure is solid and efficient. Every so often, it is a good idea to check things out, and make sure you are on the right track, and that your infrastructure is still doing what it is meant to do.