A Holistic Approach: Do You Need a Wealth Advisor?

MARK RIEPE: I'm Mark Riepe, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.

We’re doing something a little bit different with this episode and that is we created a video version. 

That means if you want to watch this episode, you can do so at the Charles Schwab YouTube channel. We’d be especially interested in hearing what you think about the video element.

I'm joined today by first time guest to the show Stephanie Shadel, a senior wealth advisor at Schwab Wealth Advisory. With 15 years of experience, Steph is a Chartered Financial Analyst, CERTIFIED FINANCIAL PLANNER™, Certified Private Wealth Advisor, and Certified Wealth Strategist, all of which make her well suited to discuss today's topic, which is wealth management. Steph, welcome to Financial Decoder.

STEPHANIE SHADEL: Thank you. Happy to be here. 

MARK: We've been doing something this, I think we've been doing it for a couple of seasons now. We ask people how they got into this business. How did you find yourself advising individuals? Is it something you always wanted to do or is it something that you kind of evolved into over time?

STEPHANIE: It was really something that was more of a professional evolution. I graduated with a BBA in real estate and urban land economics, as well as finance. But the finance was more a second thought that I should probably learn this more than a passion at that time anyways. 

Originally, I was a real estate development and acquisitions analyst for a senior housing developer, so looking at independent living, assisted living, and memory care. And then the financial crisis happened, and a lot of folks had to pivot, and luckily had that other major being in finance. And so I joined Schwab in 2009 and have been working with clients the last 15 years and have found that actually working with another human and having these relationships is a lot more meaningful than staring at spreadsheets all day.

MARK: Yeah, and certainly starting at that 2008, 2009, that was a tough time for a lot of people. What sorts of conversations were you having at that time? 

STEPHANIE: Early on, I was part of the customer service team, which is a great way to learn everything you can about the markets, but also people. 

And so at that time, a lot of folks would be calling in. They were just laid off. They're trying to take money out of their 401(k). And so I felt it my duty to explain, hey, these are the pros and cons of doing this. There are penalties. What other aspects of your situation … can we instead do something else instead of trying to tap your 401(k)? 

MARK: That's a great example because I think a lot of people have 401(k)s. That's a kind of standard financial-planning type topic. At what point do financial planning issues start to turn into wealth management issues? 

STEPHANIE: So I'd say we're looking at, again, jumping from personal-finance planning to wealth management. So things you can Google the answer for versus when you're really needing specialized advice and professional guidance. 

But wealth management is a holistic view of the client's life. So really a comprehensive overview that goes beyond the portfolio and looks at all aspects. And that, again, when we get into more complex situations like think of family structures or business structures. 

Or your life can be very straightforward, 3.2 children, or it can be very complex with multiple sets of stepchildren. And so that's where it tends to get a little bit more complex from a wealth management standpoint. 

MARK: As I'm hearing you describe that, the word that kind of going through my head is personalization. In other words, with some of these more complex situations, they become sort of a bespoke sort of thing that really is really important to really make it kind of land with the client.

STEPHANIE: Very much so.

MARK: So once a client has decided that, yes, I want to work with a financial advisor, wealth management, as you were just describing it, it's a very big area. So what are the different pockets? What are the different areas of wealth management? 

STEPHANIE: Well, at Schwab we like to think of it as a framework of seven broad topics.

And so first we have investment planning, looking at how much risk do you need to take in order to achieve your goals. 

Second, looking at the retirement planning. When to retire. How much do I need for retirement? What do I do with the required minimum distributions? 

Third, risk management and insurance. And so when we do a comprehensive financial plan, we're looking for gaps. So gap analysis to see are there other aspects like insurance that could fill a need. But if we do uncover a need, that's when we bring in a third party in order to go through those different insurance options. 

And number four, education and family support. So how much do we need to save for education? Do we use a 529, a custodial account, a Coverdale account, prepaid tuition? Or what are the other options now with recent legislation that we can do with a 529 for the beneficiary? 

Number five, banking and credit management. A lot of times clients may want to look at selling a house, upsizing or downsizing, and want to understand, should we do a cash offer? Should we do some other kind of, incorporate some kind of debt? And so we can run those different scenarios as part of an overall financial plan. 

And then six, estate planning. And that's where things can get really technical. And so that's where I bring in one of my tax, trust, and estate specialists to go explore different strategies based on the client's priorities. 

And then finally, number seven, tax planning, which we really can apply to every single aspect of the prior seven, or prior six, excuse me, because they are all inter-related. And so that's where we also need to be working with the CPA. 

But I'd say with tax planning, one important note is that we're not just looking at a two-year horizon, right? Last year's filing versus this year. We're looking at tax filings and tax planning over your lifetime, which will change.

MARK: And it kind of got me thinking a little bit as you were talking. We've got seven areas, and then we've got multiple sub-areas under each one. So that's a lot to take in. That's a lot to deal with at any particular point in time. So I'm wondering if for most clients, do they need all seven? Or maybe at a particular point in time, not all seven are relevant. 

STEPHANIE: That's exactly right. It's not all relevant at the same time. We all go through life and have different priorities. Life changes. 

MARK: Yeah, definitely not a one-size-fits-all type situation when you start. At least that's what I'm thinking when you listen to all those considerations that go into this. Kind of continuing with that personalization theme, can you give me some examples maybe within one of these areas where people have very different preferences and that influences how you'd approach the problem? 

STEPHANIE: I'd say with, when we're looking at trying to put all these pieces together as part of a comprehensive financial plan, again, the portfolio puts the plan into action. But to your point about the personalization, people have different experiences of how they've managed their assets in the past, different life experiences. 

I have some clients that prefer funds over individual stocks, others that want to avoid a certain region or country, those that want to be more tactical based on our outlook for sectors or different asset classes and… or others that just want to remain very neutral. 

And so I think that's where, again, a wealth advisor can really personalize and tailor the portfolio to the client's needs, as well as their preferences and opinions and beliefs. 

MARK: Are there any situations where the client, maybe you got a couple of different, maybe two clients, and they have the same problem they're looking to solve, but they go about it or it makes sense to have them go about it in very different ways?

STEPHANIE: Definitely have a lot of clients in the same situation and maybe the same kind of asset. So when we talk about a concentrated position, we all know the saying "Don't put all your eggs in one basket." The eggs being your wealth. The basket being that one investment. 

And so in two instances, one client is ready to retire. They worked at the company for years and years and years, and that's really all they have. They don't have a pension, or we're years off from starting Social Security, so we want to create a reliable income stream now. 

Whereas a second client, they're fine. They're running a successful business, they inherited the stock from their mother, and they don't need it. And so it's two very different situations, different timelines, as well as different priorities. 

MARK: So how do you go about, given those situations, clearly different strategies are needed. How do you go about implementing those strategies? What does that look like? 

STEPHANIE: So first and foremost, my role is to get to know the client the best that I can, again, understanding these priorities, the preferences, and this is where it's very collaborative, to go at their pace. Right? 

And so with the first client. Well, they were also concerned about downside risk, and they didn't want to just sell the stock when they needed money because that ignores the tax implications. And so we're able to come in and again come up with an overall strategy that is mitigating the downside, divesting over time, but we also will do outright sales earlier in the year so we have all year for tax-loss-harvesting opportunities. 

But we also talk to their CPA to figure out how much are we allowed to realize in capital gains that year. So at every sale, we take some of the proceeds earmarked for immediate expenses, taxes, and then the rest of the proceeds, that's when we start building out that portfolio for a more dependable income stream that's also tax efficient for the client in retirement.

But now in the second client situation, again, inherited the stock from her mother, she's running a successful business, she's already utilized the gift and estate tax exemption, her lifetime amount, and she just doesn't need the stock. But she is charitably inclined. 

And so in this situation, brought in my tax, trust, and estate specialist to kind of better understand how she feels about charitable giving, what is she passionate about. And we explored different strategies, where, such as a charitable remainder trust, charitable lead trust, donor-advised fund, private foundation, or even just outright gifts to charity. 

And so after she feels a lot more confident and competent on all of those different strategies, she then meets with her attorney and CPA to draft the documents, crunch the numbers. We ended up with the donor-advised fund, opened that for her, and moved over the concentrated position or contributed the concentrated position to that DAF account. 

They sell it, no tax liability, client gets a deduction, and now she's able to grant to charities that she's passionate about. But one extra step or factor aspect here is that the client also wanted to get her family involved. And so when she passes, the funds are still going to be able to continue to grow, and her children will be able to grant to charities that she was passionate about. 

MARK: Yeah, it's a great example of a win-win situation. Meets the client need, done so in a very cost-effective fashion. So that's the more sort of the intellectual side of this, creating a plan and implementing it.

But we spend a lot of time on this show talking about cognitive and emotional decision-making biases that crop up. They sort of get in the way of making good decisions, or at least they make them more difficult. So what are some of the ones that you've run into in your 15 years of doing this? 

STEPHANIE: So with respect to the biases and actually in line with the concentrated position situations, endowment effect. So you value what you own more than an item that you don't own. It's their baby, especially if it's an employer stock. 

They worked all their life for this baby, and we don't want to call the baby ugly, but we want to work around the baby. We want to figure out how the baby can complement other investments and other priorities, so to speak. 

MARK: Yeah. How you value it is not the same as how the market does it. 

STEPHANIE: Right. Exactly. And that's really getting into thorough research of the baby, the stock in question, what an analyst thinks, what are the other viewpoints, what's the competitive landscape, where are the valuations, right? And so I was trying to provide that data, where are the risks and what are we willing to realize from a gain perspective? But also reduce the baby or monetize the baby into something that is more, is going to be a lot easier to meet their needs.

MARK: Monetize the baby. That is the killer quote from this interview. You mentioned looking at the perspectives of others. What do other analysts think about that particular company? It got me thinking a little bit about confirmation bias. We've got … smart clients come in. They've got their own opinions. How does that manifest itself? 

STEPHANIE: I'd say with some of my clients, or really clients in general, it's … where with confirmation bias, you're only looking for the information that confirms your original thesis. You're avoiding information that is in direct violation of your opinion. And so I'd say that's a big part of what I do and what other advisors do is we're trying to be that objective, rational voice of reason, so to speak. And sometimes overcoming those emotions can be difficult.

But that's where, again, we have all the research analysis to kind of just allow the client or the investor to see a new idea or a new investment, because then you have an opportunity cost, right? If you're only looking at certain information, you're only going to see investments that have to do with that information. 

MARK: Well, I think one of the nice things about an advisor is each of us, we've got one life to live, so to speak. And we go through these experiences once or maybe twice. You're seeing hundreds of people go through these experiences and you get the … you have the benefit of sharing those experiences with clients. 

STEPHANIE: And that's, you know, where you can, again, get all these designations and have the technical knowledge, but it's different when you have the experience of talking families through these different emotions. And I'd say that, again, is part of what makes the job most rewarding. 

MARK: That's right, and gives you a little bit of perspective. One thing people have a lot of priorities, a lot of goals they're trying to accomplish. And I can remember certainly, kind of friends and family members when they're younger, they've got an account for the food budget for the month, one for rent, one for the car payment. It's sort of like a little bit of a mental accounting type approach.

Did you still see that with clients even as they're getting older and their account balances are bigger, does that same mentality pop up? 

STEPHANIE: Oh yeah, very, very common. It's not always a bad thing. It can actually help someone really stick to their goals and save for retirement or save for education or what have you. But it can also kind of create roadblocks because you're not looking at things from a holistic perspective. 

And so with that, an example where a client had sold their house. They're downsizing, they're going to buy a condo, and so they ended up with some net proceeds. From their perspective, they just wanted to keep that figure, that lump sum, in an account and generate enough income to pay the increased mortgage. 

And when looking at the numbers, it's like a 6%, 7% income yield. And so, you know, kind of a couple of red flags right out of the gate because, well, we're going to be investing in very highly correlated investments that all yield around the same thing. So they're going to be sensitive to inflation and interest rates, changes in inflation, changes in interest rates. And that inherently involves additional risk for that one goal.

So instead, if we again, take a step back and look at the entire picture, we're instead of just one piece of the pie to meet the objectives, but monetize all of the assets, we're able to then stay diversified, stay balanced, make sure we're still mitigating the risk overall, but we can have a little bit of an income tilt in order to meet these needs. 

And that way, from a numbers perspective, it's maybe a 3% income yield. And that's just a lot less riskier than 6% or 7%. And I tell clients all the time, whether it's the rate of return or an income yield, the higher it is, the more risk. And so again, it's all about that perspective and context.

MARK: Yep, no free lunches out there. Or maybe there are some, but they're extremely, extremely rare. You mentioned, here's what the numbers are saying when you were talking about that particular client situation. 

So how are you kind of under real world conditions balancing, OK, here's what the analyst in me is saying, and then here's what the person in me, the empathetic human, is saying. How do I present both of these to the client in a meaningful way? 

STEPHANIE: Well, and that's where, in my role, getting to know the client the best you can and understand more than what they want to achieve from a financial perspective, but also just internally, what are some of their other, maybe more personal goals? How do they feel about certain investments and such? 

And so you're trying to create a diversified, balanced portfolio but then have little pieces of them, so to speak, in the portfolio where, again, that's something that they're going to be comfortable with. 

MARK: I'm guessing also, to a certain extent, the clients bring their own personal history to bear. And I'm sure that's got to kind of influence their reaction to some of the recommendations that you're making. 

STEPHANIE: Oh, yeah, I have clients where, again, they especially in the financial crisis that won't invest in certain types of investments because they got burned at that point. And so that's where—or comparing the current tech and AI rally to the dot-com bubble. 

And then you really need to kind of go through, and we're not trying to eliminate that emotion, right? We're just trying to understand it—what's their primary driver? And looking at the differences between the dot-com bubble and now.

For instance, they're making money, so that's a big difference from the dot-com days. Or they're paying dividends now, a lot of tech companies, right? So you're kind of just adding some of that objectivity and facts to the equation. 

But again, it still can be where the client, I still don't want to buy XYZ or invest in this area. So it's how can we get indirect exposure so that we're not missing out on opportunities. 

MARK: There is even some studies out there that suggest these personal experiences last for … 

or the impact of these personal experiences last for decades. It wouldn't surprise me if you've got clients who maybe within their memory, hearing stories about the Great Depression from the '30s, and probably influences how they think about things. 

STEPHANIE: Exactly. I have a client who had passed away, and now I'm working with his wife and their daughter. The client had, again, grown up after the Great Depression, just was not willing to spend. And no matter how many times we did the financial plan showing there's all this wiggle room to spend, he wouldn't do it. 

Well, now that I'm working with the wife, she really wants to see the family enjoy the money. And so that meant going through, again, a more comprehensive financial plan. What about long-term care needs? Even though she's healthy, what if, right? So adding additional buffers of spending.

She wanted to make large gifts to her three adult children and then also try to work in a budget for giving the annual exclusion each year to the grandchildren. And so we put it all in the plan, and then given my healthy paranoia of what if we're wrong, then we're going to look at trying to run multiple scenarios varying not just the amounts or the frequency of gifts, but also rate-of-return assumptions, inflation assumptions, right? 

And at the end of the day, I was able to very comfortably tell her, you're going to be just fine. Not that I'm giving her approval to make the gifts, but that's kind of, you know, her husband is still in her ear that, "oh, we better not do this kind of spending." When really, they absolutely can. And she can live very comfortably on a smaller portfolio after those gifts. 

MARK: Yeah, maybe not approval, but validation that this is reasonable. This is possible. But I'm glad you mentioned that particular example, because we've been kind of talking about the client as a single individual. 

In many cases, it's actually two people who may have different preferences, different risk tolerances, different priorities. How do you navigate that? 

STEPHANIE: So, and that's where, again, you kind of mentioned it earlier, everyone comes with their own experiences, right? And I'm coming into the equation where the clients already have a relationship.

So I usually start up front that this is all about open communication. It's my job to not just get to know each client individually, but I want them to be able to feel comfortable expressing their concerns, asking questions, because a lot of times we will have one person dominate the conversation. 

And it's always good to check in on the other person because everyone wants to feel heard. Right? And so I really try to make it an open-communication setting so that, again, if … there's never any misconceptions or misunderstandings, and everyone feels that they're part of this whole process. 

MARK: And probably at some point, it's not just the spouses of the partners, but at some point, the adult children may get involved. So how does that change the dynamic? 

STEPHANIE: It definitely changes the dynamic, but it also matters, is the adult child supportive, especially for some of my older clients, to help me make sure that they're taken care of? 

Because they're boots on the ground, right? They're going over and meeting with their parents, and they're kind of my eyes and ears a lot of times, versus maybe a disruptor where there's not quite the dynamic. Those are more challenging. 

MARK: So at this point, you've been doing this 15 years. What keeps you getting out of bed in the morning? Does the job still provide kind of a purpose, still provide a meaning? What makes it enjoyable?

STEPHANIE: I'd say I've always been passionate about the markets, but now it's also helping clients. And so it's about the fact that the market's constantly pricing and repricing, assessing and reassessing, based on new information. You know, are interest rates higher or lower, or is the Fed going to cut or not? Where are valuations? Are we looking at a frothy sentiment market or not?

So there's constant variables to analyze, and that's what I enjoy. But now it's kind of adding a human element or almost like a counselor element to the mix, which can be challenging at times, but knowing that the market is going to keep me on my toes, my clients are going to keep me on my toes. And as long as I get to analyze something, I'm happy. 

MARK: And at the end of the day, right? We've all put together plans before and strategies and analyses, but unless it's implemented, it's not actually changing anyone's decision-making. It's not improving their outcome until, and you can't do that without the, ultimately, without the human element. 

STEPHANIE: Exactly. 

MARK: So one of the biggest things I've learned actually doing this show is like how difficult it is for people to get started. One of the reasons why a lot of people have goals, they have aspirations, they have things they want to do, making that first step doesn't happen in so many cases. 

So for that person who is thinking about, yeah, maybe I should really think about a financial advisor. How do they get going? 

STEPHANIE: I'd say Schwab.com, the Learn portal. We have podcasts, videos, articles, courses you can take on all these different topics. 

Also Schwab MoneyWise, another great free resource on how to teach your kids about money. There's different worksheets and calculators that you can use. 

And finally, I think just stopping by your local branch and talking to a financial consultant, they'll be able to help you as well. 

MARK: Great advice. Stephanie Shadel is a senior wealth advisor at Schwab Wealth Advisory. Steph, it's been great talking to you today. Thanks for being here. 

STEPHANIE: Thank you for having me.

MARK: If you'd like to hear more from me, you can follow me on my LinkedIn page or at X @MarkRiepe, M-A-R-K-R-I-E-P-E. 

And if you like the show, a rating or review on Apple Podcasts would be much appreciated. We always like new listeners, and if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app. 

In fact you can also leave comments on Spotify if you listen there. And if you do leave a review or leave some comments, we’d be especially interested in hearing what you think about the video element.

That’s it for today. For important disclosures, see the show notes and schwab.com/FinancialDecoder.