Avi Deutsch is a managing director at Robertson Stephens, where he advises on portfolio management, financial planning and social impact investing. Deutsch especially enjoys working with tech executives and entrepreneurs on exit planning, liquidating stock options and crypto assets, and planning for life after a liquidity event.
Russ Alan Prince: What are some areas that mid-career, high-net-worth earners need to consider in their financial planning?
Avi Deutsch: For many, mid-career is the time to transition from budgeting to financial planning. Higher incomes and more liquidity allow individuals and families to look into the future and develop a financial plan to achieve their ideal lifestyle, social impact, and legacy goals while optimizing for taxes.
The first step is defining goals and priorities. Mid-career professionals today have more life paths to choose from than ever before. Do they want to spend several years living abroad, dedicate significant time and money to social impact work, or build generational wealth? Early financial planning can help identify and achieve realistic goals and provide flexibility to meet changing circumstances.
Alongside life goals, investors should also consider social impact and legacy goals. The rise of values-aligned investment opportunities makes it possible for investors to invest in addressing challenges ranging from climate change to global poverty. Early planning allows investors to familiarize themselves with the risks and opportunities of values-aligned investing and to avoid the costs associated with transitioning more mature portfolios into such strategies.
After planning for life and impact goals, mid-career professionals should be sure to address estate planning. This might seem like a distant concern for younger investors, but the absence of an estate plan could leave family and loved ones in difficult situations, especially if there are kids in the picture.
Finally, all the above should be done with an eye toward tax optimization that can allow for significant savings down the line. For example, a founder might want to set themselves up to qualify for the Qualified Small Business Stock—QSBS—treatment, a tax exemption that could save them millions of dollars when selling the business. High earners who receive significant stock compensation will want to plan a diversification strategy that is unique to their compensation scheme and optimizes for taxes.
Prince: What investment risks and opportunities are unique to mid-career professionals?
Deutsch: So far in their lives as investors, mid-career professionals have experienced financial markets that are very different from the past and, possibly, the future. Until 2022, anyone who began investing in earnest after the Great Financial Crises saw equity markets rise in a more-or-less straight line, with any significant declines immediately followed by quick bounce-backs. This historical anomaly creates a false sense of security in risky assets, namely stocks. Of course, stocks play an important part in any growth portfolio, but their allocation must match the investors' goals.
In the same way that younger investors may overestimate the safety of the stock market, they are likely to underestimate the opportunities presented by the bond market in the current interest rate environment. The ultra-low interest rates that reigned between 2008-2022, coupled with a high-risk tolerance, made the bond market all but irrelevant for young investors. With the 10-year treasury hitting 5% in October of this year, the bond market deserves another look.
Finally, mid-career professionals are more likely to seek out values-aligned investment opportunities. A careful selection of such opportunities can provide investors with access to poorly understood markets and diversification in areas that have been overlooked by more traditional investors.
Prince: What are some of the unique aspects of managing wealth for individuals coming into wealth for the first time or anticipating their net worth growing rapidly?
Deutsch: In our experience, the key to a successful liquidity event is advance planning. Wealth often comes because of big life events like selling the company you founded or taking a company public; these events can be all-consuming. Having a team and plan in place helps make the process smoother and can help avoid costly mistakes.
The first step in navigating a liquidity event is assembling a team. This starts with a wealth manager who serves as a quarterback and coordinates with a qualified accountant and a trust and estate attorney. Together, this team can help navigate liquidity events and support the individual on an ongoing basis.
Many mid-career professionals are engaging with their own wealth advisors and other key professionals for the first time. Starting to assemble this team early will allow them to take their time in finding the right team and forming a relationship built on trust, so that they can avoid making hasty decisions once the money is sitting in their bank account.
Next, individuals will want to have a financial plan in place that lays out their lifestyle, philanthropic, and other important goals. Knowing how much money they need to achieve life goals can help with structuring the transaction, optimizing taxes through charitable giving and estate planning techniques, and providing peace of mind in what can be a tumultuous period.
Russ Alan Prince is the executive director of Private Wealthand a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.