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Discover your goals

Your Wealth & LifePersonal strategies for wealth managementCIO Wealth Management Research

Contents01 Editorial

02 What are your future plans?

04 Step 1: Think deliberately

06 Step 2: Identify all goals

07 Step 3: Plan for the unexpected

08 Interview: Erin Wilms

10 Step 4: Learn from others

11 Step 5: Prioritize

12 Case studies

16 About the contributors

17 Endnotes

18 Disclaimer

20 Publication details

This report was originally published on 7 March 2016. It was republished on 7 October 2016 with respect to content revision on page. 6.

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Your Wealth & Life October 2016 1

Dear readers,“If you don’t know where you are going, any road will get you there.” – Lewis Carroll

We start this report with a few simple questions about “where you are going”: What specifically are you saving for in the future? Whom will you spend that future with? What do you want to accomplish? Where do you want to live? What could go wrong? How will you know if you are successful? What will your legacy be?

If you’re like most of us, you only have partial answers to those questions. Why? Planning for the distant future goes against mil-lennia of evolution. It’s against our very nature to think critically about setting goals for ourselves in 20, 30, or 40 years. Not to mention that most of us would rather spend time on something more pressing or more fun, such as planning our next vacation.

In this edition of Your Wealth & Life, behavioral finance special-ist Svetlana Gherzi examines the major reasons investors often do not fully develop their goals. She also provides a structured five-step goals-discovery process that’s designed to help you think more clearly about your future.

As wealth managers, we believe setting goals and objectives is important. An investor’s goals form the basis for nearly all invest-ment and estate planning decisions. Those goals also benchmark the success or failure of the household’s overall strategy. We hope you find this report informative and useful for developing your own goals, discovering some new ones, and achieving them.

Michael Crook, CAIA, CRPC

Mike Ryan, CFA

Mike Ryan, CFAChief Investment Strategist, WMA

Regional CIO, Wealth Management US

Michael Crook, CAIA, CRPCHead of CIO Investment Planning

Wealth Management US

2 October 2016 Your Wealth & Life

Discover your goals

What are your future plans?

Common sense would say that prior to making any invest-ment decisions or financial

plans, it is important to sit down, imagine the future, and figure out what you want to achieve in life. However, procrastinating is easy if the consequences are not felt until far in the future. For example, in one study,1 participants were offered a choice between a healthy and an unhealthy snack (a banana versus a chocolate) to be eaten in a week. Three out of four individuals chose the banana as their future snack. One week later, when the partici-pants came back, they were offered both snacks. The results reversed: Three out of four chose the choco-late. While most individuals know that eating healthy is important, it is much easier to indulge today and start a healthy diet in the future.

Similar logic leads to the following results: Only about 50% of Americans floss daily,2 only 9% eat sufficient veg-etables in their daily diet,3 and only 20% exercise regularly.4

Many investors delay planning for the future the same way that they avoid starting a healthy diet: There is always tomorrow. Despite the interest in comprehensive advice, only 40% of high-net-worth (HNW) respondents report hav-ing a financial plan. In 2015, investors between the ages of 60 and 69 completed far more financial plans than did investors under the age of 50 (see Fig. 1). At first glance, that might make sense, as a 60-year-old is likely to be thinking about retirement in the near future. However, many of the degrees of freedom a

Source: Cerulli U.S. Monthly Edge Edition, January 2016

60–69

50%

≥ 7050–59

43%

< 50

Fig. 1: HNW respondents who report financial planningas part of their current primary advice relationshipPercent of HNW respondents by age range

Head of household age

26%25%


Discover your goals

Pull quote box

40-year-old enjoys – save more or less, work more or less, save in a different type of account, invest with a different allocation, and the like – are unavailable or less effective at the age of 60. Planning earlier can have a substantially larger impact than planning later.

If planning early is important, why do we pro-crastinate? There are specific behavioral rea-sons, which we discuss below, but as the physicist Niels Bohr said, “Prediction is difficult, especially about the future.” We procrastinate because the inherent uncertainty makes it easier to postpone planning than to actually plan.

Of course, not all planning is difficult, and it can actually be enjoyable. Incredibly, Ameri-cans spend more time planning for holidays and social events than planning for their own retirement.5

Take a moment to think about your goals ten years from now. What will you value and enjoy? How will family circumstances change? Where will you live? Unlike when deciding on a vaca-tion, we can’t simply say, “Sure, we’ll take the golf and spa package.” Planning for the future involves making difficult, life-defining decisions that deserve deeper thought and thorough consideration.

In the remainder of this publication, we’ll intro-duce a five-step goals-discovery process based on behavioral-science research. The five steps are:

Step 1 Think deliberately

Step 2 Identify all goals

Step 3 Plan for the unexpected

Step 4 Learn from others

Step 5 Prioritize clearly


Discover your goals

Daniel Kahneman, an academic psychologist, won the Nobel Memorial Prize in Economic Sci-ences in part for finding that humans have two systems for decision making.6 System 1 can be classified as automatic as it works on autopilot. This system is fast, emotional, low-effort, and is great for reducing the cognitive load associated with some decisions. It helps us quickly duck out of the way when a ball is thrown toward us, or to recognize a familiar face of a colleague who walks into a room. Unfortunately, with years of knowledge, experience, and practice, this automatic system can also lead to mental laziness. For example, try to answer the ques-tions in Figure 2 quickly.

While these questions are easy in the sense that they are fairly straightforward, using System 1 will generally lead to the wrong answer. In the original study, only 17% of participants got all three questions correct.7 The most common answers were 10 cents, 100 minutes, and 24 days, respectively, but a pencil, some paper, and a bit of time will quickly lead you to the correct answers of 5 cents, 5 minutes, and 47 days.

Similarly, when investors think about their goals, they generally focus on the first thing that comes to mind. Ask someone with a growing family about his or her goals and you’ll usually hear about a larger home and college tuition. Ask someone who is in his or her 60s about their goals and you’ll generally hear about retirement. To wit, 48% of 60- to 65-year-olds who completed financial plans in 2015 at UBS said they only had one goal: retirement.8


Fig. 2: Automatic vs. deliberate decision-making systems

Cognitive reflection test

Source: Frederick, S., “Cognitive Reflection and Decision Making,” Journal of Economic Perspectives, 19(4), 2005, pp.25-42.

• A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

• If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?

• In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?


Discover your goals

The second system we use for thinking is slow, conscious, and takes real effort. In other words, it’s deliberate. System 2 is required when mak-ing complicated decisions. Famously, Benjamin Franklin wrote about his method for engaging in deliberate thinking in a personal letter to his friend Joseph Priestley in 1772:9

“My way is to divide half a sheet of paper by a line into two columns; writing over the one Pro and over the other Con. Then during three or four days’ consideration, I put down under the different heads short hints of the different motives, that at different times occur to me, for or against the measure. When I have thus got them altogether in one view, I endeavor to estimate their respective weights; and where I find two, one on each side, that seem equal, I strike them both out. If I judge some two reasons ‘con’ equal to some three reasons ‘pro’, I strike out five; and thus pro-ceeding, I find where the balance lies; and if after a day or two of further consideration, nothing new that is of importance occurs on either side, I come to a determination accordingly.”

Investors can pull useful lessons from this letter. Deliberate thinking requires taking the time to think about options over an extended period. It’s not practical to develop a lifetime of goals and objectives in one sitting. Days, weeks, and even months of reflection is necessary.

As a starting point, we suggest reflecting on the type of future you desire. Prior to design-ing a financial plan or making any investment

decisions, it is crucial to figure out what is important to you. Take a moment to think about specific goals you have and what truly matters to you. It could be traveling to exotic locations twice a year, purchasing a beach house in two years, playing golf every day throughout retirement, allocating more time or money to charity, or organizing yearly fam-ily events. List all goals that come to mind in the space provided below and then turn the page.

MY GOALS


Discover your goals

Identifying all goals and objectives is crucial as they provide a foundation for sound deci-sion-making and planning for the future. Yet research on goals development indicates that individuals miss nearly half of their goals. More surprisingly, those same individuals indicate that the omitted goals are just as important as the initial ones.10

Take a moment to try and recall the address of every place you’ve ever lived and every phone number you’ve ever had. Although most people can easily recall a few addresses and phone numbers, complete recall is diffi-cult. Would it be easier to select them from a longer list? Recognition tends to be easier than recollection.

The same logic can be applied to setting goals and objectives. A simple solution to identi-fying goals that don’t readily come to mind is to select them from an extensive list of goals instead of trying to develop them from scratch.11 On the right we present ten broad categories that span a wide range of goals (see Fig. 3), along with a sample question for you to consider.

Go through the ten categories and consider all other goals that come to mind. Speak to your advisor to explore these in more detail.


Financial independence When and where do you want to retire and what would you want to do during retirement? FamilyWhat do you want to achieve for your family? Have you considered family bequests?

HealthcareHave you thought about long-term care and life insurance? Have you discussed this with your family?

CareerWhat are your professional goals and what would you do if you didn’t have to work?

Self-improvement / second careerHave you thought about starting a new hobby or a business?

LifestyleIs there anything you would like to change about your lifestyle (housing, neighborhoods, cars, etc.)?

Travel and leisureWhat do you enjoy doing in your free time, includ-ing activities on weekdays, weekends, and longer holidays?

Society & environmentWould you like your investments to reflect your values and have a positive environmental or social impact?

Social engagementHow important are your relationships with friends and family?

ControlHow much control do you want over investment decisions?

Source: UBS, as of 1 March 2016

Fig. 3: Identifying goals is easier than recalling themTen categories that cover a spectrum of individual goals

Socialengagement

Control

Financialindependence

(assets)

Family

HealthcareCareer

Self-improvement/ 2nd career

Lifestyle

Travel &leisure

Society & environment

You

Ten categories to consider in planning your goals


Discover your goals

Humans tend to be persistently optimistic about the future. We frequently underestimate how long it will take us to complete projects at home and at work. Companies and governments underestimate the cost of large infrastructure projects.12 And yet we continue to expect the future to be better than the past.

This optimistic view – the difference between expectation and the outcome – of the future is clearly captured in one simple study.13 Par-ticipants were asked to recall important events from their past and to envisage future events. The results indicate that we remember roughly the same number of bad events as good events. However, when we think about the future, most events are positive (see Fig. 4).

Although there are many benefits associated with an optimistic view of the future, investors need to protect against embedding an overly optimistic view into their financial plans. A good plan should account for all possible outcomes – good and bad.

One way of preparing for a range of possible future scenarios is to evaluate multiple future versions of your life. It turns out that we’re really good at creating narratives after knowing the


outcome (turn on the financial news and you will see this happen every day). Investors can use this bias toward narratives to their advan-tage by creating stories about their future selves.14 Consider the following exercise:

Imagine a situation in which you meet all of your goals and objectives in 10, 20, or 30 years. What needed to happen for that to occur? Which goals were accomplished, when were they accomplished, and how were they accomplished?

Now do the opposite. Imagine a situation in which you don’t meet even your high-est-priority goals and objectives in 10, 20, or 30 years. What went wrong, and what steps you can take to protect against that outcome?

These narratives can help uncover opportunities and risks that might otherwise be overlooked. For instance, failing to deal with concentrated stock positions, or a lack of proper insurance and estate planning might seem like low-risk procrastinations, but they can cause significant negative impacts on long-term outcomes.

Source: Dan Gilbert, Professor of Psychology at Harvard University,in a study commissioned by Prudential, 2015

FuturePast

Fig. 4: Mostly good events are envisioned for the future Percentage of events recalled and predicted

16%

60%

84%

40%

Bad

Good

Discover your goals

David McWilliams: Erin, why don’t we start off with you telling us a little bit about what estate planning is, the way you define it to clients?

Erin Wilms: Sure. Estate planning is a process that an individual undertakes with the goal of making sure the people they want will actually inherit their property in the amounts that they wish and at the time they feel is appropriate. Number one, if an estate plan is successful, the right people are going to be involved when it comes to making decisions for you and your family about your property. Number two, taxes will be minimized. And number three, wealth transfer or inheritance will be maximized.

An estate plan has the effect of making sure that the people inheriting your property get maximum protection from lawsuits, divorce, and government claims. Estate planning also involves designating people to make decisions for you during your lifetime if you can’t make them for yourself, both with respect to your assets as well as your healthcare.

Why is it so important to develop an estate plan?

Erin Wilms: The main reason to create an estate plan is that if you don’t do it yourself, the state is going to step in and make decisions for you. If you die without a will or a trust, then you are what is called intestate or without a will, and state law will then decide who inherits your assets and when they get control of them. In most states, for example, if you are a single person with children and you die intestate, then your children will inherit your assets but they will get complete control over those assets at either age 18 or 21 – and most of our clients are very concerned about their children’s ability to manage that kind of money at such a young age. If instead you create an estate plan, you can put somebody else in charge who will manage the assets for your children until an age that you think is more appropriate.

Another reason that it is important to develop an estate plan is for clients who value privacy. If for example your estate goes through a probate process when you pass away, either because you didn’t have an estate plan or because you used a will rather than a revocable trust, then that probate proceeding is entirely public. Anyone can go pull the records from a probate court

David McWilliams, Head of

Wealth Management Transfor-

mation at UBS, recently inter-

viewed Erin Wilms, our Head

of Advanced Planning at UBS

Wealth Management Americas.

Ms. Wilms focuses on develop-

ing comprehensive strategies to

assist clients with their complex

financial needs such as preser-

vation, transfer, and manage-

ment of wealth. She serves as

an internal resource for clients

on all issues related to estate

planning, tax, philanthropy,

and wealth planning.

Interview

Erin Wilms


Discover your goals

If you fail to implement your plan, state law

is going to write the rules for you.

of you under the terms of a divorce set-tlement? Again, if you fail to implement your plan, state law is going to write the rules for you, and we have 50 different states plus the District of Columbia so it can be wildly different.

When should an estate plan be updated or reviewed?

Erin Wilms: I think a good rule of thumb for this question is every five years. Candidly, unfortunately, most of our clients don’t update their plan – or even look at their plan every five years. But that is a good marker to put in your mind as to how often you should take a look at it. Certainly, more frequently, if you have experienced a major life event or if there has been a significant change in the law. For example, if you have a child, if you get divorced, if you have a significant change in your wealth – those are all events that should trigger a review.

A good and recent example is when the federal estate tax exemption went from $1 million to $5 million and that num-ber was made permanent. Many of our clients in the $2 million to $10 million net-worth range had substantial estate planning focused on estate tax. With the change in the law and the fewer estates that are now subject to estate tax, the planning focus for many of our clients has shifted from avoiding estate tax to planning for income tax, which requires a very different kind of plan than what we used to see.

and figure out your net worth, what you owned, and who your beneficiaries are. If instead you implement an estate plan by using a revocable living trust, the administration of that trust after you pass away is entirely private.

Okay, great – who should consider estate planning?

Erin Wilms: Well the broadest answer to that question is of course, every-one. But I have thought about a couple of segments of individuals who should really think about implementing an estate plan. First of all, parents. If you want to designate custody of your chil-dren if you were to pass away, you must have an estate plan. Absent a designa-tion of guardianship there could be sig-nificant fights in court between family members.

Parents should create an estate plan to make sure that if something happens to them, their assets are held for their chil-dren’s benefit under the rules that they want to put in place rather than what state law provides. Also, another set of parents for whom it is particularly impor-tant are those who have a child with special needs. An estate plan is very criti-cal to making sure to preserve the child’s eligibility for benefits.

A second segment of individuals who should really think about estate planning is blended families. How do you want to provide for your spouse versus children from a prior marriage? What is required

What are some examples, either good or bad, that you have seen in your experience and could share with us?

Erin Wilms: On the negative side, I worked with a couple whose very solid marriage was, I would argue, damaged by a difficult conversation around how their estate should be divided.

This couple had two children together and the husband had two children from a prior marriage. The wife wanted the bulk of their joint wealth to go to their two children, because the client’s former wife had previously received a settle-ment that she would give to his two children from the former marriage. But our client, the husband, was adamant that all four of his children receive an equal amount from their estate. Can-didly, this is an issue that this couple still hasn’t resolved.

On the positive side, some of our cli-ents are very concerned today about how much is too much for their children to inherit. They want to provide their children with an education and a solid foundation, but beyond that there is a certain segment of clients who really want to incorporate philanthropy into their plan. I’ve worked with a couple who accomplished wealth transfer to their three children during their lifetime by utilizing various estate planning strat-egies. After having done that, they felt comfortable leaving the balance of their wealth in a family foundation that their children will run after they pass away.

Both great stories on both sides of the question.



Discover your goals


Most investors would agree that their values today are different than the values they had 20 years ago. Although it is easy to look back and to recognize how our goals and values have evolved over time, it is much more difficult to correctly predict how they will change in the next 20 years.15 One good way to improve our ability to predict what we might value in the future is to learn from the experience of some-one who already has been through a certain stage in life.16 For example, when a couple is preparing for the arrival of a baby, talking to people who have already been through that experience is a great starting point to learn about what to expect.

The same technique can be used when plan-ning for other stages of life, including retire-ment. As mentioned above, putting ourselves in the shoes of another person and coming up with a narrative is one way of exploring what we might value in the future. As an exercise, consider the following hypothetical three case studies. The section on pages 12–15 expands on these examples, provides more background, and links the content to goals-based wealth management.

Note: Case studies do not represent actual clients.

Case study 1Raymond and Nancy have been retired for over a decade. They went through the five-step goals-discovery process and identified healthcare and spending more time with family as their most important goals. Their less important goal is trav-eling to various countries to attend film festivals and art exhibits. Why did Raymond and Nancy prioritize healthcare and family over travel?

Case study 2Emily, a 58-year-old widow, is very close to her mother and is employed full-time. She recently chose financial independence and the ability to maintain the same standard of living through-out retirement as her number one goal. Emily is much less concerned about her career than ever before. What circumstances triggered Emily to make such decisions?

Case study 3 Mariana, 33, and Ronaldo, 36, are recent newly-weds and live in California. They are very focused on growing their business and buying a big house, and least concerned with making a new social circle of friends. Why do Mariana and Ron-aldo have such priorities?


Discover your goals

Trade-offs are a necessary part of the plan-ning process for two reasons. First, everyone has limited time and resources; therefore, it is important to understand the priority of spe-cific objectives. Investment planning is based on maximizing the likelihood of reaching the most important goals. Second, some inves-tors will experience less-than-ideal outcomes. Everything from poor market performance to unexpected illness can force a household into making trade-offs that were unexpected during the initial planning process. Prioritizing goals and planning ahead of time can signifi-cantly help when those trade-offs have to be made.

Prioritizing the identified goals can be a straightforward process. We suggest avoid-ing over-specificity and simply grouping goals as most important, important, and least important. Such an approach is much easier than trying to decide specific ordinal rankings, but it still provides clear guidance regarding which goals to add or remove in the future based on better- or worse-than-expected outcomes.

Connecting goals to wealth managementOne year ago, we published Your Wealth & Life: Goals-based wealth management. That publi-cation presented a comprehensive framework for segmenting assets into liquidity, longevity, and legacy portfolios, based on goals and time horizon. The five-step goals-discovery process presented in this publication provides the frame-work necessary to develop those goals:






Defining goals is a fundamental step in wealth management that should not be overlooked. Why? A household’s objectives set the course for managing its balance sheet, choosing insur-ance products, deciding which trust and estate structures to use, managing liabilities, and selecting an appropriate investment strategy. Objectives also become the basis for determin-ing the success or failure of the household’s overall wealth management strategy. For these reasons, thoughtful goals discovery is essential to comprehensive wealth management.

Moreover, goals development is not a one-time exercise. Investors should expect to make changes over time to adjust for changes in their personal situations and objectives for the future. We suggest revisiting this five-step process once per year, or whenever a financial plan is updated.



Raymond and Nancy

Most important goalsHealthcare• Prepare for increased healthcare spending

and potential long-term care costs• Arrange for a full-time nurse

Family• Plan out yearly reunions• Continue gifting the maximum annual con-

tributions to children and grandchildren

Philanthropy• Make ongoing contributions to charitable

organizations supporting the arts• Make arrangements to have their art collec-

tion donated to a museum

Nancy and Raymond’s financial advisor works closely with their accountant and attorney to create a plan that maximizes the likelihood of achieving their goals and objectives.

Goals-based wealth management• Investment income currently covers all of their expenses. Raymond and Nancy

prefer to hold two years of expenses within safe and liquid assets. As they pre-pare for increased healthcare spending needs and the potential for long-term care costs, assets move from the longevity portfolio into the liquidity portfolio.

• As retirement progresses toward their life expectancy, the longevity portfolio is reduced. Low cost basis securities within the longevity portfolio are selected to maximize the impact of ongoing charitable contributions.

• The legacy portfolio contains funded trusts for decedents, residual assets invested aggressively, and qualified retirement plans. Art collection marked for donation to the museum is part of the legacy portfolio.

Liquidity

Longevity

Legacy

Current situation and goalsRaymond and Nancy have been retired for over a decade. A major-ity of their time in retirement was spent traveling the world, and now they would like to settle down and focus on time with family and friends. They own a vineyard in Napa Valley, along with a quaint home in Nice, France. Raymond and Nancy are avid art collectors and eventually would like to donate their collection to a museum. Long-term care and life insurance were not an option earlier in life due to pre-existing health issues. As they age, they want to avoid being a burden on the children.

CASE STUDY


Case sutdies

Most important goalsFinancial independence• Maintain the same standard of living she

is accustomed to throughout retirement• Determine her optimal retirement age• Maximize social security and survivor

benefits

Lifestyle• Upgrade, repair and sell her home• Purchase a home in a 50 & over commu-

nity to retire in

Social engagement• Volunteer at the local animal shelter and

church

Travel• Enjoy annual vacation and travel to new

destinations

Emily’s financial advisor develops a plan to maximize the likelihood of achieving her goals and objectives.

Emily

Goals-based wealth management• Emily’s current job covers all discretionary expenses of her goals and objectives.

The liquidity portfolio begins to fill from the legacy portfolio as she approaches her target retirement age. The assets are safe and highly liquid and sized to sup-port 2–5 years of expenses.

• Emily’s longevity portfolio is sized to match future goals and objectives through the 95th percentile of her lifetime expectancy. Additionally, the longevity portfolio contains her long-term care policy which is designed to fund potential liabilities.

• Her remaining assets are allocated to the legacy portfolio. They will grow unconstrained unless Emily’s goals and objectives change or market performance falls below expectations.

Liquidity

Longevity

Legacy

Current situation and goalsEmily, 58, is very close with her mother and has three successful adult children and one grandson that she visits frequently. Her husband passed away three years ago. She is passionate about animals and has two pets. She would like to volunteer at the local animal shelter as well as expand her social circle. Emily is employed full-time and is unsure of when she can retire. She hasn’t travelled much, but would like to start taking annual vacations. She is concerned that extra leisure expenses might impact her financial independence throughout retirement. She has long-term care and life insurance.

CASE STUDY


Most important goalsCareer• Review business documents, and

develop a business succession plan• Obtain financing to expand the busi-

ness at a manageable pace• Establish a small business exit strategy

Lifestyle• Purchase their first home within two

years

Healthcare• Apply for life and disability insurance

Mariana and Ronaldo’s financial advisor develops a plan that incorporates feed-back from their accountant and attorney to maximize the probability of achieving their goals and objectives.

Mariana and Ronaldo

Goals-based wealth management• Mariana and Ronaldo begin to fill the liquidity portfolio for the down

payment of their future home. Income generated from the business covers all of their other expenses.

• They continue to save and invest in their longevity portfolio, which is sized to match the spending required to achieve their lifetime goals and objectives. This is a moderately aggressive portfolio.

• Mariana and Ronaldo’s private business is currently their legacy portfolio. They intend to exit the business at some undetermined point in the future.

Liquidity

Longevity

Legacy

In 2014

Current situation and goalsMariana, 33, and Ronaldo, 36, moved to California a few years ago and recently got married. Over the past two years they built a highly profitable small business. They reached out to a new financial advisor for guidance on business protection and continuity. Ronaldo would like to expand rapidly, but Mariana is content with the current size.

A substantial portion of their time and resources are invested into the business. With exception of their morning workout routine, little time is focused on personal matters. They rent a small apartment and would like to purchase their first home within two years.

CASE STUDY


Case studies

Goals-based wealth managementMariana and Ronaldo’s goals have changed substantially. Their financial advisor works closely with Mariana and Ronaldo’s attorney, accountant, and other specialists to develop a comprehensive plan with multiple sce-narios that will enable the couple to make an informed decision. Portfolio allocations will be determined based on the couple’s decisions.

Mariana and Ronaldo – two years later

Most important goalsFamily• Spend more time together as a family

and less time managing their business• Plan for private school and college

funding for the twins

Control• Develop a comprehensive plan that

explores the impact of selling vs. not selling their business

• Update their wills, healthcare prox-ies, power of attorney, insurance poli-cies, and trust and estate documents to account for the twins and new home purchase

Lifestyle• Maintain their current standard of living• Arrange for childcare, if and when

needed

In 2016

As goals and values develop over time, it is important to update the financial plan accordingly. Below we revisit Mariana and Ronaldo to see how changes in their personal situation impact their goals and financial planning.

Current situation and goalsOver the last two years, Mariana and Ronaldo established a close rela-tionship with their financial advisor. They received a small business loan that has supported the growth of their business. However, a sub-stantial portion of their net-worth remains tied to the business. Over the last two years they followed a disciplined investment process, and they also purchased life and disability insurance. Three months ago they financed and moved into a new home. Mariana and Ronaldo recently found out that she is expecting twins. They would like to dedicate more time to family going forward. Addi-tionally, they received an offer to sell their business. The couple would like advice on various options in relation to selling their business.

CASE STUDY


Discover your goals

Michael Crook is a Managing Director and Head of CIO Investment Planning in CIO Wealth Management Research, where he advises investors on asset allocation, portfo-lio construction, and financial planning. He is an author of numerous academic and professional articles.

Svetlana Gherzi is a behavioral finance specialist within the CIO Investment Planning group in CIO Wealth Man-agement Research. She is responsible for transforming aca-demic research into actionable ideas and practical tools that financial advisors can use to improve individuals’ financial well-being. She has a BA and MA in economics and a PhD in behavioral science from University of Warwick, UK.

Jeff LeForge is a Strategist within the CIO Investment Planning group in CIO Wealth Management Research. He focuses on advice related to investment strategy, portfolio construction, and financial planning.

Ryan McGrath is a second-year analyst in the Graduate Training Program at UBS, currently working with the CIO Investment Planning team in CIO Wealth Management Research. He received his BA in political science from the College of the Holy Cross.

David McWilliams is Head of Wealth Management Trans-formation at UBS. Wealth Management Transformation is a new organization that helps Financial Advisors through its focus on team building, training, planning, increasing pro-ductivity, and delivering holistic wealth management.

Mike Ryan is Chief Investment Strategist for Wealth Man-agement Americas and Regional Chief Investment Officer for Wealth Management US. He brings together market and investment insights, and positions them so as to optimize the impact for clients.

Ronald Sutedja is a member of CIO Investment Planning in CIO Wealth Management Research. Before UBS, he worked on portfolio analysis at AQR Capital Management. He cur-rently focuses on portfolio construction, simulation, and risk profiling.

About the contributors


Discover your goals

1 Daniel Read and Barbara Van Leeuwen, “Predicting Hunger: The effects of appetite and delay of choice.” Organizational Behavior and Human Decision Processes, 7, no. 2, pp. 189-205.

2 “Survey Finds Shortcomings in Americans’ Dental Health Habits,” Delta Dental, September 23, 2014, https://www.deltadental.com/Public/NewsMedia/NewsReleaseDentalSurveyFindsShortcomings_ 201409.jsp.

3 Catharine Paddock, “Americans ‘not eating enough fruits and vegetables’,” Medical News Today, July 13, 2015, http://www.medicalnewstoday.com/articles/296677.php.

4 Ryan Jaslow, “CDC: 80 percent of American adults don’t get recommended exercise,” CBS News, May 3, 2013, http://www.cbsnews.com/news/cdc-80-percent-of-american-adults-dont-get- recommended-exercise.

5 Ruth Helman, Craig Copeland, and Jack VanDerhei, “The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans’ Retirement Confidence,” Employee Benefit Research Institute, no. 413, April 2015.

6 Daniel Kahneman, Thinking, fast and slow. New York: Farrar, Straus & Giroux, 2011.

7 Shane Frederick, “Cognitive Reflection and Decision Making,” Journal of Economic Perspectives,ff 19, no. 4, 2005, pp. 25-42.

8 UBS, Financial Goal Analysis plans generated between 1 January to 30 November 2015.

9 Benjamin Franklin, Leonard Woods Labaree, Whitfield J. Bell, and Bruce Rogers, Mr. Franklin: A Selection from His Personal Letters. New Haven: Yale University Press, 1956.

10 Samuel D. Bond, Kurt A. Carlson, and Ralph L. Keeney, “Generating Objectives: Can Decision Makers Articulate What They Want?” Management Science, 54, no. 1, 2008, pp. 56-70.

11 Samuel D. Bond, Kurt A. Carlson, and Ralph L. Keeney, “Improving the Generation of Decision Objectives.” Decision Analysis, 7, no. 3, 2010, pp. 238-55.

12 Bent Flyvbjerg, Mette Skamris Holm, and Soren Buhl, “Underestimating Costs in Public Works Projects: Error or Lie?” Journal of the American Planning Association, 68, no. 3, 2002, pp. 279-295.

Endnotes 13 Gilbert, Dan, Professor of Psychology at Harvard University, com-

missioned the study by Prudential, 2015.

14 Deborah J. Mitchell, J. Edward Russo, and Nancy Pennington, “Back to the Future: Temporal Perspective in the Explanation of Events.” Journal of Behavioral Decision Making, 2, no. 1, 1989, pp. 25-38.

15 Daniel Kahneman and Jackie Snell. “Predicting a Changing Taste: Do People Know What They Will Like?” Journal of Behavioral Decision Making, 5, no. 3, 1992, pp. 187-200.

16 D. T. Gilbert, M. A. Killingsworth, R. N. Eyre, and T. D. Wilson. “The Surprising Power of Neighborly Advice.” Science, 323, no. 5921, 2009, pp. 1617-619.


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Publication details

PublisherUBS Financial Services Inc. Wealth Management Research 1285 Avenue of the Americas, 20th Floor New York, NY 10019

This report was published on 7 March 2016.Republished on 7 October 2016.

Editor in chiefMichael Crook

Primary authorSvetlana Gherzi

EditorsAbraham De RamosBarbara Rounds-Smith

Contributors

(in alphabetical order)

Michael CrookSvetlana GherziJeff LeForgeRyan McGrathDavid McWilliamsMike RyanRonald SutedjaErin Wilms

Project Management Paul Leeming

Report designGeorge Stilabower

Desktop publishing Cognizant Group – Basavaraj Gudihal, Srinivas Addugula, Pavan Mekala and Virender Negi

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UBS Financial Services Inc. is a subsidiary of UBS AG.www.ubs.com/financialservicesinc

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