Maximizing Wealth Is Not Enough
Executive Summary:
Advisors should consider incorporating values and purpose work into their interactions with prospects and clients. While wealth maximization is an important dimension of financial decision-making, even the most lucrative outcomes can be misaligned with what truly brings happiness to each client. Although not every decision should be made solely through a values-driven lens, it seems that for most major decisions, rationalizing potential outcomes based on purpose and values is far more beneficial to the advisor and the client. It deepens the relationship, increases retention, and generates more ideas during advice interactions.
Remember, everyone relates to money differently, and each client uses wealth to achieve different lifestyles and pursue different careers. By delving deeply into what defines each client, we can help them make more sustainable decisions based on their own internal wisdom. This approach can spare your practice from unnecessary analysis.
As clients send over documents, pitches, and spreadsheets, I've found that returning to purpose and values often allows them to answer their own questions with greater confidence and resolve.
To sell or not to sell—that's the question, isn't it?
I received a stack of spreadsheets from my associate advisor, who wanted me to analyze whether this was a "good offer" for a client, a doctor I've been working with for several years. We’ll call him Eric. He was exploring different offers to sell his practice, considering both large groups and small startups as potential buyers. He would sell his business, get some cash, and retain some ownership in the larger partnership. The analysis would require me to both contemplate his point of view and the financial viability of the transaction.
My client was struggling to make up his mind. As interested buyers bombarded him with forceful opinions, he seemed to waffle back and forth, swayed by promises of equity appreciation and the potential benefits of consolidating operations.
The medical industry, like other professions, is in the middle of frequent M&A activity. My client wondered if he was missing out on a good opportunity.
After analyzing the spreadsheet, I realized that the economics were pretty standard. Moreover, my associate advisor mentioned that this transaction would be one of the first in a new partnership. In other words, the acquiring firm was younger and offered a bigger opportunity, but may have lacked the maturity to provide adequate service and support. The advantage of this type of transaction might be substantially more upside, financially, because the founding doctor of the large partnership is essentially getting in on the ground floor. But it's also true that this might result in less support, and more work for the early team, including my client, who may feel obligated to lean in and support early-stage growth.
To gain clarity, I guided Eric through a values exercise to define his purpose statement. He identified happiness, family, peace, wisdom, learning, and adventure as his primary values. His purpose statement was: "To carry love, joy, and connection to all those I come in contact with.”
When I asked him why he wanted to sell his practice, he mentioned that he primarily seeks more time for himself and his family and less time on practice management responsibilities. He just wants to show up and practice his craft in podiatry, helping people with balance, posture, and mobility.
As I heard this, the question arose in my mind: "Will selling to this group solve this problem? Will Eric feel resolved and content after the transaction?”
Perhaps, but it wasn't an obvious fit. Using values and purpose to rationalize client decisions, I challenge their assumptions with a stable set of facts. Your values and purpose haven't changed — how does this transaction support or distract from those values?
In my experience, many advisors focus on wealth maximization through scenario analysis to help clients make decisions. I've found that relying solely on "the most money" as a framework can be unstable for weighty decisions intertwined with personal preferences, health, and values.
I reminded my client of his values and purpose statement and asked him to consider his decision through that lens. We explored different ways to meet his desires for more time, a balanced schedule, and a slightly more generous vacation and travel budget. As it turned out, owning the business would also result in higher short- and medium-term cash flow for him. Moreover, the higher current cash flow would emotionally allow him to pursue the active and adventure-driven family lifestyle he had always dreamed of having in his 50s.
Despite the up-front liquidity from the practice sale, Eric wasn't comfortable quitting his job just yet. The current level of liquidity, combined with the sale, wouldn't provide the comfort he needed to maintain his desired travel and vacation schedule. He wanted to add additional liquidity or liquid net worth beyond the sale of the practice to create a more sustainable passive income stream, providing him with maximum flexibility in retirement.
I presented these facts as objectively as possible, helping him summarize and simplify the analysis.
During our conversation, an interesting fact emerged — given that he just made an agreement with an associate doctor who wanted ownership, we brainstormed empowering the associate with responsibilities regarding human capital. This could relieve Eric of some of the pressure he was feeling.
We discussed that given his desire for more peace of mind and family time, selling the practice, today, wouldn’t give him the simplicity, and flexibility he wanted, especially since he would be one of the founding doctors in the new partnership, which may require him to actually take on new responsibilities, given the relative age of the partnership and the relative inexperience of management.
We also discussed that it wasn’t actually selling that was the problem. It was timing and potentially the buyer quality and stage. If we waited a bit longer and continued to focus on execution with the new associate joining the practice, we might discover that a new, more aligned buyer could emerge soon enough.
Ultimately, the key question for me is to allow the client exposure to as much information as possible to help them wrestle with the key decisions they are struggling with. I like augmenting the financial data with a more stable, values-driven framework and testing the decisions, so to speak.
Which choice will support your values and purpose over time?
This seems like the foundation of any good, personal financial strategy.
