Atlanta Financial Blog

Are Your Wealth Management Strategies Up to Date? Maybe You Should Stress Test Them

Are Your Wealth Management Strategies Up to Date? Maybe You Should Stress Test Them

Rick Henderson, CPA, CFP®, AIF®
June 9, 2020

Has it been a while since you reviewed the strategies that you put in place for your wealth plan?  Has your financial situation materially changed since then?  Have your plans been updated to reflect the realities of the new tax laws? Based on your answers to these questions, you may benefit from stress testing the strategies you currently have in place.

What Is Stress Testing?

Stress testing is a process that looks in detail at one or more of your wealth management strategies to assess the likelihood that they will deliver results that are consistent with your goals, across a range of scenarios. This is a process that is commonly used by very wealthy families.  The primary goals of stress testing are to make sure that the strategies that you have in place are consistent with your goals, to avoid unwanted financial or legal/tax consequences, and to make sure that you are benefiting from the most appropriate wealth management opportunities available to you. Investments, insurance, income tax planning, estate planning, and asset protection are some of the areas in which stress testing is done.

How Does It Work?

Stress testing is an organized process that generally involves 4 steps:

  1. Discovery: What are your goals and objectives? What specific problems or concerns are you trying to address?  Are there any opportunities that you are trying to capitalize on?
  2. Strategy Assessment: Now that you are clear about what you are trying to accomplish, you can review and evaluate your wealth management strategies by:
    • Scenario testing – Use various assumptions and a variety of “what if” scenarios to see how the strategy is likely to work under a variety of different conditions and circumstances.
    • Alignment – How likely is it that the strategy will accomplish your goals and objectives and give you the results you want?
  1. Consider Alternative Strategies: Are there alternative strategies that would better meet your goals or be more cost effective? Analyze alternative strategies side by side with your current strategy and evaluate.
  2. Follow Through: Once the above steps are completed, the pros and cons of the different alternatives are reviewed and discussed, recommendations are made, and a plan of action is agreed on.

What Are the Benefits?

Stress testing your wealth strategies can result in a number of potential outcomes.  First, your current strategy could be reaffirmed as effective and in line with your goals.  In this case stress testing restores and affirms your confidence in the strategy.  In other situations, it may be recommended that you modify an existing strategy or pursue an entirely different direction.  The benefits of doing so could range from lowering your taxes, avoiding any blind spots in your previous plan, better protecting your assets, taking advantage of new opportunities that are available to you, and potentially lowering costs.

Similar to health care, where it is common to regularly and proactively screen for potential health conditions, you should periodically review and stress test your wealth management plans with your Atlanta Financial advisor.  It is much better to proactively uncover any gaps, discover potential blind spots, and identify any opportunities that you may have. By doing so, you can make the changes that are needed and have the confidence that you are on track for your goals and all that is important to you.

If it’s been a while since you have reviewed the strategies in place for your wealth plan, you may want to reach out to your Atlanta Financial advisor to ensure you are on the right track for attaining your goals.

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