Financial Peace Of Mind with Michael Nathanson

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TSP 207 | Financial Peace Of Mind


Episode Summary:

While being a lawyer and financial planner, Michael Nathanson was diagnosed with a brain tumor that completely changed his life. Realizing how we need a specialist in the medical field, he believes that the same should be true with our financial health. Now, Michael is the Chairman and Chief Officer of The Colony Group. He shares the reasons why going to someone who knows what they are doing is key to achieving financial peace of mind. Discover the five pillars for getting financial peace of mind and financial independence and learn some tips on finding the right advisor for you.

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Financial Peace Of Mind with Michael Nathanson

Our guest is Michael Nathanson, who is the Chairman and Chief Executive Officer of The Colony Group. He’s been recognized ten times by Barron’s Magazine as one of the top 100 independent financial advisors in the nation and has been selected six times as a super lawyer as published in the Massachusetts Super Lawyers. He’s been included in Worth Magazine’s list of the countries top 250 wealth advisors. He’s published articles on a wide variety of financial, tax and legal topics and has a book out that we’re going to be talking about. That book is called Personal Financial Planning for Executives and Entrepreneurs, which is a path to financial peace of mind. Michael, welcome to the show.

Thank you for having me, John.

I always like to ask my guest to take us back to their own story of origin. You can go back as far as childhood, college or wherever you want. You are a lawyer and a financial planner. I’d want to get a sense of when did it all start and what came first. Is it the interest in legal stuff or financial stuff?

I grew up in the days of a show called LA Law.

Riches are in the niches. Click To Tweet

I remember that show. Harry Hamlin, Susan Dey and the whole gang.

It was a great show. You mentioned the Harry Hamlin character whose name was Michael Kuzak. I loved that character and that’s what I wanted to be. My father is a lawyer as well. He always has been an inspiration for me. I always wanted to be a lawyer. I got into a great law school. It turns out that when I got to law school and looked around, there was a guy named Barack Obama. In all my first-year classes, we were in the same section. Neil Gorsuch was in our class, who is now in the Supreme Court. We had quite the group of very inspirational group of people to be around. You can imagine the dynamic when I went to school having a class comprised of such people. I thought I would always practice law and I wanted to be a litigator. I went to a great law firm and got interested in investment management companies. I started doing legal work for some of these companies. I practiced tax law primarily but became a business lawyer as well. Over time, I found this company, The Colony Group. It became one of my clients. At the time, it was a small company and I liked the group of people there. They recruited me to leave my law firm, which was a very hard decision. That’s how I got myself into financial services. As a tax lawyer, it was a natural transition for me.

I have interested myself in becoming an executive and in becoming an entrepreneur. I had been a great practitioner and had a great career for thirteen years and was looking to do something different. While all this was happening, I received one of those diagnoses that can change your life. In the year 2000, I was diagnosed with a brain tumor. Fortunately, it was not cancer but unfortunately, it was not something that can be operated on. That event changes your perspective on things. My story is one where I was on a clear path and I thought for sure I’d practice law my whole life, my whole career. I never imagined that I would be someone talking about having a brain tumor, but things happen. I had this great client, The Colony Group, that I wanted to go and join. I had this life-altering experience. The way stories go, sometimes you know the ending and sometimes you have no idea. I found myself where I am right now and I’m very happy to be where I am right now.

TSP 207 | Financial Peace Of Mind

Personal Financial Planning for Executives and Entrepreneurs: The Path to Financial Peace of Mind

I must ask the question that I’m sure all the readers are asking themselves. You still have a brain tumor that’s still inoperable, but it’s not cancer so you’re still alive. Is that what you’re saying?

I do. I have a three-centimeter brain tumor. I used to not talk about it because it was something that I was afraid would diminish me and something that people would say, “That guy has got a brain tumor. He’s not long for the world. He’s got some diminished capacity.” I got into physical fitness and I met someone at the gym. This is the way stories transpire. You never know what’s going to happen. I met someone whose daughter happened to have a brain tumor. He was raising money for the National Brain Tumor Society, which is the largest nonprofit brain tumor organization in the country. Long story short, he recruited me to get involved in the organization. I became a board member in 2011 and in 2013, I became chairman of the board. I served as chairman from 2013 until the end of 2018.

When you have a position like that and you have a leadership role in a community in need, you’ll learn to talk about it. You’ll learn to own it and have pride in who you are and what you have. I’m very fortunate. My tumor should not end my life. It’s something that is treatable with medication. It’s inoperable because of its location, but it is treatable with medication that keeps it from growing. It doesn’t make it go away. I’m very fortunate. I must go get an MRI every year to make sure that I’m stable. I’ve been stable now for just about twenty years. I’m in good shape and I’m very grateful for the experience because while I would never have wished to get a brain tumor, I’m very happy to be part of this community. It’s a great community. It’s a community in need and one where I feel that I’ve made a difference in life.

You also talk about the similarities between medical and financial. You compare financial planning advice to medical advice. Can you expand on that?

I drive from my experience in the brain tumor community. I’m not a doctor or a researcher, but I’ve learned a lot about medical research. It occurred to me that as we make greater and greater advances in the medical space, there’s this thing called precision medicine. Precision medicine is the concept that some of the best and most effective treatments are treatments that are designed specifically for an individual. It’s not necessarily the same treatment that your neighbor would have. It’s designed for the specific DNA, the specific circumstances of a particular individual. Some of the most effective treatments are precise in nature. I also think from the medical space that there’s this concept generally in specialization.

Financial peace of mind starts with a plan. Click To Tweet

As you think about specialization, if you have a neurological issue, you tend not to go see a cardiologist. You might go see a general practitioner, but you want to see someone who’s a specialist that deals with your needs. As I got more and more into the world of financial planning and financial services, what I realized was that there were too many people trying to be everything to everybody. What we need to be thinking about is to provide the most effective type of financial planning service. It has to be targeted, it has to be precise in nature and it has to be delivered by specialists who understand the specific needs of the recipient.

I love that because I’m always saying the riches are in the niches.

For example, you mentioned our book. It’s about corporate executives and entrepreneurs. Corporate executives and entrepreneurs are very different from the professionals, from a lawyer, from an accountant, from a professional athlete. These are people who have very specific needs. They have very specific DNA. I believe that the right kind of service requires specialization and a precise approach.

There is such a difference because entrepreneurs do not have a lot of money to invest because we’re putting it all into the company. Who is your ideal client? How do you work with entrepreneurs? Are they people who’ve already raised series A and B versus starting out?

TSP 207 | Financial Peace Of Mind

Financial Peace Of Mind: The decisions we make at the beginning of getting into a business starts with what choice you want to make in terms of what kind of entity to operate out of.


Certainly both because some of the best entrepreneurs are those that are just starting out. Often, you get someone who’s an entrepreneur that’s already done something before and now they’re on to another project. Let me just talk a little bit about the subject. The executive is a broad term that can include entrepreneurs. Many entrepreneurs are themselves, executives. It’s quite common to create a company and to have a product and to go get some financing. That person may have a title like a chief executive officer, chief financial officer, chief operating officer and yet that person is also an entrepreneur, which is why we wanted to write about both.

What we did was we wrote about the example of two people, and we tell a story around this where one person is a startup entrepreneur and one person pursues a more traditional executive at a large company type of opportunity. Their needs are related but different. The entrepreneur, especially in startup mode, should be thinking about foundational decisions such as choice of an entity that needs to be made at the very beginning in order to achieve the best financial results. Whereas the executive at the more mature company is going to have another series of needs and those needs will include the need to be thinking about employment agreements and equity compensation.

It sounds like you have a lot of advantages of being both a financial planner and a lawyer. It’s not like you have to go back and forth and say, “You need a contract. You need to put your LLC together here in Delaware,” or whatever the needs are that fit into the overall picture of financial planning. Would that be accurate?

That would most certainly be accurate. Our philosophy at The Colony Group is that we believe that effective financial planning advice should be delivered by a team that includes lawyers. In fact, we have around twenty lawyers that work for us because lawyers provide their own perspective. That is not just in the area being able to think about things like choice of the entity or thinking about provisions in a will or trust. Lawyers also have the ability and are trained to understand risk and to measure risk and to manage risk. I think that’s an important part of providing advice.

Some of the best entrepreneurs are those that are just starting out. Click To Tweet

Can you expand for people who may not know what choice of entity is since you’ve mentioned it a couple of times?

Choice of entity is when you begin in a business, that starts without an entity like a corporation or a partnership or a limited liability company around the business. It may start as a sole proprietorship, but the decisions that we make at the beginning of getting into a business start with what choice you want to make in terms of what kind of entity to operate out of. Do you want to be a corporation, an LLC, a partnership? It’s a complex set of choices. About what the right choices are, it depends on the facts. It also depends on the state of the law. The law has changed with the Tax Cuts and Jobs Act of 2017. There are lots of nuances that go into that decision.

You also talk about the five pillars of financial peace of mind, not just peace of mind. Let’s give the audience a quick little description. The first one is maximizing the rewards of working as an executive. What do you mean by that?

In order to answer that question, we have to understand why corporate executives are different. Executives are different for a variety of reasons. One of the reasons is that they often are employed under formal agreements. Many people are what we call employees at will, but executives tend to have some formal agreement in place. What we mean by maximizing the rewards of being an executive, first and foremost, is looking at your agreement. It’s negotiating appropriately and respectfully a good agreement. It’s understanding what’s in your agreement so you can harvest the benefits of your employment agreement. Maximizing the rewards of being an executive also includes understanding corporate benefit plans. It also incorporates understanding of equity incentives and other incentives that are put in place. Sometimes they’re cash related such as long-term and short-term incentive plans and making sure that the executive is well positioned to maximize the benefits of those programs while also observing the other four pillars.

TSP 207 | Financial Peace Of Mind

Financial Peace Of Mind: The greatest strength of an entrepreneur is their passion. They have this courage where they don’t fear the risk.


The next one is achieving financial independence. What does that mean for you? Does that mean I never have to work again if I choose? How much money does someone need to have financial independence these days?

I want to be clear what that concept is. The concept of financial independence is a personal determination. It’s different for different people. This is not about, “If I have this much retirement and I take out 4% a year, I can be in retirement for this many years before I pass away.” This is beyond thinking about retirement. This is the concept of understanding what the person’s goals are and what their needs are going to be. Do they want to own two homes? Do they have kids that they want to educate? Do they want to leave money to their children in the future? When they do retire, what will their needs be from a lifestyle perspective? Understand all of that and come up with a plan to get to the point at which work is no longer necessary. That does not mean that you will retire at that point. It simply means at that point, you have the ability to do whatever you want. That’s what financial independence is. It’s understanding where you need to be. It’s getting to that place and then deciding at that point whether that may mean retirement or maybe it doesn’t mean retirement.

Planning and minimizing taxes is more important than ever now with the new laws. Certain states are not letting you deduct as much as they used to in terms of state taxes.

That’s right. Putting a cap on state and local taxes was a huge bite, especially in high tax states including some of the states on the East and West Coast. The third pillar is minimizing taxes. This is where many people go wrong, especially among executives and entrepreneurs. There are so many opportunities to minimize taxes. Whether that’s in the area of simply maximizing opportunities to defer taxable income, to maximizing use of deductions, to understanding the benefits of having capital gain versus ordinary income, to understanding how we’re using equity incentives by using a good tax approach that allows you to minimize taxes over the years. That in itself can generate a return that can sometimes exceed the great investment returns that we’ve been able to see over the last several years. People need to focus on a regular basis on the need to minimize taxes.

Financial independence means understanding where you need to be. Click To Tweet

Finally, planning for others. I don’t think most people think about that. Tell us a little bit about that one.

Planning for others, the fourth pillar, is the act of thinking about those that we love but also the causes that we care about. Planning for others is thinking about our dependence, thinking about people that we want to take care of while we’re here and while we’re not here after we pass away. That includes some traditional estate planning and thinking about dependent care planning, but it also goes beyond that. It’s also thinking about what are the causes that are important to an executive or entrepreneur. We find that most of our clients do have a passion for helping others and from making a difference in the world for what I called legacy planning. Think about what your legacy is going to be when you’re no longer on this earth. A big part of the planning exercise is identifying those causes and then figuring out the best ways to help those causes, not just economically but also in terms of providing your own services or just being part of the organization in some way. It’s complex. Choosing the right organization, understanding which organizations to get involved with and how to support them is itself a very complex undertaking.

Managing risk is so interesting to me because when you’re pitching to get your startup funded, you must minimize the risk for the investors by showing them that you’ve got proof of concept and who’s on the team and all those things. Even selling yourself in any situation to get people to change their behavior or the way they’re doing something with your product or service is also part of managing the risk that’s involved. How do you approach this for your clients?

Managing risk is something that we think about in many different perspectives. We must think about it in some of the most obvious perspectives, which would include from an investment perspective and talking about stories. One of the inspirations for writing this book is thinking about companies like Enron, WorldCom, Global Crossing, Bear Stearns or Lehman Brothers. I could go on. Years ago, these were companies that executives were just thrilled to be at. These were companies that the whole world admired. Those that had too much risk in those companies and those that had too much invested in those companies paid a very heavy price when each one of those companies suffered a very uncomfortable demise.

We think about investment risk. Investment risk can simply be asset allocation. It’s thinking about asset allocation strategy, thinking about the concentration of wealth issues, thinking about what your goals are and only taking the amount of risk necessary and no more to achieve those goals. That’s the more obvious way of thinking about it. A slightly less obvious way of thinking about it is thinking about the use of insurance. That insurance is life insurance. It’s casualty insurance. It’s directors and officer’s insurance. It’s thinking about all the ways that we’re exposed to risk and utilizing insurance to hedge that risk. Then we get to the broader and more nebulous areas of risk, which are the ones you were touching on.

Think about your business and think about all the risks that you take in your business. Most people don’t even have a clue as to how bad that risk can be. You get people who are so passionate about what they’re doing. That’s the greatest strength of an entrepreneur. The greatest strength of an entrepreneur is their passion. It’s their vision. Some people don’t have that kind of vision. That’s what makes the entrepreneurs the best. They had this courage. They don’t fear the risk. Fears are the instinct that we don’t always have. Fear is designed to make you exercise caution. As we operate our businesses, you should take as much risk as you need to take and hopefully know more than that. It is part of the business plan as well thinking about how much risk you’re taking to achieve your objectives.

You’re also talk about the criteria that people should use to decide what financial planner they should do. Should everyone have one? How do I find a good one?

There are studies that talk about executives. One of the studies that we talk about in our book indicates that executives worry more than other wealthier people about financial planning in every single category of financial consideration. They’re worried a lot. You might think that, therefore they’re also all going to be likely to go and hire someone to help them. That is true, but to some extent, it’s not true. We find that executives are prone to want to work with a planner, but only when they can partner with that planner. They don’t want to just completely delegate. They want to partner with an advisor that they can work with on a regular basis to achieve the best results. It may be a little bit of a surprise or an irony and that you think of an executive as someone who delegates. In fact, the larger group is the group of executives that want to partner with an advisor. There is a number that also wants to do it on their own, but they do understand that this is very important. What we found was that about two-thirds acknowledged the need for some third-party expertise.

Fear is designed to make you exercise caution. Click To Tweet

Whether that’s a formal financial advisor or whether they’re trying to do it themselves and work with a series of people like a lawyer, an insurance professional, an accountant, about two-thirds of executives want to work with someone. What are the choices? The choices generally relate to a couple of different service models. Most people are unaware of these models. One is what I’m going to call the suitability model. There is a legal standard called the suitability standard, and this is what is generally applicable to what we call wirehouses, the big brokerages. The standard at these brokerages is that the advisors there are bound by a standard that requires them to make sure that anything they do for a client is suitable in nature. They’re taking into account their personal circumstances, but they’re allowed to have conflicts of interest and operate in a way that may benefit them at the expense of the client provided what they’re doing for the client is suitable in nature.

That may sound like a negative way of saying it. That is the standard. I do want to be clear that there are many excellent people at these organizations who do great work for their clients. It’s about getting the right person. The other standard is the standard to which we adhere and are required by law to adhere is called the fiduciary standard. That is the standard by which an advisor must always put the client’s interest first. There will still be conflicts of interest. There are always going to be conflicts of interest, but they must be mitigated. You’ve got to mitigate your conflicts of interest and put your client’s interests first. That’s the preferred standard. You can get great advisors on both sides. It’s about getting the right person. It’s important to think about what the right standard is. Someone who goes to a fiduciary-based advisor is more likely to be able to get peace of mind that they know that their interests are being put first.

Michael, I can’t thank you enough for sharing your wisdom and your personal story. You inspire us all to not give up, have a plan and get some financial peace of mind.

It’s my pleasure, John. Thank you for having me.

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