Bringing Mentoring Back to Legacy Planning

Bringing Mentoring Back to Legacy Planning

Even now, I feel vulnerable and embarrassed sharing the following story. It’s a painful legacy to recall.

In the early ‘70s, I was a young man living in Los Angeles with a vague dream of making a living in the music business. I was a junior college dropout from an upper middle-class family, drifting. Then, boom! On my 21st birthday, I received a trust, valued at $130,000 (or a little over $750,000 in today’s dollars). At the time, I hadn’t had any mentoring or preparation whatsoever in money. What do you suppose happened?

Yes, some very predictable things occurred. I continued to avoid real work or a formal education for a few years. I tinkered at being a music producer and invested a little in a growing music studio. But mostly I stayed up late, partied, and avoided facing life head-on. In addition, some other, less-expected things happened. Some of my closest friends grew distant, angry with me for having money when they didn’t. I also discovered that I didn’t have the ability to say no when people asked me for money — even people I didn’t particularly like or trust. My phone rang constantly with people asking for loans. It was a very lonely time.

Eventually, my story had a happy ending: the money ran out, and I was fortunate enough to be able to return to college and find a career I love.

Here’s what now strikes me as exceedingly odd, which informs my life’s work. Although there must have been a reason, an aspiration, a hope for what this money could mean in my life, no one ever talked to me about it. Not. One. Peep. No one sat me down and asked basic questions of me — questions like “What difference could this trust fund make in your life?” or “How long do you think the money will last?” No one said, “Here are some of the things you can expect other people to say or do, and here’s how you can handle that.” What was missing was mentoring. 

The Shadow Legacy™

The point is, I inherited a legacy of unintended consequences. A human legacy that typical estate and gift planning often doesn’t account for. A yawning chasm between intention and outcome. Unforeseen, damaging, and all too common. I inherited a Shadow Legacy. 

The term shadow was used by the famed psychologist Carl G. Jung to describe the repressed or denied part of the self. But in this work, I use the term shadow to describe “the unconscious or denied aspects of our impact on others as it applies to our legacy.” It’s our blind spot.

Now, let’s zoom out to the bigger picture. My trust fund story is but one small example of a shadow legacy. The issues are compounded when a death occurs and multiple heirs are involved. Then wealth and precious family relationships can be at risk. Estate documents alone can never replace engagement, communication, and mentoring. Talk to any estate planning attorney, and she can share countless examples of failed legacy: families torn apart over mistrust, fear, greed, unresolved childhood issues, and yes, even over the cherished clock on the mantle. It’s such a common occurrence that most of us have personally seen instances of it, whether in our own lives or in the lives of our friends and acquaintances. The suffering it creates often has a lasting impact on individuals, inherited wealth and relationships.

But the term failed legacy is a misnomer. There was and is a legacy, all right, just not the one which was originally intended. Rather, legacies are entirely consistent with the foundation laid through years of interactions and experience, and not primarily the result of a handful of estate documents, or the wishes behind those documents.

Bringing Light to the Shadow 

The good news is that shadows dissipate quickly in the light. Unintended suffering can be ameliorated or avoided more easily than you might imagine. The moment that I became aware that mentoring was the crucial element missing in my own painful financial journey — as well as my siblings’ journeys — my life took a dramatic turn, both personally and professionally. My shame was replaced with the desire to help families build powerful, sustainable legacies through connection and preparation.

It’s important to take a moment to reflect on what mentoring is. At its best, mentoring provides intellectual and emotional support, and gives mentees a safe place to turn with questions. It’s not about imperious lecturing or the conveyance of pedantic facts. It’s about discovery, and drawing out the gifts of those being mentored. It’s a journey of encouragement that is accepting of mistakes and stumbles.

Related: How to Empower Your Life Story and Legacy

Specifically, if I were mentoring the young man I used to be, I would explore the following:

  • I would have the family benefactors share, in their own words, their intentions behind the gift. This is a significant opportunity to convey heartfelt values and to paint an aspirational picture, deepening family connection.
  • I would explain that this is an opportunity to learn how to handle money, including knowledge and skills that will be useful for a lifetime.
  • As I have done for so many clients, I would graphically show how long the money might last at different spending rates (including taxes and inflation). This is often an eye-opener and always useful in terms of getting a sense of the bigger picture.
  • I would ask my mentee to identify and prioritize possible life goals, and to consider how the money might be used to achieve them, with the understanding that goals and priorities will change over time.
  • Finally, if the inheritance or gift were of adequate size, I would recommend hiring a hands-on, fiduciary financial planner who has a passion for coaching, to work with the beneficiary over time.

Now Is the Time 

In speaking with many families, I have found that there is resistance to engagement with other family members and having conversations about estates and legacy. Families are bogged down by cynicism, resignation, and a lack of urgency. But there are people, processes and structures that can be highly effective in bringing families together to create compelling shared visions and possibilities, and, when necessary, to work out estate conflicts successfully. There are almost countless ways to build intergenerational trust, wisdom, and connection. What successful legacy requires is awareness, communication, trust, and support. Engagement is not transactional; it is transformational. It’s an opportunity for creativity, joy, and regeneration.

Families fail to pass wealth on successfully because they fail to address the human element in estate planning effectively. Enormous potential is missed. Without the requisite skills and context, money can easily wind up being detrimental to inheritors. Mentoring is essential. Fortunately, this work doesn’t have to be hard. And it’s never too late. Get help if you need it. Professionals who may be able to help include estate planning attorneys, mediators, Collaborative Practice professionals, family meeting facilitators, family business consultants, trustees and financial planners.

Just being aware that we all have a Shadow Legacy is a beginning. We have some time, now to make a difference. Our legacies ripple out and touch others in countless ways, and for generations to come. Imagine what a clear focus on our actual legacies could mean for our families, our descendants, the larger community, and yes, for us. We’re not meant to do life alone. Family is one our greatest opportunities in this life to suffer, or to thrive.

We’re all ancestors in training. What legacy will you leave?

Laura A. Roser
Life Transitions
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Laura A. Roser is the #1 expert in meaning legacy planning. She is the Founder and CEO of Paragon Road, a company that assists individuals in passing on their non-financial as ... Click for full bio

Multi-Factor or Not Multi-Factor? That Is the Question

Multi-Factor or Not Multi-Factor? That Is the Question

Written by: Chris Shuba, Helios Quantitative Research, LLC

Let’s pretend you are a US investor that wants to deploy some of your money overseas.  You think international developed market stocks are attractive relative to US stocks, and you also think the US dollar will decline over the period you intend to hold your investment.  Your investment decision is logical to you. But you have choices:  You could a) simply invest in a traditional index like the MSCI EAFE, b) invest in a fund that systematically emphasizes a single factor (like a value fund) that only buys specific stocks related to that factor, or c) invest in a developed fund that blends several factors together, like the JPMorgan Diversified Return International Equity ETF (JPIN).  What is the best choice? 

Investing in a traditional international market capitalization index like the MSCI EAFE is not a bad choice. It has delivered nice returns for a US investor, especially uncorrelated outperformance in the 1970s and 1980s, and helped to diversify a US-only portfolio.

Your second choice is to invest in one particular factor because it makes sense to you.  Sticking with the example of a value strategy, you might believe a fund or index that chooses the cheapest or most attractively valued stocks based on metrics like Price to Earnings (PE) is best.  

You could go find a discretionary portfolio manager who only buys stocks he deems to be cheap.  Typically the concept of “cheap” is based on some absolute metric that the manager has in mind, such as never buying a stock with a PE greater than 15.  If there are not enough stocks that are attractive, he will hold his money in cash until he finds the prudent bargains he seeks.  This prudence also obviously risks possible underperformance from being absent from the market.

The alternative is to buy a value index or fund that systematically only buys the cheapest stocks in a particular investment universe.  So if there are 1000 investable stocks available, the index ONLY buys the cheapest decile of 100 stocks and is always fully invested in the 100 securities that are relatively cheapest.  This is an investment approach that a discretionary manger may disdain.  The discretionary value manager may look at those same 100 stocks and think they are pricey.  But nevertheless, academic research has shown that always being fully invested in the relatively cheapest percentiles of stocks in the US has produced superior returns over many decades. 

Such a portfolio is called a “factor” portfolio.  Why the name?   In the early 1960s, academics introduced the concept of beta and demonstrated that individual US stocks had sensitivities to, and were driven by, movements in the broad market.  In the early 1990s, academic research began to show that other “factors” such as value and size also drove US stock returns.  Since then, several factors have been identified as driving individual stock outperformance: value, size, volatility, momentum and quality.  Stocks that are cheaper, smaller, less volatile, have more positive annual returns and higher profitability have historically outperformed their peers.  It turns out these factors also work internationally.

Related: Who Gets Sick When the U.S. Sneezes?

Of all the factors, value is the factor that has been the best known the longest (even before it was academically identified as a “factor”), thanks to the books of Warren Buffet’s teacher Ben Graham.   And if you look abroad at an array of developed global markets and create a value index and compare it to its simple market capitalization weighted brother, the historic outperformance of value has been stunning.  Until recently.  

While there was some variability by country, on average from the mid-1970s up until 2005 a value factor portfolio in a developed market outperformed its market cap weighted index by about 2% a year.  That’s a lot. By contrast, since 2005, the average developed country value portfolio has underperformed a market cap indexes by about -40 basis points.  Which is the danger of investing in one factor.  It may not always work at every point in time.

So if investing in one factor like value runs the risk of underperforming, how about a multi-factor international developed equity portfolio?

Below is a breakdown of individual factor portfolios’ performance in international developed equity markets since 2005, an equal weighted factor portfolio as well the performance of the MSCI EAFE as our performance reference.  Note that, for the last 13 years, value has been the poorest factor by far, while the others have handily beaten the EAFE.  An equal weighted portfolio of all 5 factors, while not as optimal as some of the individual factor results, beats the EAFE by 1.6% and has an information ratio, or risk adjusted returns that are superior by 37%.  The equal weighted factor portfolio also has the advantage of not having to predict which factor will work when, so even when a factor like value does not beat the market, the other factors can pick up the slack.

SOURCE: MSCI, Data as of January 31, 2018. Past performance is no guarantee of future results. Shown for illustrative purposes only.

The equal weighted factor portfolio has one other advantage over the market cap weighted alternative. Note in the chart below how well the portfolio outperformed in the 2008 crisis, so it tends to do relatively well in highly volatile sell offs.

SOURCE: MSCI, Data as of January 31, 2018. Past performance is no guarantee of future results. Shown for illustrative purposes only.

While it’s not inconceivable that one or two of these factors could erode, or underperform for a stretch, the fact that you have exposure to multiple factors in a portfolio that seems to do especially well in crises suggest the multi-factor blended portfolio remains the most attractive way to invest in developed markets.

So, when asked the question: Multi-factor or not multi-factor?  The data speaks for itself.

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DEFINITIONS: Price to earnings (P/E) ratio:  The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

DISCLOSURES: MSCI EAFE Investable Market Index (IMI): The MSCI EAFE Investable Market Index (IMI), is an equity index which captures large, mid and small cap representation across Developed Markets countries* around the world, excluding the US and Canada. The index is based on the MSCI Global Investable Market Indexes (GIMI) Methodology—a comprehensive and consistent approach to index construction that allows for meaningful global views and cross regional comparisons across all market capitalization size, sector and style segments and combinations. This methodology aims to provide exhaustive coverage of the relevant investment opportunity set with a strong emphasis on index liquidity, investability and replicability. The index is reviewed quarterly—in February, May, August and November—with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover. During the May and November semi-annual index reviews, the index is rebalanced and the large, mid and small capitalization cutoff points are recalculated.

Investors should carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full  prospectuses contain this and other information about the ETF. Read the prospectus carefully before investing. Call 1-844-4JPM-ETF or visit to obtain a prospectus.
J.P. Morgan Asset Management
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See how ETFs differ from other investment vehicles, learn how to evaluate them, and discover how ETFs can be used effectively to achieve a diversity of investment strategies. ... Click for full bio