How to Nurture and Pass Along Spiritual Capital in Estate Planning

How to Nurture and Pass Along Spiritual Capital in Estate Planning

Written by: Charlie Douglas

Estate planning needs an extreme makeover. I was dumbfounded when I discovered there was no working definition of “estate planning” at such reputable institutions as the American College of Trust and Estate Counsel or the American College of Financial Services. Seriously, no definition.

That seemed unfathomable to me in a profession in which there are tens of thousands of us who say we are actively engaged in estate planning. From estate attorneys as the honor guard, to life insurance agents, to accountants, to elder care specialists, to family dynamic facilitators, to trust and philanthropic officers and to comprehensive financial planners, the estate planning industry is clearly much more than anyone planning professional and its own limited perception of estate planning. At the same time, estate planning is very much its own intensive discipline and shouldn’t be confused with the more broadly based notion of financial planning.

Estate planning is a distinct subset of financial planning; it isn’t to be watered down in the comprehensive ocean of planning.

Words Have Meaning and Can Create Confusion 

Forced to turn to the oracle of Wikipedia for further clarification, I gleaned that estate planning is “the process of anticipating and arranging during a person’s life for the management and disposal of that individual’s estate during the individual’s life and at, and after, death while minimizing gift, estate, generation-skipping transfer and income tax.” Try incorporating that little ditty into your next elevator speech. No wonder we have mightily struggled for many years to find the right words to tell people what it is that we do when asked by them at cocktail parties.

Justifiably, we had good reason to choose the less occupied corner in the room.

Okay, it’s only a definition — is there really cause for concern? Yes! It’s precisely in how we define and perceive estate planning that will dictate how we overtly approach it. Moreover, the public (including many of our own clients and clients to be) is overwhelmingly confused as to what estate planning is, and we as professionals have in no small way contributed to the misunderstanding.

According to a recent WealthCounsel survey, three-fourths of Americans are confused regarding their thoughts about estate planning. This lack of clarity around estate planning helps explain the lack of public engagement, where 64% of Americans don’t even have a will.

The Need for a Working Definition  

For there to be a working definition of estate planning that will bring meaning to the plethora of planning
professionals and the public alike — no one will get everything that he wants from it. Still, all can and should have a more simplified and tangible definition that they can understand and live with.

The definition of estate planning should be enduring and unchanging. The expression of estate planning, however, must continually adapt and change with the times. For many years, leading with estate tax minimization and the tax saving strategies was an effective way to get clients in the door to do proper estate planning. Today, however, the estate tax has already been effectively repealed for 99 percent of American taxpayers, and if the Trump administration has its way, it will soon be 100 percent.

In its most fundamental form, the definition of estate planning must empower and support the family (or the individual) first, and thereafter concern itself with the transition of assets. As such, narrow and traditional tax planning  of “estate planning” should be lessened in favor of more broadened and progressive sentiments empowered estate & family wealt  planning” — where the client and the multidisciplinary team of planning professionals collaboratively engage in protecting, preserving and enhancing the family through the accumulation, conservation and distribution of one’s assets and values.

Five Capitals

One’s assets, common sense tells us, must consist of economic and non-economic assets alike. Estate planning encompasses more than just dealing with financial assets or financial capital. Who among us would voluntarily trade our life, a limb or a loved one for financial capital? A families’ greatest asset is seldom the amount of financial capital it possesses. Jay Hughes in his seminal book, Family Wealth: Keeping it in the Family, proffers four capitals as follows:

1. Human — refers to the individual family members: their knowledge, talents, spirituality, values, passions, dreams and aspirations. Most importantly, the term also refers to their defining who they are called to be and what they are called to do.
2. Intellectual — involves how individuals learn over a lifetime and how families communicate, resolve conflict, make joint decisions and mentor one another.
3. Social — refers to an individual’s connections with his communities. It typically shows care and civic engagement.
4. Financial — reflects the more traditional definition of wealth, such as property of the family, its financial assets, trusts and partnerships and other investment and estate planning arrangements.

Related: Estate Planning Mistakes Almost Everyone Makes

Hughes’ account in Family Wealth was that financial capital alone can’t promote long-term wealth preservation. When families and their advisors narrowly define and approach wealth in terms of financial capital, they routinely fall victim to the proverb of “shirtsleeves to shirtsleeves in three generations.” They fail to properly invest in the other more fundamental capitals that can also help bolster a family’s long-term financial capital. To bring Jay’s published list of capitals up-to-date, there should be a fifth capital that both Jay and I have implored for many years, as mentioned below.

5. Spiritual Capital — refers to an act in which an individual discerns and deploys his unique gifts and strengths, dreams and desires, with spiritual (enlightened) self-interest. It’s about guiding the family to flourish so that its members must balance their own individual needs with those of others, both familial and societal.


One’s values, and importantly our understanding and recordation of them, is critical to the context of financial capital and to what inheritors say they want. Studies consistently show that passing along personal and family values is the most important legacy that can be left for heirs — more than twice as important as money and financial assets.

As we wait for professional and academic organizations to collectively bring about a much-needed makeover
to estate planning, p actitioners may do well to retool their skillsets to have a broader focus beyond financial
capital. Estate planning practices should also consider modernizing so that, for example, more attention
could be paid to cloud-based collaboration. Technology now provides those engaged in estate planning with
communal programs such as SharedFile (for storing and sharing important client planning documents) and
GoToMeeting (for virtual client/advisor meetings), and they’ll increasingly be used by progressive planners who seek to serve the client in a more collaborative and more cost-efficient manner.

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.

Learn more about alternative beta and our ETF capabilities here.

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