Nick Kavallieratos: Mastering Lifestyle Planning | Next Gen

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

Welcome to Barron's Advisor: The Way Forward, Next Generation, a special series spotlighting the emerging leaders shaping the future of financial advice. Twice a month, we'll be digging into the strategies, insights, and game-changing moves that will help you take your practice to the next level. I'm your host, Allison Tucci, and today with me is Nick Kavlaratos, a managing director and financial advisor at Morgan Stanley. And today we're going to be talking about Lifestyle services and why understanding personalities might be more important than understanding the market. So why should advisors really lean in or, or care about lifestyle planning? And what are some of the big misconceptions that advisors have?

Let's start with the bottom question, right? So the biggest misconception is I've asked enough questions. You can never ask enough questions.

Okay, I like that.

Let's go back to the concept of it's ever-breathing, evolving. And it's evolutionary, not just to the question or the narrative of answering that question, but actually their lifestyle, right? Where you are today isn't where you're going to be tomorrow. And so the idea is it's your responsibility as an advisor to keep gnawing away at those questions, right? Even if it doesn't make sense in the moment, it may make sense later on. And sometimes clients can turn around and say, why, why are you asking such nonsensical questions? And that's where your role into play where you have to stand up to the plate and say, look, I'm asking these questions because whether you want to know it or not, at some point we may have to address this particular matter. Now, having that level of a relationship starts to build a level of trust, a marriage, that clients may feel uncomfortable at certain turns, right? But at the same token, they can rely on you they can build that trust to the point where they look back and say, I know Nick is there for me. I know he's going to help me find the right answer or determine whether or not this is the wrong outcome. And that's important. So I would encourage the next generation of advisors, make sure you continuously ask questions, even if they may not be relevant in the moment.

Well, also their client changes and evolves. Who you are at 20 is not the same as who you are at 30, who you are at 40. So to your point, the question might not be applicable now, but to get that trend analysis or thoughts on it, you're going to want to start building that legacy of how they answer the question.

Absolutely. I mean, I'll give you a perfect example, right? You have an individual spent their entire life building out their own business. They finally decide to cash out. Now, in the back of their mind, they're saying, I'm ready to retire. I'm going to grab that fishing boat. I'm moving to West Palm Beach and I'm going to start casting every single day. Well, guess what? They happen to have two daughters, and one of them marries a very entrepreneurial young man who's very determined, very eager. And so the last thing furthest from their mind is I'm going to co-invest with my new-to-become son-in-law I don't think anyone thinks about that. XYZ business, right? But it's my responsibility as their advisor to plan for something like that, to say, hey, listen, somewhere down the line, if you exited out of this business for X amount of dollars, are X amount of dollars going to be sufficient and enough for you to retire without the thought or perspective of ever doing something greater in the future? Whether it be directly or indirectly for your children, for a family member, for another business associate, for another opportunity. And so by asking the right questions and setting that right foundation and planting that seed, I start to build that tangential story for them and find the right outcome. So when the time comes, if they come to the table and say, actually, I just happened to come across this opportunity, I can say, guess what? We have an answer and the right solution, and we're going to help you with your lifestyle management because it all boils back to that philosophy and that lifestyle preservation.

When do you think is a great time to start the conversation as an advisor with your client about generational planning? And are there any triggers for that?

Yeah, absolutely. So one of the first primary points of interest that comes to surface is when a client client says, look, I definitely want to preserve and protect my capital, but at the same time I want to live my life, right? And that in and of itself becomes a bifurcated kind of direction in terms of goals and aspirations, because you say, okay, well, what's the preservation of capital for, right? And so you start embarking on this journey with the client saying, are you preserving the capital because you want to provide for the next generation, want to provide for philanthropic giving? Are you a person within the community that likes to contribute within certain community services, etc.? And that starts to embark on this journey of, OK, how can we start to create these parallels where we can accomplish both goals? And for each client, it's different. Believe it or not, what happens is that you find some clients who turn around and they're very much motivated to accomplish that goal at first glance. And then 2, 3, 4 years down the line, they come to you. They say, you know what? I've changed course. I've just spent 6 months in Italy. And I realized that I don't I don't want to give as much money to my local community service department in New York City. I now want to give to a village that I spent the last 6 months in, right? And so you have to shape-shift a little bit with the client. And that all rolls back to the whole idea of behavioral finance and understanding your clients and the philosophy behind it, right? It's ever-evolving and breathing. And so I would say the most adaptive part of this role and responsibility is understanding that it's a communicative effort. It isn't just this, you know, steadfast, I've, I've, I've generated this financial plan and therefore you need to follow the script to perfection, right? There are edits every step of the way.

I like that. It's not following a script, following a plan. It's adjusting and molding with your client. Now, in speaking towards clients that have, you know, multiple generations, you hear this a lot, that by the third generation, things just tend to blow up. Yeah. Why is that? And how can a financial advisor help their client to prevent that third generation blowup?

What we have found with many and most of the clients that we work with and the families that we work with is that it's all about education. It's all about finding that right point of inflection to insert that education and help to reaffirm a knowledge set, not just about how to invest in the markets, right? It's talking about stocks, bonds, mutual funds is one thing, but talking about the foundational philosophy behind what finance and lifestyle management means for that particular family starts to create this narrative that's significantly more impactful to the next generation. And that's where they start to build more and more of a foundation on that philosophy. And that's really where we come into play. We play the role of helping to pass the message down the line every step of the way. And so that mission statement becomes tried and true throughout time and throughout generation to generation.

In a market where inflation is stickier than I think we all presumed and people are now questioning how expensive is milk going to be or how expensive are eggs going to be in 15 years or so, how do you have that conversation with a client who's saying, I want to put away enough money so that my kids and my grandkids can go through school, but I have no idea the cost of eggs in 15 years?

It's an ever-evolving conversation. So what eggs cost today or milk costs today might not be what what eggs cost tomorrow, or what milk costs tomorrow, or for that matter, that we even consume eggs or milk tomorrow, right? But at the end of the day, uh, I'm a strong believer in the fact that you need to grow with your families over time and help them understand the adaptability of what's happening in the environment and how it affects or causes, uh, change within their lives, generation to generation. So, you know, I can tell you that I'm a big coffee drinker. My kids are not so much big coffee drinkers. Not to say that coffee ever goes away because I think half the universe would cease to exist. But, but at the end of the day, you know, I have to be respectful of the fact that they're into energy drinks or these smoothies as opposed to drinking coffee every day. Right. And those drinks happen to be significantly more expensive than coffee. And so I have to account for that and helping the present generation determine what the future generation is looking for and how they're spending is critical to the equation because it's almost like the passing of the baton and figuring out the right methodology in which you're passing that baton and the type of baton to pass.

So for a financial advisor listening and they go, that sounds great. I want to learn how to pass the baton between Gen 1, Gen 2 of my client.

Sure.

What are some of the questions or tips and tricks you would tell an advisor so that they understand how to guide their client or what to say to their client during this time?

Yeah, I'll, I'll answer this question a little bit differently. Our approach is very much evolutionary in the sense that we don't only ask the questions the first or second time we meet. We ask those questions continuously.

Because the answers might change.

That's exactly correct. And therefore, the evolution of the answer becomes the precedent and model for how we continue to evolve with the client.

Interesting.

Yeah.

So you basically do almost a trend analysis of their answers over a period of time, and it gives you insight into their relationship with money and that change as it's occurring.

Exactly. And a perfect example of that is we have found universally across all of the families that we work with, Over time, we've seen an interesting trend in an increase in travel. So we may build a relationship with a client, and one of the first questions we say is, how many trips do you take a year, right? And where do you go? And so within meeting 1, meeting 2, they might turn around and say, well, we take 2 vacations a year, and here's how we like to live, and it's a little bit lavish, but we enjoy ourselves. Our average spend is between $50,000 to $70,000, and this is what we do. And then we find in year 2, they come back and they say, well, we're going to go on this third trip, and it's so unique, and it's our first time doing this, and we're splurging. And by year 3, they say, well, now 3 trips a year is mandatory. And you look, you look back to the client, you say, you remember when we first met and you said 2 trips was what we did, and you started spending $50,000 to $70,000? Well, now your trips are amounting to $100,000, $150,000, and you're taking 3 a year. So we have to budget, and we have to plan for this, and we have to think about the fact that you're not only building that philosophy philosophy for yourself, but you're passing that same image down to the next generation. So when the kids get older, is the expectation that they're going to take at a minimum 3 trips, or does that evolve to 4, right?

Oh wow.

And we build on that, and we help them realize that there's a balance to all of those components of the equation, and we help them solve for that mathematical formula.

You're listening to Barron's Advisor, The Way Forward: Next Generation. We're going to take a short break. Stay with us. Hi, I'm Kelly Cavanearo, Managing Director, Head of North America Institutional Distribution at Janus Henderson Investors. We believe working together is the way to work better, like combining your portfolio plans and our in-depth strategy, your valued assets and our valuable insights, your mission and our vision, working in harmony to seek the right investment opportunities. Janus Henderson Investors, investing in a brighter future together. Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation. For advisors that are now getting into financial advice and they're, they're working with a generation that's that's seeing this more too, right? What advice would you give them specifically on how to have that conversation about travel?

You know, I will share with you a quick anecdotal story in terms of next-gen client comes in and they are now having children. Their children are teenagers. And so they, the teenage child, the teenage son comes to me and he says, look, I know you're going to sit me down and talk to me about How much money, like, I need to focus on not spending, ski trips, et cetera, mountain climbing. He does a lot of mountain biking, all this kind of stuff. And he said, but I can justify all of this. I don't need a car, Uber's around. And when I don't need a car, I don't need to spend a ton of money purchasing a $50,000 or $60,000 vehicle because I can use an Uber. And when I don't use an Uber, then I can ride my bike. And so they look at things significantly different in terms of scopeability and how what we used to once upon a time called inferior goods and services or necessity-bound items in life are, right? I think what they've done is shifted— this next generation has shifted the idea of inferior goods and services and necessity-bound items to more lifestyle and experiential living.

In an area where you have to stay attuned to the market, we do not want market fads to really dictate what you advise. How do you do both at the same time?

It's definitely a balance. And I think the balance comes into play the longer we develop the relationship with the client. Because clients come to us periodically and they say, oh, by the way, I think this is a great stock, bond, mutual fund idea. Can we look into this? What do you think? And so we have to recenter that philosophy once again, right? Our main objective is making sure that we go back to that mission statement that we talked about. And by the way, as we said earlier, that mission statement may evolve. So there might come a, a, a turning point where the client says, look, I can appreciate the mission statement. I can appreciate the fact that we've been following it for the past X number of years. But there's a portion of my investments, my portfolio, my strategy, my outlook that I want to carve up for XYZ purpose. Right? And so we try and adapt to the way the clients think about not just the present and the future, but also their narrative in the moment of how they're looking at things philosophically.

And as you mentioned, that can change quite rapidly, and you probably kind of expect it to. Do you expect it to change with AI and not alternative investing, with artificial intelligence?

Yeah, absolutely. Artificial intelligence will become the cornerstone of the next 10 to 15 years without question in my mind. I think that it will forever change the landscape in a good way, Um, but I think it has to be adaptive towards humanity. What I mean by that is I think we have to embrace it under the right context and not use it under the wrong context, right? Um, it's not a quick fix to anything. Um, it is another tool within our tool chest to learn and evolve as humans, uh, and to figure out how to leverage it in the right opportunities without taking advantage of any type of disruptions in the market. Negatively.

So how do you see it fitting into generational planning?

You know, I think it will help us really figure out and determine the right narrative behind different personalities. I think if we had to scope out a map and say, hey, what did personalities look like in the 1920s and the 1950s and the 1970s and the 1980s, I think we probably could fit it all on one sheet of paper., and now I think you need multiple sheets of paper and multiple stacks to figure out how it all kind of grows and evolves. Um, and so I think AI will help us determine more customization, more collaboration, and more, I would say, connectivity correlation behind people and their perspectives and their, I don't want to say selfish beliefs, but self-focused beliefs, right, in the right way.

In terms of helping your clients prepare. Yes. For whether this is market uncertainty, whether it's this AI conversation, whether it's, you know, the next pick your poison really with what's been happening in the globe recently. How do you prepare your clients for that?

I don't know that we, quote unquote, prepare our clients for it. I think we make them aware of things, right? As they evolve, that evolution becomes adaptive. So our role isn't to prepare them for a dramatic change, but to make sure that their lifestyle doesn't change given the changes that are happening around them. So if a client says, hey, I still want to take 3 trips a year, but there's so much dramatic change, geopolitical, etc., going on, it's our job to make sure that if they want to make that choice, they have the financial means and the ability to do so independent of what's happening globally.

So pulling on that thread, What have been some common things that a client thinks might matter, like actually really doesn't matter?

To some degree, it all does matter in some degree or relevance. But what, what is less important is, I believe, for our clients, the majority of our clients, the tax implications, right? Like clients who are multigenerational wealth and provide for multi-generational wealth transfer get really hung up on the notion of taxation when in fact we're all going to pay taxes and it's just an inevitable truth.

Taxes and death, right?

Taxes and death for sure. And so I think finding the right balance where it's not a zero-sum output, right? Is critical in explaining to clients and working with their tax advisors, working with their tax professionals to make sure that they understand from an investment standpoint, from a life management standpoint, the impact isn't as great as they may personally think.

How would you want to wrap this up? One last thing to leave our listeners with.

Go outside your comfort zone. Right? Just like your client, every single advisor has their own personality, their own style, their own approach. But expand your horizon, expand your perspective on how you think about life, and be open-minded to the idea that sometimes understanding your client's lifestyle helps you bring and develop a closer relationship with them and their family.

Well, Nick, thank you so much for being here today. I really appreciate your time.

Thank you very much for having me here.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, and Alexis Moore. Jenna Mathis is the director of programming for Barron's Advisor Programs. Greg Burtalis is the editor-in-chief of Barron's Wealth and Asset Management Group. Allison Tucci is a freelance host for Barron's Advisor and SVP at AssetMarkt. We'll see you next time.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.