Financial Planning with Illiquid Assets

Benjamin Haas |

One gauge of financial success is monitoring net worth, which isn’t always easy to do. Not many people know the value of their house, their property, their business, and their collectibles, right on the spot. On the other hand, stock market investments are valuated daily. So even though growing net worth is not exclusive to stock market investments, in my experience, that tends to be what consumers and “advisors” focus on the most.

The fact is, increasing net worth can happen three ways; by saving more, by paying down debt, and by having assets appreciating in value. ANY asset – not just the liquid ones. And a true manager of wealth will focus on all your assets.

I thought of this recently because a friend of mine needs help. I don’t think he thought to come to me because, as he stated, he doesn’t “have a big account.” Truth is, he’s probably right – to many “advisors” he’s just another middle of the road investor. But it’s not like he’s barely worth the ink it would take to sign him up as a client – he owns assets of sizable worth! The assets just aren’t something that show up on a bank or investment statement at the end of every month.

He is the elusive face of hidden wealth. He needs help with this wealth. I’m going to provide that help.  I share this because he might be a lot like you…

  • He’s running a business, albeit the business isn’t his full time job. Still, it certainly is worth something, so he needs to think about how he can monetize his business over time and increase its value. He should consider a business plan and document its succession.
  • He needs help exploring different methods of asset ownership, both to protect his assets from litigation or an untimely death or disability and to find tax efficiencies.
  • Because a lot of his net worth is illiquid, it’s all the more important that he find liquidity, build a cash reserve and not just sock money away into a retirement plan he can’t touch for another 20 plus years.
  • He needs to consider the difference between “assessed”/“appraised value” and “market value” of his assets, as he thinks about liquidating assets that no longer serve their original purpose in his financial life.
  • He needs an estate attorney, because unlike his 401(k), his illiquid assets don’t have a beneficiary form he can just fill out. He needs detailed documents that clearly state his intentions for these illiquid assets.

These are not unique topics. But they may carry more sensitivity in planning. Being illiquid usually means a lack of financial flexibility and that can be dangerous when changes in life or legislation or economies occur. So one needs to be all the more prepared for unexpected emergencies or opportunities when dealing with a lack of liquidity.

My suggestion to my friend (and everyone with more illiquid than liquid assets) is to find wealth manager that will look at your holistic plan and make recommendations for ALL your assets, not just your investments. In some cases, it’s better to pay for consulting services – not to be pitched products that may not fit your plan. As always, our doors are open.