Eight years ago the market experienced a shock, the repercussions of which are still being felt today. But the market is capable of building immunities over time and a new branch of financial planning called Integrated Asset Management (IAM) is one of them.
So called because it incorporates in depth real estate asset planning into traditional portfolio development, IAM is a safeguard against the kind of market catastrophe that ruined the financial security and retirements of millions of Americans. The reasoning is simple: real estate assets are significant and require specialized considerations that a typical investment advisor may not be educated about. As a result, IAM places investment advisors under the same roof as real estate professionals, functionally marrying to two areas of expertise.
To learn more about this emerging field, I spoke with Andrew Canter, founder and CEO of Canter Companies, about what it is and how it helps its clients.
Q: What are some of the nuances that have to be considered with real estate assets that fall outside of regular wealth management considerations?
Canter: The real estate portion of a portfolio is often overlooked because advisors either are not educated in that area or because their commission structure does not cover long term returns on real estate assets. In fact, many advisors look at a real estate asset as a negative in a client’s portfolio because it is an outflow asset for them. We have found that by having a real estate brokerage in-house our planners are better suited to integrate real estate holdings into a traditional portfolio.
When a financial planner can go to the office next door and speak with a real estate expert who is exposed to the market on a daily basis, it empowers them to approach those assets differently. The typical Registered Investment Advisor (RIA) does not have this ability. Hard assets like real estate have traditionally been viewed differently from non physical assets like stock and bonds. Being able to see and touch real estate makes it approachable for investors. In 2008 many of the most recent generations of investors discovered a harsh reality: real estate is an investment and is subject to highs and lows like most other investments. As such, you need to develop a plan to see how real estate can be used as a tool to help meet long term goals.
Unfortunately, real estate has been lumped into the ever changing “alternative investment” class. Many advisors struggle with explaining the family home as an “alternative asset” to clients, so they do far less analysis or just place it as a static asset in a financial plan.
Q: What demographics have you seen benefit most from Integrated Asset Management?
Canter: Mass-affluent to high net-worth to ultra-high net-worth clients who can see a value in expanding their real estate holdings. The ability to be open and savvy enough to realize that your real estate is often the most valuable asset you might have as an investor is so important and common among our clients.
Q: Are more companies starting to put real estate, investing, and management services under one roof?
Canter: At the moment, Integrated Asset Management is new and few companies have the resources to do it properly. But the need for this service is growing. The market since 2008 has made it clear that real estate assets have to be managed and that a comprehensive financial plan should place adequate emphasis on that piece of a portfolio.
Q: What inspired Canter Companies to pioneer Integrated Asset Management? Was there a particular event or factor?
Canter: We were operating our real estate firm and our investments branch in tandem and realized there was a very apparent gap between the wealth planners responsible for clients’ financial futures and the real estate professionals who handle the largest financial transactions of people’s lives. These two groups shouldn’t be mutually exclusive. We saw an opportunity to provide clients a better experience by marrying the two.
Q: What is the biggest thing people miss in their wealth management when they do not include real estate asset considerations?
Including real estate assets provides an additional layer of diversification which is incredibly important in building out a portfolio over time. Many financial plans are implemented to project and plan for retirement at a certain age for clients. In 2008 people who were counting on selling the family home or an investment property as a major source of capital for retirement income were shocked and felt like their retirement dreams were put on hold at a minimum. Whether it is the family home, a rental duplex, or a strip mall, an in-depth analysis of the performance and value of that real estate needs to be incorporated into every financial plan because every investment can and probably will change in value and impact the plan.