Chapter 15
IN THIS CHAPTER
Noting the value of a team-based approach
Teaming up with lawyers, accountants, and other professionals
Organizing and leading your client’s advisory team
Although it may take a village to raise a child, it takes only a small group of talented and dedicated professionals working together to manage a client’s finances. The problem that many prospective clients have, even though few are aware it’s a problem, is that they’ve siloed the various products and services they use for financial security and wealth-building. They may do their own bookkeeping and hire an accountant to do their taxes. They have a lawyer prepare their wills and business documents, but they probably don’t have an estate plan. They have insurance policies purchased from one or more brokers. And have various types of investments cobbled together as part of their retirement “plan” and wealth-building “strategy.”
This haphazard approach to financial management poses two problems:
Having a team in place and carefully coordinating their efforts and expertise eliminates gaps in the client’s financial plan and aligns all elements of the plan for optimal efficiency and performance. In addition, it provides checks and balances to hold everyone on the team accountable, and it provides you with different perspectives, so you don’t overlook important considerations.
In this chapter, I explain how to take a consultative, collaborative approach when engaging other advisors to deliver superior service to your clients.
If you’ve been a financial advisor for a while, you may already have had positive or negative experiences with other client advisors, such as accountants and lawyers. Other advisors can not only shoot down one or more of your recommendations, but they can also go so far as to tell their client (your client) to fire you. Whenever you bring other advisors into the mix, those risks are always present, but they’re not sufficient reason to avoid or hide from these other advisors. Avoidance puts you at a disadvantage by closing off you and your clients from the expertise that other professionals offer.
Collaborating with your client’s other professional advisors is a great opportunity to share the planning discussions that you and they have had with your client up to that point. Through these discussions, you’re likely to discover important facts about your client’s planning and about elements that are already in place that your client never thought to mention. The more information and insight you have about your client’s mindset, family and business dynamics, tax profile, and other aspects of your client’s life, the better your financial plan design and the resulting client outcome.
The so-called financial advisors who clash with other professional advisors are usually those who sell investment and insurance products and receive up-front commissions. Other advisors rightly question the motivation of these “financial advisors,” because they wonder whether these advisors are serving their clients or their own best interests. Most practitioners who consider themselves financial advisors typically engage in positioning an investment or insurance product and not proposing a broader financial advisory solution or relationship.
Obviously, a team of specialists is better suited than an individual who tries to be a Jack-or Jill-of-all-trades to serve a client’s diverse financial and legal needs. Equally obvious is that engaging in active dialog with these specialists will yield superior financial outcomes for your clients. Keep in mind that these various specialties are all connected — taxes, legal issues, and asset management all have the potential of impacting one another. A failure in one area can cause a domino effect that seriously undermines your client’s ability to achieve her financial goals.
In this section, I present a couple examples that demonstrate the importance of coordinating the efforts of your client’s advisors.
After a family trust has been established and executed, your client’s lawyer usually tells her to contact all of her account and policy holders to change the account title or owner registration on each account/policy to reflect the new trust. Changing account registrations is a big deal. If the client forgets to do so, puts it off indefinitely, or overlooks the registration for one or more assets, all of the estate’s assets, including the family home, could end up in probate. Going to court is a time-consuming and expensive process, and it’s totally avoidable, assuming the client has set up a trust and registered all assets accordingly.
Through close collaboration with your client’s accountant, you can lower your client’s tax bill, thus freeing up more money to achieve her financial goals. Unlike legal issues that revolve around trust and estate law, tax law and rates change routinely, usually when a new administration steps into the White House and gets around to pushing its new tax plan through Congress. For this reason, consult with your client’s accountant regularly or at least whenever new tax legislation is enacted.
For example, as you prepare or review your client’s financial plan, consider the tax implications of any investments you recommend, so you can optimize your client’s returns. Start by looking at your client’s effective tax rate. (The effective tax rate is the client’s total tax bill divided by her household taxable income. It’s lower than the client’s tax bracket. See Chapter 11 for details.) You can have your client obtain this rate from her accountant or, better yet, ask your client to put you in touch with her accountant and give permission to exchange data, so you can ask for it yourself. Asking your client’s accountant for the client’s effective tax rate is a great way to introduce yourself and launch ongoing discussion in your mutual client’s best interests.
Understanding where your client falls in tax expense plays a key role in portfolio allocation decisions. For example, qualified stock dividends, which are taxed at lower rates than capital gains, may not provide a real benefit if your client’s effective tax rate is already quite low. Also, depending on market conditions, buying certain kinds of tax-exempt securities (such as municipal bonds) may provide little tax benefit to outweigh potential concerns about that asset class.
If you’re operating in a silo and not subjecting your ideas and recommendations to challenge or critique, then you’re not growing in experience and knowledge. In my own practice, ongoing dialog with professional advisors for the benefit of mutual clients has been a great source of education, as well as new prospects. By working within a network of professionals who trust and respect one another, you create your own system of checks and balances that holds everyone accountable for their advice.
Many professions, including law and accounting, have general practitioners and specialists. Typically, the more complicated and sophisticated the situation is, the greater the need for a specialist. If your client has complex financial needs and is relying on a general practitioner to meet those needs, consider recommending that a specialist be added to the team.
A classic example of when a specialist needs to be called in is when a client owns a family business. In this situation, the client would be well served by having two lawyers — a corporate and an estate lawyer, who collaborate to develop the optimal business transition plan. The business plan and the family’s estate plan are intimately connected through family members who are functioning in the business as employees (often as key employees), and both plans need to reflect that.
Also, at some point in the future, the family business will face a transition of leadership and ownership, which may be anticipated or unexpected (as in an owner’s untimely death). Coordinating the family trusts with the business succession and ownership plan is a Herculean task best handled through the collaboration of specialists.
Accounting has several specialties that may benefit certain clients depending on their situations:
Tax accounting: Clients who have complex tax situations are wise to consult an accountant who specializes in taxes. In fact, all of your clients would be wise to consult a tax accountant. A tax accountant does much more than merely prepare tax returns; she can offer valuable insight on how to take advantage of all qualified federal, state, and local tax breaks for businesses and individuals.
A tax accountant should also be on the corporate and estate lawyer team when they’re planning a client’s estate. The tax specialist can make sure that the tax expense of moving a business from one generation to another is done without the IRS showing up at the client’s business after the estate tax filing.
As your client’s financial advisor, you play a key role on the advisory team, as I explain in the later section “Taking on the Role of Your Team’s Quarterback.” As such, you must collaborate with everyone on the team — client, lawyers, accountants, and any other relevant professionals.
In this section, I explain how to communicate and collaborate with different advisory team members, including your client.
As with any partnership or good relationship, communication is key. Touching base with your clients regularly — on an ongoing basis — is the only way to ensure you’re getting the whole picture. Remind your clients that you and they both want the same thing — a great financial outcome over the course of their and their loved ones’ lives.
Your client has hired you because she can’t see the forest for the trees, and you can. If she knows that you’re in partnership together to achieve the same agreed-upon goals, then teamwork will come naturally. Your client will be more open, responsive, and engaged. She’ll understand that she’s better off working with you than trying to manage her finances by herself or with another financial advisor who’s less committed to teamwork.
The easiest way to connect with your client’s lawyer is to have your client introduce you via email. This also serves as a written notice, which lawyers like to have to ensure they have permission to discuss client-specific information with another party.
To simplify the task for your client, write the introduction yourself and email it to your client to use. Figure 15-1 is a sample introductory email that your client can send to her lawyer:
Your client’s accountant can be helpful in the area of tax planning (see Chapter 11) by providing you with your client’s effective tax rate along with an overview of your client’s income and any ideas on how the two of you can work together to ease your mutual client’s tax burden.
I’ve found that accountants are less formal to deal with than lawyers, but you should still ask your client to introduce you via email and provide permission to share information and answer questions.
In general, business owners have more complicated tax planning concerns than do salaried employees, so if your client owns a business, having a tax advisor on the team is a big plus. During your initial conversation with your client’s tax accountant, here are a few tax-savings strategies for business owners that you may want to discuss to get the ball rolling:
These methods of allocating capital toward corporate benefits and other business continuity or succession planning items can reduce the business’s taxable income, while enhancing its overall value and efficiency.
Nothing is more embarrassing than going through all the time and effort to collaborate with other advisors for a client’s benefit only to lose track of who’s doing what next. To avoid such embarrassments, get organized and follow through on whatever the team discussed.
The more complicated the client’s needs and the more advisors are involved on a project, the longer the process takes. Don’t be discouraged; it’s a natural side effect of going up-market in your client acquisition.
When you’re collaborating with other professional advisors for the benefit of your mutual client, you take the field as the advisory team’s quarterback. You’re the point person. Whenever your client needs the team’s assistance, you call a huddle and work with the other advisors to figure out the next play.
In this section, I explain how to fill the role of financial advisor on your client’s advisory team.
As the team’s financial advisor, your number should be on speed dial for your client. You should be the first or second person your client calls when life-changing events occur that are likely to impact her finances or when she’s thinking of making an investment decision or changing the financial plan. It’s okay to be the second call if your client is changing beneficiaries to her estate, which her lawyer would need to do, but then you need to be notified to update beneficiary designations on all qualified accounts.
Although everyone on the advisory team should collaborate to optimize the client’s outcome, each advisor has a unique role to play:
Financial advisor: You’re in charge of allocating the client’s capital and reallocating it to take advantage of new opportunities, limit the client’s exposure to risk, and adapt to changes in the client’s situation. You add value through favorable allocations that either build or protect accumulated wealth.
You must be the calm captain on the stormy seas. Much of the value you bring your clients involves talking them off the cliff in the midst of wild market swings and listening to them when family discord leads them to consider changing beneficiaries. In these situations, your client is much more likely to call on you instead of her lawyer or accountant.
Unlike other professionals, a financial advisor holds the power to provide lifetime income to a retiree, make sure funding is available to put all the kids through college, and deliver a check to a surviving loved one in the event of an untimely death of a household breadwinner. These are heavy responsibilities. Dropping the ball can have serious consequences on par with a person’s world ending, which is why you must take the lead on the advisory team.
In contrast, lawyers and accountants are mostly project-based advisors, who have limited interaction with the client throughout the year and face less serious consequences if they drop the ball. If the client’s accountant overlooks a tax break, it’s not the end of the world, just an opportunity to optimize. Likewise, if a lawyer omits a provision in the estate plan, it may cause a huge headache, but again it’s not the end of days.
A key role as advisory team quarterback is to shop solutions that most effectively meet your client’s needs, whether you or someone else on the team is recommending that the client obtain a certain product or service. Being able to shop the market effectively builds confidence in you among the other professionals on the team as well as the client.
Ideally, you have access to an independent, nonproprietary product suite that allows you to fulfill a variety of potential needs — something commonly referred to these days as an open-architecture solution platform. If you work for a company that manufactures high-quality products, using those products is fine as long as they pass the cost-benefit smell test. If you’re at a firm where you’re pressured to sell certain products, the best approach is to give your employer’s proprietary products the right of first refusal (if they give the best offer based on cost-benefit analysis, then they win the business). If the manufacturer can offer a great product at a great cost that’s at least as good as the other options on the market, then you agree to recommend the product, but if you find something better, that’s what you recommend. To do otherwise betrays your client’s and other advisors’ confidence.