One of the classic errors made by CPA firms as they enter and progress in the world of financial planning is their reluctance to engage with larger clients until they feel more comfortable in the wealth management arena. For purposes of this discussion, we'll call your larger clients those with $1 million or more of investable assets.
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I believe that the philosophy of starting with smaller clients and then working up to the larger ones is problematic for several reasons, the first of which is simply economics.
During the learning phase of launching a wealth management practice, you will spend a lot more time on an engagement than you would if you had many cases and clients under your belt. Just think of some of the other services that you don't do every day, and how hard it is to come in under budget with a realization rate that will make you proud. Financial planning work is no different.
Why would you want to spend 20 hours on a $1,000 or $2,000 engagement when you can sink your teeth into something more interesting with larger revenue associated with it? In the larger client case, you can almost be assured that the issues will be more robust, complicated and valuable for your clients. Of course, with the larger clients you are also likely to take more time to complete the engagement than you will with a few years of experience under your belt, but that experience with more complicated clients will give you a range of issues and subject matters frequently not present or material in smaller cases.
Another issue is that of liability. In my experience, it is your smaller clients who want to hang you out to dry if some advice is rendered that did not work out exactly as expected. Your larger clients tend to be more understanding of the unpredictable nature of financial advice and forecasts. It is also likely that you have better relationships with your larger clients than the smaller ones, and in the financial planning world, the client relationship is the most important part of the engagement.
BEEN AROUND THE BLOCK
Assuming that you are still with me, and willing to engage your better clients at a much higher level than ever before, let's get into what the relationship and service offering must look like to build a sustainable business and a steady stream of new million-dollar-plus clients.
First, put yourself in the shoes of this million-dollar client, and understand what they have been through in their lives with the financial community. You are not their first rodeo, and they have likely had multiple financial relationships in their lives.
They probably had someone pitch them whole life insurance when they were young and starting a family as the cornerstone of their plan, with a forced savings vehicle built in. In theory this may be true for some, but that advice frequently leaves your client severely underinsured with a product that is often inappropriate for their younger stage of life and insurance needs. They've had an investment relationship or two (or more), where they have had experiences ranging from lousy to good. They've had a retirement plan and a direct account at a discount broker or two.
In effect, their entire lives have seen swarms of financial people all trying to tell them what they need to do. Sometimes the advice is coordinated and in sync with the other moving parts of their financial lives and other times it is not. Clients may receive conflicting advice from one or more professionals, leaving them confused and wondering exactly who is on their side, as opposed to who is merely trying to sell their products or services.
In my opinion, it is this client who needs you most - the client who has a large army of people barking orders and advice at them, frequently fighting for the client's ear to be the "go-to" voice. The go-to role is exactly the role that CPAs are best-suited for.
Fatal Flaw No. 2 that most CPA firms in the wealth management business commit is not actually filling the need and void in their clients' lives. Too many firms place their reputation and revenue stream solely on the investment portfolio. The practitioners are not solely at fault here. For years, the American Institute of CPAs and others of influence to CPA financial planners have focused way too much attention on the CPA adding asset management services to their repertoire. Many did that, and to this day are still missing the boat in terms of what that larger client really needs and wants.
A GOLDEN AGE
We are entering the golden age of advice. In this new leg of growth for the financial services industry, clients are looking for the trusted advisor, the fiduciary who is capable of helping them get their entire financial house in order and keep it that way forever. Clients need someone who is capable of understanding all of the recommendations being made by other professionals, and matching those alleged solutions with the client needs and situation. Then the CPA wealth manager should help the client implement the recommendations to help clients feel in control of their financial situation. I actually call that role the financial head coach.
Think of your favorite sports team. The governance of a sports team starts with ownership, which lays out the goals and objectives of the organization. They deliver these goals and objectives to the management team, who are then responsible for executing on the playing field. And in sports, we all know from the headlines that it is the head coach who is frequently the hero or the bum in terms of success. But the reality is that there are many assistant coaches who actually run the day-to-day operations of their particular subject matter specialty.
The same is true in your clients' financial lives. I believe that the client is the owner of the team, and all of their existing advisors are acting as assistant coaches within their subject matter area of expertise. These assistants do frequently have differing opinions and advice as to what is most appropriate for the client. In this traditional scenario, your client is filling the head coaching role. I believe that this is a problem and the exact role that a good wealth manager should play, the financial head coach.
Clients want advice, and that advice must be both proactive and holistic. Proactive advice means that larger clients want someone who can recognize issues and potential needs in advance of problems arising, and recommend courses of action that may mitigate potential adverse consequences. Holistic means that the advice must be coordinated with other professionals, and relate to the other important issues in a client's life at that particular moment. Obviously, this goes way beyond asset management and taxes.
Proactive and holistic advice would include advice on anything and everything that might include their family, business, health, assets and dreams from a financial and life planning perspective. These larger clients really appreciate discussing the qualitative part of their financial plans, whether it be lifestyle, vision, family, charity, spirituality, work or any other near and dear reasons for living life to its fullest.
The financial analysis must start with a thorough understanding of their financial engine -- cash flow. Where does the money come from and where does it go? Beyond that, you need to know:
• What your client owns.
• How they hold title to that asset.
• What the tax basis is in that asset.
• What the asset is worth.
• What they owe.
• How they manage (or don't manage) that asset.
At this point, you are ready to start the analysis that may lead to recommendations to improve your client's financial house. Those recommendations should address all of the major areas that a comprehensive wealth strategy must address.
• Risk management: What can go wrong and mess up this great plan?
• Investment planning: Where is your client invested today? What rate of return is needed to accomplish their life objectives? What advice can you provide to get their holdings more in line with their needs?
• Tax planning: Proactive and coordinated tax planning is more than waiting for your client to complain about their tax burden or asking you how to reduce their total tax. This, of course, may be even more important than ever, given the possible changes between now and year end.
• Retirement planning: Here you must match their life goals with their plan to become financially independent.