By R. J. Kelly
Comprehensive financial planning can seem like a massive undertaking, as it addresses every aspect of our client’s lives. But, where to start?
Over the years, I have learned that by breaking the process down into five key components – the “4+1” –unlocks and discovers what is in a client’s heart and head. You will help clients make forward progress in reaching their goals and dreams in unique ways. At the same time, you are also building client relationships and friendships that are nearly impervious to being poached by competitors and last a lifetime.
In part one of this two-part article series, we will explore three parts of the “4+1” model: estate planning, investments and insurance.
Breaking Down Comprehensive Planning
In our practice, we talk about comprehensive planning as a table with a tabletop and four legs. The legs each represent a critical portion of a client’s financial life: estate planning, investments, insurance, and retirement. The tabletop represents a client’s family legacy and philanthropy – which holds the table together and provides a stable surface around which the family can gather.
Estate planning is the primary leg that drives decision-making for all parts of a financial plan. It reflects a client’s intent for their estate distribution goals, and, at its best, outlines the legacy they wish to leave behind.
A way to set yourself apart is by gaining an understanding of how wills and trusts are written, best locations for domestic asset protection and some of the intricacies of the planning process of choosing a situs outside a client’s home state. By reviewing estate planning documents and learning what is important to a client, you will start to learn more about their family.
Looking at the documents – what they say and what they do not – is a tremendous first step towards gaining a client’s trust and respect. It will help you greatly in understanding your client at a personal level. It also makes it very clear why they should be working with you as the “quarterback” of the team: you care about the big picture and not just one aspect of it.
Keep in mind, too, that most people have out-of-date documents or none at all. Address those setbacks as soon as possible, since a major reason for prospects to hire you is so you can handle assembling and managing their estate team. When I began to gain knowledge in this area at even a cursory level, I found that it began to open a lot of doors that had previously been were being shut on me.
For example, what can you say over the phone just before a prospect hangs up on you?
You: “Before we hang up, may I ask one question to demonstrate how we might add value?”
Prospective client: “OK”.
You: “Given the changes in tax laws the last few years, and new changes being proposed, when was the last time you had a chance to update your wills and trust documents?” There is usually a profound pause at this point, which means you are digging in rich soil.
Prospective client: “We don’t have any.”
You: “Seems like we just found an important reason to meet. Are mornings or afternoons generally better for you? Or is a lunch or breakfast better?”
If they respond that it has been in the last few years, my next question is, which state that trust is set up in. It is usually safe to assume a California-based client has a California-sitused trust. A trust in CA can last 80-100 years, which may sound like a long time, but in Nevada, trusts can lasts 365 years and have some more advantageous features. This, too, gives you and a prospect an important reason to meet.
Risk and diversification are only a small piece of a client’s asset portfolio. When reviewing, confirm that your clients’ current mix of investments leads toward their stated goals. Stay high level.
For instance, ask them how much of their future income is guaranteed regardless of the investment climate. I also ask if they are concerned about an unexpected drop in the market – especially if they are getting close to retirement. Do they have at least a portion of their investment “buckets” with “down-side protection” to protect principal if the market drops by a certain percentage?
Another point to ask is about the tax efficiency of the investments. Are they paying taxes on income they don’t need, at least not right now? What can we do to reduce or eliminate the taxation on income they do not need from their investments? Having this level of investment and tax knowledge helps set apart advisors who do comprehensive financial planning from their peers.
Insurance is an essential part of any financial plan that allows clients to stay on track for their goals, even when facing unexpected emergencies. While all insurance aims to protect assets, different types of insurances meet different needs. For the business owner client, creating strategic alliances that can help you price and review client’s business liability and property & casualty insurance needs is valuable. What gaps do they potentially have in their coverage – especially their liability coverage – in both the business and personally?
Long-term care coverage is important even for young, healthy clients. And, even more importantly, making sure that prospective clients have a guaranteed source of income should they become sick or have an accident. For clients who do become disabled, having disability insurance replaces the portion of their income lost due to an inability to perform specific job tasks.
Life insurance can benefit every client by providing a standard of living for families, paying off estate tax bills, covering debt obligations or to keep the business going in the event of their death or that of another key employee.
It can be daunting to concentrate just in the insurance space, let alone to do so alongside the other areas above I have discussed. But it can give new advisors the income base they need to further advance their careers and better take care of their clients.
In my own practice, I made myself an expert in supplemental disability coverage for professionals (mostly doctors, lawyers and CPAs) and business owners. That initial sub-specialty focus created the income stream I needed to expand my business and eventually move from Spokane, Washington, to San Diego.
The purpose of financial planning is to help clients navigate challenges and keep them on track toward their goals. When you develop plans piecemeal, you are offering advice from an incomplete picture. Though it’s helpful to break it into bite-sized pieces for clients, comprehensive financial planning often helps advisors give better advice and generate better results overall.
Watch for Part 2 of this series in a couple weeks as I share the remaining pieces of the “4+1” model, and more advice on how to get started on comprehensive financial planning with your clients.
About the Author
R. J. Kelly, ChFC, CLU, IAR, RICP, CAP, MSFS, AEP, CEPA is the Founder and Chief Visionary Officer of Wealth Legacy Group®, Inc. in San Diego, California, a company specializing in the diverse needs of closely held business and professional families. He is a 40+ year member of the Million Dollar Round Table, and credits much of his business and personal success to the extraordinary members – dedicated staff – and visionary leaders of that organization. Find out more at www.mdrt.org