planning group smart financial decisions

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The role of advisor collaboration in wealth creation and preservation Cheryl R. Holland, CFP®

planning group smart financial decisions

Columbia Tax Study Group February 22, 2011

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Creating and communicating with an advisory team to enhance client wealth creation/preservation

Understanding the incentive structure and conflicts of interest for other advisors

Five key areas where multiple advisors create synergy and enhanced peace of mind

Attorney and CPA as advocate – asking questions of other advisors

Resources

Overview of goals

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Sources: Cerulli, 2004; LIMRA, McKinsey Affluent Consumer Survey, 2004; McKinsey Rep Survey, 2004; McKinsey Analysis

Transition in advisor roles

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Source: National Regulatory Services, FINRA Source: 2006 Cerulli Associates, Schwab Analysis Note: some increase in RIA firms is due to new hedge fund registration requirements

Transition in advisor roles

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Who are the potential advisors?

Attorney CPA Investment advisor / financial planner Life insurance agent Health insurance agent Investment banker/business broker Geriatric care worker/geriatrician Social security consultant Valuation expert / appraiser

Advisory team members

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Sources: Wall Street Journal, 2010; Alphabet Soup; The Wall Street Journal Online (http://s.wsj.net/public/resources/documents/st_CREDIT1015_20101015.html)

Acronym Designation Issuing Organization Educational

Requirements

Continuing Education/Experience

Requirements Investor-Complaint

Process

AAI Accredited Adviser in Insurance

AALU Associate of the Academy of Life

Underwriting

AAMS Accredited Asset

Management Specialist

College for Financial Planning

Self-study course (12 modules requiring 100-

120 hours). 16 hours every 2

years.

Online at Forms, click on File a Complaint Against a Designee

Form

ADPA Accredited Domestic Partnership Advisor

AEP Accredited Estate Planner

National Association of Estate Planners &

Councils

2 graduate level courses administered

by The American College

30 hours every 24 months, including 15

hours in estate planning; Re-

certification is required every 5 years.

None

AFA Associate Financial Advisor

AFC Accredited Financial Counselor

Association for Financial Counseling

and Planning Education

2 self-study courses (100-150 hours per

course) 30 hours every two

years None

Alphabet soup and the consumer

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Source: WSJ Research

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Identifying and agreeing to roles Clarifying responsibilities, time frames and fees Establishing a protocol for replacing a non-performing

member of the team

Advisory team members

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Financial advisors

Percentage of assets under management Hourly Retainer Commissions and placement fees Referral fees

CPAs

Project work Hourly Referral fees Commissions and management fees

Incentive structures

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Attorneys

Hourly Retainer Negotiated percentage of settlement

Insurance agents

Commissions Retainer Hourly

Incentive structures

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Source: Morningstar ®

Mutual funds share class

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Financial advisors

CFP® required to disclose conflicts of interest in writing to clients, e.g., of conflicts include:

sell a parcel of real estate rather than 1035 exchange and increase fees under assets under management.

maintain mortgage rather than paying-off mortgage increasing advisor’s fees for assets under management

varying share classes have differing commission schedules. Surprisingly, up-front fees may benefit the long-term investor

transitioning an annuity from the previous advisor to the new advisor prior to back-end deferral fee expiration

Potential conflicts of interest

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CPAs

Eligible to receive commissions

upsurge in sales of annuities by CPAs

increase in in-house investment advisory businesses

Co-own real estate with clients

Hourly work better performed by another advisor

Referral fees


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Attorneys

Engaging in work outside of area of expertise

Hourly work better performed by another advisor


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Insurance agents

Product selection skewed to higher income producing products, e.g., term versus whole life or universal

Restricted to insurance products for solutions, e.g., annuities owning retirement plans or IRAs

Documents/websites to review to determine

compensation , complaints, product representation

Contracts for all life insurance products especially annuities Written analysis of fees from investment advisor Review of SEC filing for investment advisor (www.sec.gov) Review of FINRA website for brokers www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Written engagement letter from CPA Written disclosure of commissions from life insurance agent Breadwinnerinsurance.com


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Helping the family understand the goals of a family meeting

financial, spiritual, philanthropic, governance, leadership development, financial

literacy Creating the agenda and time frame for discussion

Discussing whom to include from the advisory team and

the family

Establishing and enforcing ground rules

Collaborating to present information and execute decisions

Family meeting

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Genograms

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Understanding natives and immigrants to wealth

Framing the process as an opportunity

Gathering financial information

Seeding the conversation as a business decision at early stages of development

Emphasizing the benefits to both parties

Educating client(s) about what will happen in the event of death or divorce without a pre-nuptial agreement

Pre-nuptial process

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Discussing goals with client and potential heirs or shareholders

Reviewing and selecting legal structures for transition

Discussing and implementing financial options for transition

Preparing next generation for leadership of the business

Succession planning for family businesses

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Recognizing incapacity

Preparing family for incapacity

Preparing heirs for wealth

Probate

Incapacity and death

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Discovery process and sharing information

Creating the plan

Educating clients about options for informed decision- making especially the less empowered

Executing the plan

Monitoring the plan

Re-evaluating the plan at touch points or milestones

Planning and execution

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Protecting against financial scams

Protecting against unnecessary or expensive insurance

Monitoring insurance policies overtime

Protecting against additional cost in transition between financial advisors

Advising on Roth conversions

Attorney/CPA as advocate

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Protecting against financial scams Representing client before the IRS Review of K-1s and questioning return on investment Challenging realized gain/loss management

Asking uncomfortable questions on behalf of clients

Clarifying fees Rationale for recommendations

Attorney/CPA as advocate

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Aronoff, Craig E., and John L. Ward. Preparing Your Family Business for Strategic Change. Marietta, GA: Business Owner Resources, 1997

Breadwinners’ Insurance. Website. http://breadwinnersinsurance.com/

Buckheit, Lauren. The Psychology of Prenuptial Agreements

Paper #2. December, 2006.

Understanding Professional Designations. Financial Industry Regulatory Authority . http://apps.finra.org/Data Directory/1/prodesignations.aspx

Grubman, James. Ground Rules for Family Meetings. 2007

Resources

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Hughes, James E. Family Wealth: Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations. Princeton: Bloomberg, 2004

National Association of Professional Geriatric Care Workers. www.caremanager.org

Owens, Diane. “Step Up Your Social Security.” Speaker and Consultant. www.stepupsocialsecutiry.com

Zweig, Jason and Mary Pilon. “Is your Advisor Pumping Up His Credentials?” Wall Street Journal. October 2010 http://online.wsj.com/article/SB100014240527487039 27504575540582361440848.html

Resources

planning group smart financial decisions

Documents

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