Lewis Schiff

Alternative Investments: Are You Ready for Advanced Planning?

How to move beyond average.

August 16, 2007
by Lewis Schiff

This is a two-part series of articles about how the advisory needs of many formerly middle class clients change as they become more affluent — and how CPAs and advisors can keep in step. It is adapted from an article that appeared in the May 2007 issue of Investment Advisor magazine.

The Research — Implications and Opportunities

The results from a recent poll conducted by Fidelity’s RIA group were both encouraging and challenging for financial professionals working with high-net-worth (HNW) clients. Thirty percent of millionaires surveyed don’t have an established relationship with a financial advisor, but of those who do seek professional advice, 34 percent report having two or more professionals. For average investment advisors, this means they’re not managing a significant portion of their top clients’ assets. Often, that means the CPA is the professional who has the most comprehensive grasp of a client’s financial scenario.

According to surveys conducted by Prince & Associates, Inc., which the Fidelity findings confirmed, wealthy clients want a trusted advisor who can help them address a multitude of financial concerns. Prince & Associates’ study of individuals with investable assets of between $500,000 and $6 million revealed that most view advisors as product pushers and not as objective consultants. Even within the group who said they were satisfied with their advisors, almost 25 percent stated that they were likely to transfer assets from their primary advisors in the coming year. They’re also seeking more advanced products, such as managed accounts, and services, such as estate planning.

Wealthy individuals and families need a variety of advanced financial, tax and legal solutions that require several types of expertise. Rather than just referring them to an attorney, for example, CPAs can resolve these challenges and boost their value to clients by coordinating their advanced planning needs.

Advanced planning builds on an existing practice, in which the CPA augments what he or she does well with outside experts to help their biggest clients solve their most pressing financial problems. As a problem-solver, the CPA is paid — usually by sharing in the revenues generated from fees and transactions — to coordinate the work of outside experts such as attorneys, investment managers, business value assessors and/or insurance experts.

“High net worth clients don’t expect you to be an expert in all legal and financial fields. They do, however, value and recognize the need for an overall manager or quarterback for their financial needs.”

— Lewis Schiff
The Five Client Solution White Paper

If the CPA does not have an existing network of experts or doesn’t want to build one, he or she can bring in a private wealth specialist who works with this level of clientele to help find solutions. Either way, the CPA adds value to the client relationship.

An Advanced Planning Model

The implications for the CPA’s practice are significant. Advanced planning clients are an underleveraged source of profit and income. Working with them, though, requires education and a new role for the CPA as project manager for a team project (or working with a specialist who operates on one’s behalf). Either way, advanced planning requires a very different mindset — instead of the traditional one-advisor-to-one-client interaction, it becomes team-with-project-manager-to-one-client.

Regardless of particular expertise, the CPA needs to present him or herself as an advisor who uses a holistic approach to solving a high-net-worth client’s needs. Products are only the tools. Understanding the client’s motivations comes first, then analysis of the situation and last a strategy that matches the client’s level of commitment. These clients are more concerned about working with the right advisor than they are about the best investments. Building a strong relationship is the key to garnering their loyalty and additional business.

If a client with a $500,000 account mentioned that he wanted to sell his successful contracting business worth $5 million to his daughter and a group of employees — and then retire — how would you respond? Would you know the right follow-up questions to ask — questions that would enable you to become a more trusted advisor by tapping into a team of experts that could, in turn, help him develop the best solution for this opportunity?

The data from various sources is bearing out that ownership of nontraditional products grow with wealth. Stocks, bonds and mutual funds may no longer be sufficient to fulfill the needs of a client with a net worth of over $5 million. This client is a prime candidate for advanced planning.

In Part Two of this series we will look at some real-life scenarios where advisors have broadened their networks to meet the advanced planning needs of their HNW clients.

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Lewis Schiff is the principal of Advanced Planning Group. His forthcoming book, The Middle-Class Millionaire, will be published in January 2008.