Road To Independence

The difference between our degree of success and failure may be found in our ability to incorporate new idea into our practices. Many times, however, ideas fall through the cracks. It’s easy to understand how this can happen. Recording the idea is important, but it’s only the first step, since it’s what you do with the idea that counts. I break this process into three steps: capturing the idea, determining if it has merit, and incorporating it.

Capturing the Idea
Ideas can come any time of day or night. It’s a good idea to keep a paper and pencil or digital recorder handy. Record the idea and set it aside for a few days. Also, keep your ears open. For example, every time I speak with another advisor, I learn something I can use.

Does the Idea Have Merit?
When you revisit the idea, ask yourself if it will help you in your practice. Will it bring in new clients? Will it enhance the experience of existing clients? Will it improve some process or increase efficiency? You might consider using some sort of “filter” to evaluate the idea. Then it won’t be left to your emotions.  

Incorporate the Idea
How do you implement the idea? Who should be involved? How long should it take? Will you need to purchase any additional items such as software, etc.? This is probably the most difficult part of the process because it takes additional thought and conscious action on our part. Moreover, when you have multiple ideas to consider, some may conflict or be dependent on another. It’s important to prioritize them.

I find it is good to sit down and take a look at my practice from time to time. Last week, we did this and discussed how we can incorporate some of the ideas I have. Here’s one example. I’ve been using ACT for a number of years. Until last week, I owned a single user license which my assistant and I shared. We determined that with an additional license, I can delegate tasks to her and she can do them at her convenience. Simple yes, but we weren’t doing it.

What are some of your best ideas? Would you be willing to share them with the readers of this blog?

In a recent post I discussed how financial planners should consider looking into a client’s property and casualty insurance coverage. From the comments made on my recent post—most from practitioners who engage in this type of analysis, it seemed probable that most planners ignore this area when constructing financial plans. However, without properly analyzing these issues, gaps in coverage may result.

When I made that post, I was working to complete my continuing education requirement and this was one of the topics in the material. Years ago, when I was studying to earn my CFP, this was also discussed in the text but the material was so broad, and since I did not have a P&C background, I promptly forgot about it. However, without properly analyzing these issues, gaps in coverage may result.

Consider the wealthy professional or entrepreneur who is underinsured in the liability area. They cause physical or financial harm to one of their clients and with our litigious society, they are sued and it costs them dearly. If we were managing their financial assets, we may have witnessed a major outflow. Since we try and protect our client’s wealth from market downturns, why leave this critical area unattended? Here’s what I am doing about it.

In recent weeks I have been enhancing my financial planning software in this area. Moreover, I have developed three questionnaires: one for personal, one for professional, and one for commercial clients. The personal questionnaire delves into the client’s homeowner’s, automobile, and liability coverage. The professional version probes their exposure and coverage relating to malpractice and errors and omissions insurance. Finally, the commercial questionnaire is designed for the business owner and covers issues pertaining to employees who are injured on the job plus lawsuits which may arise from wrongful termination, sexual harassment, or discrimination.

The questionnaires are a first effort, but I expect they will expand as I grow more familiar with these areas. I should mention that I have no plans to add this as a product offering. To the contrary, I view my role as the person who watches out for clients on a number of fronts. After identifying any gaps in their coverage or potential risks, I would assist in bringing the solution. Clearly, their other advisors would need to be involved.

I’d like to hear from those of you who engage in this area as a part of comprehensive financial planning.

In any business, it’s best to have a diversified stream of income. When you derive your income from multiple sources, you are better insulated against negative events, and hence, your business is more viable. To those of you who have been reading these posts I may repeat a few things, but it is necessary to provide a broad and concise perspective of my business income. My business is primarily fee-only and is derived from asset management fees, initial financial planning fees, financial planning renewal fees, and an occasional life insurance policy.

Like most of you, I charge a fee for managing client’s assets. Unlike many, I charge on a monthly basis. When I began, I analyzed this and found that not only does it provide me with a steadier income, but it actually works in the clients favor as it avoids the larger deductions of the quarterly cycle. As I have stated before, it works like dollar cost averaging in reverse. Smaller, more frequent deductions have a positive effect on a client’s portfolio when compared to the quarterly method. It is a little more work, but with technology, it’s really quite easy.

Financial Planning: Initial Fees
How much is a plan worth? How much are clients willing to pay? Assuming your planning document and advice are of high quality, this type of service can be worth a great deal. After all, how much is a client’s peace of mind worth? I typically charge between $1,500 and $4,000 per plan which includes all meetings, my time to put the document together, my advice, and any scenarios that may be needed. I collect the minimum (usually $1,500-$2,000) up front and the balance when I present the plan. <y planning agreement covers one full year.

Financial Planning Renewal Fees
After the first year, my planning fee is reduced and deducted quarterly from the clients account. The renewal fee covers: at least one plan update; an historical plan summary comparing the current plan with past plans; access to eVault, my online-central repository for client documents; and a membership with LifeLock Identity Theft Protection services. For this, I charge between $250 and $350 per quarter.

Life Insurance
I don’t do much here and when I do, I am compensated through a commission. I never lead with any product, including life insurance, but there are situations when it is prudent to acquire a policy.

Summary
I should mention that unless a client writes me a check, I deduct all fees from their taxable account. Any fee deducted from a client’s retirement account is not tax deductible. So if a client has a taxable account and an IRA, I deduct the entire fee from the taxable account.

I hope you find this informative and would love to hear how you approach this in your business.

We’re getting close to the end of the year, which means mutual funds will be declaring and distributing capital gains. Earlier this year, the prospect of capital gains was minimal, but with the resurgence of the stock market, it is an issue to consider. Also, when the market was struggling, I sold some funds to capture capital losses in anticipation of the day when it would rebound. It seems today is that day. In addition, I plan to ask clients about any capital loss carryforwards they may have from previous years. These two issues also present a prime opportunity to reduce the total number of funds under my purview. A few months ago, I had 98, today I have 88. Eventually, I’d like to get this down to fewer than 50. Since capital gains season is approaching and the market has risen over 50% from March 9th, it seems to be a good time for this.

Advising Clients
Last week I had a new client ask me to help him with some important decisions pertaining to retirement. Specifically, he asked me to attend a meeting and advise him on the best course of action. Once again, I am reminded why I am in this business. It’s not just about investing money. It’s about being there for the client when they have decisions to make. It’s about simplifying their lives, and one way that can be accomplished is through consolidating their investment holdings.

Continuing Education
When I was new to the financial services business more than 20 years ago. I recall being nervous that some clients might know more than I knew. After all, I was the new guy on the block and lacked the experience of the seasoned veterans. Perhaps this is one of the motivating factors behind my placing such a high value on learning. Perhaps my desire to learn was born out of fear? Fear is a key motivator. In any event, as we encounter clients with unique circumstances it forces us to read and learn, and when we do we add value to the client relationship. We’re in the question-answering business. Since we cannot possibly hold the answers to every question we may encounter, it pays to have a good resource handy.

I’d be interested to know what you resources you use to research various issues on taxes, estate laws, and other complicated topics that you may not deal with every day.

I’ve often heard it said that it is very difficult to be a generalist as a financial planner. One reason may be that there is a tremendous amount of information with which you must stay current. Being a financial planner has another challenge. Creating quality financial plans for affluent and high net worth clients can be a very labor intensive, time consuming process. Sure, there are software applications which allow the planner to get in and out of quickly, but how comprehensive are they? Allow me to digress a moment.

This week I spent part of my time completing my continuing education for the CFP mark. I found a wonderful resource called CE OneSource. As an alum of The College for Financial Planning, I was entitled to a discount. So for just over $120, I gained access to approximately 50 online courses for a full 12 months. This program will allow me to fulfill my CE requirements for the current cycle, which ends on November 30^th, plus the following cycle, which begins on December 1^st. It includes courses on financial planning, estate planning, investment planning, income tax planning, insurance, and ethics. You work at your own pace and receive your grade immediately upon completion of the final exam. The CE credits are reported each Monday. In short, it’s a great way to complete the required CE and learn something in the process.

Well, as I was studying the course entitled, “Risk Management and Investment Issues for High Net Worth Clients,” a thought occurred to me. It brought back memories of when I was enrolled in the CFP study program. Since risk management is such a key issue, why don’t more planners examine clients P&C insurance coverage? From personal to business liability, the risks of this select group of clients are far greater than that of Middle America. Since this is the market we seek to serve, shouldn’t we be discussing this? I think so. One good point brought out in the study material was “do the client’s policies coordinate well?” For example, let’s say the homeowner’s policy includes personal liability coverage up to $250,000. Does the client have an umbrella liability policy and, if so, what is the deductible? What if the deductible was $300,000? Then, the client would have a $50,000 risk exposure between the two policies, since the first policy stops at $250,000 and the umbrella policy begins at $300,000.

As advisors, I believe we need to be looking at this. The problem is that this is a lot to do for a one man shop. Ultimately, I hope to partner with other like-minded advisors to create a quality team approach to better serve these clients.