Selecting the right team of CPAs, lawyers and insurance professionals to advise you on strategic issues is as important to your wealth as are your investment selections.
Why Is It So Important?
Building a home requires an architect, engineers, plumbers, electricians, roofers and another dozen specialists to deliver a safe and sound household in which to live. The same principle applies in assembling a team of capable advisors to secure a sound financial foundation. For this discussion I will focus on the needs of families with moderate to high complexity.
On April 9th 2021, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. Q1 2021 hedge fund letters, conferences and more Read More
- Know what you need. Do you want financial reports and budgets prepared for several entities? Do you have LLCs, trusts, partnerships, scheduled gifting, a family foundation and business interests in different states? As you add complexity, an understanding of the interrelationships and tax treatments becomes increasingly important.
- Aren’t all CPAs the same? Tax laws are the same and even the software that most CPAs use is the same. The important differentiators are training, professional experience, and familiarity with unique items. Membership in the American Institute of CPAs (AICPA) is a good start. The Personal Financial Specialist designation from the AICPA indicates an additional level of training.
- Local firm, boutique or Big Four? Firms with national and international presences with public company clients are often conflicted out of representing senior officers. If your needs are complex, and especially if you exposed to international tax law, they may be a good option. However, most clients will do just fine with regional tax firms. If you are subject to taxes in multiple states, ask about their state and local tax (SALT) capabilities.
Trust and Estate Attorneys
Among the many considerations are state licensing, advanced certifications and general experience. Participation in the American Bar Association on Real Property, Trust and Estate law or the state bar is a good sign. A coveted peer awarded designation is Fellow of the American College of Trust and Estate Counsel (ACTEC). There are many, many excellent attorneys who are not affiliated with these organizations. Some are extremely sophisticated legal generalists and others are managing partners of white shoe firms. However you evaluate your attorney’s selection, have a thoughtful process.
Disclaimer: I work at a company that sells many products, life insurance being one of them. Though I am not personally licensed to sell insurance nor have I been for more than 30 years, clients of the firm are routinely referred to licensed professionals within the firm with relevant knowledge and experience. I recommend using the same evaluation criteria regardless of firm affiliation.
Insurance gets a bad rap. It is something we all need that no one wants to pay for. The bad rap is probably largely due to the wide range of talent and expertise that exists among life insurance agents and brokers. Fortunately, there are many qualified professionals who can add value to your estate and financial planning team.
Accreditations. Many tenured professionals will be Chartered Life Underwriters or Accredited Estate Planners and members of several national associations. Most industry designations demonstrate knowledge, expertise, but memberships in some organizations reflect sales success, so it’s helpful to know the difference.
Company affiliated or independent?
Insurance agents are employees of insurance companies and their loyalty is to that insurance company. Brokers are typically independent and can offer products from several companies, but many agents also can serve as brokers.
What to look for. Ask for an in-depth analysis of your current policies, and it should be objective, not just focusing on reasons to replace your coverage. The analysis should show how a strategy works in conjunction with different estate planning strategies. If they can’t analyze your policies and don’t have the ability to illustrate how different strategies work, they probably don’t work with complex families on a regular basis.
Finally, seek out professionals who are happy to share their recommendations with your advisors. People who are reluctant may be recommending something that, although suitable, may not be optimal.
Assemble a team that is familiar with practices of other team members. Overlapping expertise protects you from recommendations that, for whatever reason, don’t make sense.
Example. There can be tension between advisors about which strategy or products should be used to accomplish the same goal. This is especially true with insurance, but also applies to private investments, hedge funds and local real estate.
The tax advantages of insurance contracts make it the playground for creative strategies and complicated structures. Of concern is the long-term nature of implementing an insurance strategy. One needs to be sure any strategy selected will still be right for you long after the commission has been paid. Good insurance professionals understand how to match products with liquidity needs and changing tax laws.
Service Achilles Heel – “you never call me.”
CPAs and attorneys are at the top of the trust chain for good reason. They don’t actively market their services, only bill for their time and are bound by high industry ethical standards.
However, this strength can be their weakness.
Since most people don’t want to receive a call and then get a bill in the mail, lawyers and CPAs have grown reluctant to initiate client contact. As a result, they are frequently brought into the discussion only after important decisions have been made.
Clients may lament their choices and advisors may wonder why clients don’t call prior to making important decisions. The advisor takes the blame but the client has to live with the outcome.
Solution: Senior Strategic Advisor
- Primary point of contact. Look for one professional to take on the responsibility as your primary advisor to navigate and integrate myriad of issues and options. He or she should be a seasoned, experienced professional who will proactively contact you whenever there is information, actions or recommendations to be considered.
- Facilitator not Bottleneck. The Senior Strategic Advisor (SSA) is the “go-to” advisor for all things family and financial. He or she is responsible for the communication among all of the family’s legal, tax, and insurance advisors. To the extent possible, he/she ensures that all subject matter experts proactively communicate with you in a timely fashion.
- Breadth and depth of knowledge. The SSA must be knowledgeable across disciplines to be effective in understanding and communicating concepts at a high level, and must remain “current” through on-going continuing education.
The SSA participates in important meetings with other advisory team members.
- Enhanced communication. The SSA establishes the regular communications the client should expect: face-to-face meetings, conference calls, topical updates, event invitations and newsletters etc. When you find your Senior Strategic Advisor the rest will be easy.
Is this all there is?
These findings apply to most situations, but not to all. A body of knowledge has been gathered through thousands of interactions with accomplished professionals.
Mr. Poch advises private clients and family offices.
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The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
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