The Business Journal
September 20, 2007
by Susie Brousseau
Focus: Bank/Finance

Good financial planning more than picking investments

There are many reasons to put off financial, estate or business succession planning. The most common reason is that nobody likes to face their own mortality. But, the more affluent the client is, the greater the impact if this task is left undone.

Regardless of how much wealth one has accumulated through the years, financial planning forces personal decisions to be made about the future.

So much planning advice in the marketplace these days primarily involves pushing financial or insurance products. The required depth of personal detail that leads to a fully implemented plan often is forgotten once the products are finalized. In short, good financial planning is more than just picking investments.

For those who either should be or already are contemplating development of their long-term financial and estate plans, here are several questions to consider:

Have your trust needs been reviewed from a planning standpoint before any legal documents are prepared?

Ideally, your financial planner should have experience with such documents and function as your advocate with your attorney and accountant. This ensures that your documents not only meet the legal requirements, but also meet your family’s long-term objectives. Too often, revocable trusts are created that do not meet those objectives, and changes must be made.

Does your financial planner have both the experience to understand a trust and the time to uncover the weak points and details not addressed?

The legal verbiage of a trust or will is written mostly to conform to law and easily can be misunderstood. Because of this, it may not represent exactly what you want. For example, there can be a big difference in the use of “may” and “shall” in a document.

A well informed financial planner doesn’t have to be an attorney or accountant, but can still save you a lot of money in legal or tax fees by helping you ensure the documents do not have to be done more than once.

Do you understand your financial planner’s fee structure, and is there full disclosure on any commissions the planner might receive from product sales?

How your financial planner is compensated is a critical component of your relationship. The planner should disclose fees, commissions, etc., that could be incurred in the financial analysis.

Ideally, the planner should bill on a fee basis, and the planning agreement generally should give the client access to the planner for one year for the initial fee. Fees should be renegotiated annually.

Does your financial planner have outside sources as subadvisers for investment management, or are they in-house?

The financial planner should have a relationship with several subadvisers for professional investment management, selected for the planner’s investment philosophy and for their ability to invest based on the client’s investment risk profile.

Selecting outside investment experts enables your planner to monitor progress objectively and to hire and fire subadvisers based solely on whether they are meeting the client’s objectives.

Although performance should be monitored, market conditions, the client’s risk profile and other factors must be taken into account when measuring performance.

It’s usually more difficult to change an investment manager when the same organization employs the financial planner.

Given that your financial adviser can commit the time to uncovering and developing the details of your plan, will he or she risk making you uncomfortable by being politely persistent to secure the information required to help you?

The majority of clients today are looking for superior service. A financial planner must provide and respond to the needs and objectives of these clients. Conventional wisdom would say any business needs to do this to keep its clients. But when was the last time you questioned the service you were receiving?

Following up with the client and ensuring that the important details are implemented is critical to the success of the relationship between planner and client. If the financial organization wants a long-term relationship with a client, the organization should be judged by results, the soundness of the financial plan, whether it meets the client’s objectives, and how well it responds to client questions and needs.

Not surprisingly, these factors tend to be more important when the client is more affluent.

Many affluent people today head major corporations, have started successful business entities, or have helped their children start major businesses that contribute to the entire family’s income base. The surviving spouse or heirs may depend on that income for their standard of living.

What will happen when the visionary or person supplying the source of capital passes away? This is critical in the financial, business and estate planning process. The responsible party must coordinate what will happen to the business so it will continue as a viable entity. Otherwise, it may be sold for pennies on the dollar.

It is thought that fewer than 10 percent of small businesses today survive the death of the elder partner or stockholder. Attention must be paid to the structure of the business entity to afford the most protection possible. These concerns are a complex and often overlooked section of the affluent client’s financial plan.

Susie Brousseau is senior vice president of financial and estate planning for Legacy Bank, a private bank dedicated to serving affluent clients. She can be reach at 480-778-2660 or susanbr@legacybankaz.com

(back to news & articles)