Finding Gaps in a Client’s Financial Plan

Providing wealth management services is something all accounting firms should be doing for all clients who need them. My premise is that everyone needs some kind of financial planning; the scope and depth of the engagement will vary depending on the complexity, but all of your firm’s clients have financial needs and challenges. The hard part is letting your customers know that they have needs and that your business can be the answer to bringing it all together.

The concept of a financial planning audit has been going through my mind for some time. Indeed, it is designed to reveal and document the gaps in a family’s financial plan. The challenges of such an offer aren’t in the tactics of getting the job done, they’re in getting your customers to recognize that a second look or opinion can be a good thing.

Think of all the things your clients seek multiple opinions about: home renovations, medical issues, car repairs, vacation planning, wedding planning… the list goes on. Yet, when it comes to personal financial matters, why are they so sedentary and “happy” with their financial situation? There are a lot of responses I’ve heard from clients and prospects, but most of them are just cover-ups so they don’t sound silly. Responses that are commonly spat out include:

  • “I have more money than I need; how can you help me? “
  • “I am ready and I have my team of advisers. I have worked with these companies for years and I don’t feel the need to change.
  • “I am a personal friend with my [attorney, investment person, insurance agent or banker] and would have too much trouble breaking.

All valid excuses in the eyes of your client, but unacceptable to the family financial unit if their personal and professional financial situation is plagued by loopholes and objects left unattended. This is where your financial planning audit can make sense.

A different audit

The financial planning audit is a non-offensive way to dig into your clients’ personal financial lives to see that they are, in fact, in good shape. I believe this offer is readily accepted by clients as the service looks like something they’ve learned to expect from a CPA firm – an audit. When you communicate the value of an audit, you make no reference to the possibility that they might need to eliminate one of the advisers in place.

Throughout the audit process, you will likely discover many shortcomings and shortcomings that will cause your clients to wonder why their incumbents have not corrected these shortcomings. You and I know why, but customers are always the last to find out they’ve been underserved. The reason their existing team didn’t uncover the shortcomings is that they all stick strictly to their silos and all try to spend as little time as possible for the revenue dollars they charge.

Perhaps the biggest challenge in successfully completing an assignment such as a financial planning audit is the estimated time it will take to accomplish it. Your best customers may take an hourly type of engagement and understand that you really can’t give an accurate estimate of the time and cost associated with the engagement. Everything from their insurance policies to their estate documents could be bulky.

These engagements are also easily subject to scope creep. In other words, like renovating an old house, you don’t know what you are going to find until you open the walls or, in this case, read their documents.

To document this engagement, I would create a work plan to ensure that the engagement is complete and subject to review by another professional in your firm. I find the guides created by the PFP division of the American Institute of CPAs particularly useful. With the many guides published and kept up to date, you can easily create your firm’s standard to document these engagements.

Just like a financial plan, your financial plan audit services should be comprehensive, unless a scope limitation has been requested by the client. These areas should include a review of cash flows and their forecast for financial independence. Don’t be surprised if all they have is a brief forecast of financial independence as a financial plan. Many of the big companies we all see advertising in golf tournaments and the like see forecast independence as the extent of their financial plan.

The financial plan audit should cover all major areas of a plan, including risk management, tax planning, retirement planning, investment planning, estate planning, corporate governance reviews business and family and any other important part of the family’s financial life.

A perfect example of scope drift is when you look at their estate plan. If your client has documents that are more than 10 years old, should you just stop looking at them and tell them the documents are out of date? I would suggest not to continue browsing the documents to see what other gaps exist. Common shortcomings lie in issues such as the spendthrift protection of heirs. Just because their daughter is 35 doesn’t mean she should have direct access to your clients’ wealth.

In older documents, it is common for adult children to have full access to inheritances when they reach a certain age. While this may have been what your client wanted when the documents were drafted, you should educate yourself about the stability of marriages, the health of the grandchildren, the at-risk circumstances surrounding your children, and whether they care about the situation. lineage planning.

Your client may not realize that if his 35-year-old daughter dies prematurely with outright access to the inheritance that the property is likely to go directly to your son-in-law, also 35. Most would agree that a remarriage is possible for at age 35, and when that happens, your grandchildren are no longer at the forefront of your inheritance – they may be second or even far behind your son-in-law’s new spouse! I have yet to meet a client who has not found this possibility disturbing and did not want it changed.

Identifying threats

Another area that is often overlooked in the financial planning process is risk management. When doing your FP audit, I suggest looking at risk from a broader perspective than just looking at policies. You want to look at risk from all angles. You want to start with an overall risk assessment and reveal where the risks may be coming from.

Some are obvious, like residential rental properties and the dangers of owning a home in general. But within that same property, there may be hidden risks that have been overlooked and masked by the substantial insurance coverage that the client may have on the property itself.

Some of these risks may lie in the form of ownership. Ownership on behalf of each is not recommended for rental properties. You may ask why an LLC or some other form of ownership was not used. The only thing worse is when your client owns it jointly with another person. In this case, your client still has all the personal exposure as if they owned the property himself, but now made worse by the fact that there is a second owner whose responsibilities and lawsuits could cause problems for everything. asset they own, including the one they own with your client.

Beyond the form of ownership, you should read the policies. It is more likely than not that their current team of financial advisers did not. The simple act of asking the police is a differentiator in their eyes. It’s also a good example of something that may be outside of the financial planner’s area of ​​expertise, so you may need to bring in an insurance specialist to help you review contracts.

You might want to check out their leases. Are they using pre-arranged leases that they found online, or do they have a lawyer project that incorporates protections? I would seek protections such as the obligation of tenants to insure their contents or replacement accommodation in the event of a problem with the building.

The form of ownership can be even more important with your clients’ primary business assets. Do they own their business in their own name or is it held in an estate planning trust? Leaving it in the name of the individual will subject that asset to probate and public notice if it is not held in trust. What about the real estate that houses the business? Is it a separate trust or LLC, with a current and appropriate lease with your client’s business? Probably not!

The review of personal insurance such as life, health, disability or long term care is also part of the FP audit. Some of the common findings here include a disability policy that only pays benefits until age 65, or for five years if the client is close to 65. Is the cost still worth it or should this policy be abandoned?

Life insurance is perhaps a little more complicated but just as important as anything else. A life review should start with restoring your client’s need for coverage, followed by a review of what they are currently followed by a recommendation on what to do next. With life insurance, many clients have agents who just want to sell them insurance and not give advice. This is very obvious if you have a client with many small life insurance policies. I hate to throw agents under the bus, but when I see a client who is sold a new whole life policy every year, it bothers me tremendously. Worse still is when they start borrowing from old policies to buy new ones.

The investing business is what many of your clients think of when it comes to financial planning. In many cases, their investment advisor literally does not do any financial planning, but the client can designate that person as their financial planner. Rather than going into a deep investment analysis here, I would see that their risk tolerance matches their portfolio and their expected results are in line with their investment needs. This is also a good time to tell them that asset management has become mainstream and that they can only get asset management at a cost much lower than many other companies. When planning firms retail for asset management services, there should be a heavy financial planning component, unless the investment advisor is highly specialized or consistently delivering incredible returns.

As you might expect, a good PF audit process will expose incumbents. Some customers will appreciate that you help clean up the mess their team has created, and others will ask you to help replace the team. In my experience, the latter happens 95% of the time!