With all of the financial issues confronting the affluent-including taking the sting out of taxes, making the most of the volatile stock market and saving for retirement-estate planning is often put on the back burner. That isn't surprising, given that few people are comfortable making plans that will only come to life when they die. Estate planning also can be excruciatingly complex, requiring a small army of legal, accounting, investment and insurance experts to work in concert. For many people, the result is hesitation, confusion and, all too often, an outdated or nonexistent estate plan.
That's where financial advisors come in. Given the complexity of estate planning and the resources and information that have to be marshaled, clients need a CFO who can step in and take charge. They need someone who can oversee the creation of an estate plan that takes advantage of tax-saving opportunities, avoids probate and paves the way for a smooth transition when they die.
Although advisors can never replace attorneys and tax specialists in the estate-planning process, most advisors have the unique advantage of understanding their clients' complete financial picture. With their extensive professional network, fee-based advisors are in the best position to involve additional experts on an as-needed basis while ensuring that the plan meets its stated objectives.
Feelings Over Finances
Estate planning creates an ideal forum for strengthening the relationship between advisors and their clients. That's because, in many ways, estate planning is more about clients' feelings than their finances. To whom do they want to leave money and why? How do they see themselves and their legacy? Those are daunting questions, and interacting with clients on that level is bonding. That bond creates a new level of trust that can open the door to new products and services for clients-products and services that both sides know are right because of the relationship. And that enhanced relationship also can lead to referrals.
Despite the benefits of estate planning-and the cost of not having an estate plan-lots of people let them go out of date. That's a mistake because procrastination over estate planning can have an impact that will be felt well beyond an individual client's lifetime. So why do so many people put off updating their estate plans? Here are three good reasons: First, no one likes to think about dying, and when it comes to making death seem as if it's just around the corner, estate planning is right up there with picking out a plot in the graveyard. Second, there's the confounding complexity of estate planning. A lot of knowledge and paperwork is involved and, given the choice of sorting through the details or settling for a halfway measure-like an outdated plan-it's not surprising that many opt for the latter. Finally, estate planning is put off because it's such an emotional issue. A client's life and legacy are complicated, and it can be emotionally exhausting to get everything right-and to please everyone.
With all of these intense issues-death, paperwork and family, not to mention money and emotions-in the mix, where and how do financial advisors begin to help their clients when it comes to estate planning? Affluent clients want someone they can trust to step in and help take over the burden of estate planning, and fee-based financial advisors are well-suited for the job.
Meet The CFO
"I see myself as my clients' personal CFO," says Gary Rathbun, CEO and president of Private Wealth Consultants Ltd. in Toledo, Ohio. "I take care of the details they don't want to know about and let them weigh in on the decisions that matter."
Having been in the advisory business for 20 years, Rathbun handles clients with $5 million or more in assets, and he's deeply involved in their estate planning. He's also authored a number of books, including The Charitable Giving Handbook.
"For my clients, one of the most important roles I serve is wading through all of the information that goes into making an estate plan. You don't want to bombard them with that information. Clients want you to be the filter. That's why they hired you. You have to perform, of course, and give them what they need to make decisions. But it's not that difficult. And when you get it right, you get referrals."
The Team
Part of the job of being CFO is to coordinate the other professionals who are part of any estate-planning team, including lawyers, accountants, insurance agents, trust officers, bankers, board members and, occasionally, other advisors. Rathbun also strongly recommends keeping the spouse very much in the loop. "I go to great pains to include the spouse, with their go-ahead, of course. That way, I'm still around to help with the estate after the client dies. And no one wants to have an uninformed and resentful spouse to deal with.
"Overall, my job is to be the catalyst and keep everyone on the team moving," he says. "And the team approach works when advisors are fee-based. In fact, I've found that attorneys are sometimes reluctant to bring up a good idea because the client may think they're angling for billable hours. Without the hourly rates, there's no such conflict. We're all serving the client. And there's no resentment about my being in charge. If anything, it makes the planning process easier on the other team members. Being part of a team also creates a great network for exchanging information and for getting referrals."
Broaching The Subject
The next question is: How does an advisor land the job of CFO? In many cases, clients already may have asked an advisor to lend them a hand with estate planning, and that's a great opening. But in other instances, estate planning may not have come up at all. So how is the issue brought up?
Advisors know their clients best, but there are plenty of ways to broach the subject of estate planning, including having read about the idea of the advisor as CFO or statistics showing how many high-net-worth individuals have outdated plans. An advisor can also fax, e-mail or snail mail an article about estate planning to a client to lay the groundwork for a subsequent conversation.
"I like to work it through with the client and show how my heading up the estate-planning team can speed the process," Rathbun says. "And I make sure they know that I'm on the same side of the desk as they are. I'm not drumming up business. I can even take on some of the awkward jobs that my clients are uncomfortable with, such as negotiating legal fees."
Once the subject of estate planning is on the table, advisors have to determine the level of involvement that their clients will be comfortable with, something that can be learned over the course of time or a single conversation. Some clients may be looking for a CFO, but others may want to be more involved and may need only a part-time consultant. The odds are good that once the subject comes up, however, an advisor can use a process similar to the one employed to determine a client's investment preferences and the level of advisor involvement on that front.
Keeping In Touch
Once the desired level of involvement has been established, an advisor should create a forum for regular client contact. Estate planning is not a one-time deal; the best estate plans are updated at least once a year. And the more an advisor communicates with clients about estate planning, the better the relationship will be.
"I aim for 17 contacts a year," says Rathbun. "At least four are in person, and the rest are some combination of phone calls, e-mail and letters." Not all of those interactions are about estate planning, of course, but for those that are, Rathbun likes to be armed with breaking news. "This year, there will be a batch of new private-foundation laws. That gives me a chance to go to my clients and raise the topic. If the Unified Credit changes, I can tell them 'Here's what that means for you.' But keeping up with the changing laws is the real work. That's why I try to tap into a network of attorneys, accountants and trust officers, and being part of a client's estate-planning team helps with the networking. The Internet is also a great resource for finding and exchanging information. I e-mail my contacts an article about incentive trusts, for example, and I get back news about pending legislation that could impact charitable giving."
Finding The Time
There's one other issue to consider before advisors volunteer for the CFO job: Where can they find the time to take on estate planning for clients when their calendars already are jammed? For Rathbun, the biggest impediment to spending more time with clients is the usual suspect: paperwork. "I need to spend 80% of my day doing what I need to do-interacting with clients," he says. "If I'm not interacting with clients or on their behalf, I'm wasting time. Everything else can be outsourced."
Clients, especially affluent clients, expect far more from their investment advisors than a tip or two about the next hot stock. And estate planning, whether an advisor is the CFO or a trusted team member, is a great way to give clients the kind of high-end consultative service that will set an advisor apart from his or her peers and the rest of the estate-planning team. Estate planning is an essential part of your clients' financial well-being-and of an advisor's ongoing relationship with them.
Hannah Shaw Grove is managing director and chief marketing officer of Merrill Lynch Investment Managers. Russ Alan Prince is president of the consulting firm Prince & Associates.