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Wealth Advisory Planning: Six Tips from the High Net Worth Experts

April 4, 2016 | Jeff Belair

Jeff Belair | Tax Partner

Jeff has more than 10 years of public accounting experience and helps lead the wealth advisory services practice at EKS&H. He assists high-net-worth individuals, including business executives and owners and their...

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Getting the right team around the table to collaborate and design a cohesive, forward-thinking strategic wealth management plan for high net worth (HNW) families is imperative and sometimes a challenge. Many wealthy individuals have built their wealth through being their own experts. Successful planning, implementation, and follow through of a wealth advisory strategy require knowledge, experience, and the right character to instill confidence in clients. These strategies provide comfort to individuals who can be confident their and their families’ goals will be achieved and risk and cost will be managed. 

A team of six HNW experts from a variety of disciplines came together in spring 2016 to share case studies, best practices, and insights into managing HNW clients and how to assemble the right team. 

Brady Siegrist, Managing Director of Wealth Management, Janiczek® Wealth Management: “It takes three to five years of due diligence and future-looking business changes to get a company ready for a sale.” 

When people come in and say they want to sell their businesses in three to five years, that’s much better than that same person saying, ‘I just sold my business and have X amount of money.’ In the latter case, when you examine the family’s lifestyle and it doesn’t work with their new balance sheet, it’s difficult to have them make changes to get to the right amount of income and spending. It’s easier to sit down ahead of a sale to determine what the family needs with their current lifestyle. This way, advisors can help them build the right assets to fund their future.  In cases like the case study, we help them understand they can’t continue down the same path of spending. John Doe needs to help the business become more independent of his history and mental equity — to move it from being a single owner to an enterprise with his business relationships and mental collateral accessible to an executive team.

Jeff Belair, Tax Partner, EKS&H LLLP: “It’s bigger than simply putting the right numbers on the tax form.” 

We educate clients about their options and proactively communicate with them and members of their team throughout the year. More often than not, when onboarding a new client, a fresh set of eyes can spot new opportunities — a different approach. Since the tax code has expanded, it’s become more difficult for smaller, sole practitioners — the so-called generalists — to grow with their clients. Clients who use a generalist may have a solution that works — a return that is prepared correctly — but may not be taking advantage of all opportunities within the law available to them. I explain to new clients that we’ll do more than get the numbers on the form. We communicate with you and your other advisors year round to ensure the right cash flow. We’ll make sure clients have enough set aside for April tax time. With regard to this case study, it should be known that there are several manufacturing-specific tax benefits they may not be taking advantage of. For example, the law provides a deduction for domestic production activities — a way to incentivize manufacturing in the U.S. If his CPA has missed that historically, he could be overpaying thousands in taxes. If that’s missing, there are probably other missed opportunities, such as fuel tax and hiring credits. It will pay this client back to have the right tax preparer. 

Brian O’Neil, Director of Wealth Management, Janiczek® Wealth Management: “Using scenarios in our Total Client Profile helps illustrate key life-changing events and transactions to get clients to take action.”

We like to set clients up for that “aha” moment. We showed John and Jane Doe the scenario of John dying prematurely in less than five years. What if he hasn’t sold his business yet? Now Jane has a non-liquid business that is probably worth only half because the main driver with the most mental equity is gone. I asked Jane what she thought she could spend on a yearly basis. Could she make ends meet with half the income she currently is spending? Of course she admitted that she could not since her monthly mortgage is $7,000 per month. In this case, life insurance can be used in two ways: from now until the business is sold, in case of premature death, then possibly 25 to 30 years in the future to pay a potential estate tax bill. I then put them in touch with an insurance agent.

Eric Gordon, CAPI, The Denver Agency: “With wealthier families we help them plan to minimize insurance claims so they are insured for catastrophe — not the small stuff.”

One of the biggest gaps I see is a wealthy family overpaying to be underinsured. Our clients need to be insured enough to be able to weather the storm. Most clients are carrying $1 million to $3 million in liability coverage, but their net worth is $5 million, $10 million, $50 million plus. Their liability limits are woefully low, and they are unaware of how inexpensive it is to increase limits and take on more risk themselves. I advise wealthier individuals to self-insure items under $5,000 and take out a large deductible on the home. Increasing the deductible on the home can save $3,000. Increasing liability from $1 million to $10 million costs $3,000. Now we have the proper allocation of risk and premium dollars where we didn’t before. We also want them to understand their threshold for risk. It’s much better to self-insure and pay for damage or loss out of pocket than make several small insurance claims, which can cause them to lose their $10 million liability coverage.

Adam Truitt, Principal, Financial Designs, Ltd.: “We must demystify life insurance and make it a legitimate short- and long-term planning instrument for HNW individuals.” 

We need to educate our clients to overcome the negative connotations of life insurance. Most people think you buy life insurance once, pay premium, and put in the shelf. They don’t understand the impact that interest rates have on insurance policies or what turns in the market have on insurance. They don’t perceive that life insurance is dynamic even though life is dynamic and their needs change. Whether it’s to protect the kids and family or the estate for estate tax purposes, we must demystify and move it from a complex instrument to something simple.  Another thing clients don’t know is that they can buy insurance on either spouse or jointly. The first question is what if the main income producer dies? In this case study, it’s important that some liquidity should be on the patriarch’s life. The second question is what if the matriarch dies? The patriarch probably doesn’t need it on her life. Then joint life insurance is typically half of the cost on his life and pays out when the second person dies. If a client needs it for estate tax, we like to use joint life insurance because it’s priced more efficiently. In this scenario, we’d suggest short-term insurance on him — maybe 10 to 20 years. They might also consider joint life insurance for the ultimate death scenario.

Mike Stiff, Partner, Baker and Hostetler, LLP: “It takes time and sometimes a few previous wealth advisors to get wealthy families to determine the right long-term plan.” 

Sometimes clients have to go through a few advisors before they ultimately understand how it all works and find an advisor that they like. I also can’t fully help a client until I’ve worked with them for at least two to three years. At first we work on the basics. With enough time working together, I better understand who I can push a bit and who I have to tell to put on the brakes. It takes some time to get to that place of understanding their personalities. It’s the same with a team of advisors. The client will understand, ‘Advisor number 1 pushes me over the top, so I give a grain of salt to his advice. But advisor number 2 is understated, so I listen up and act on her advice.’ It takes some time for clients to really settle into a team of advisors and same with the advisors to the client. 

Advising HNW clients takes expert knowledge, business etiquette, and getting the right team of people to give consistent, and sometimes unwanted, advice. Building the right relationships ahead of time, between advisors, gives them a leg up when it comes to actually sitting down with clients.

To learn more about how EKS&H can assist with your wealth advisory needs, please contact Tax Partners Jeff Belair at jbelair@eksh.com or Jeff Watkins at jwatkins@eksh.com, or call 303-740-9400.
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