Finding the gaps in a client’s financial plan


Offering wealth management services is something that all accounting firms should do for all clients in need. My premise is that everyone needs some form of financial planning; The scope and depth of work will vary based on complexity, but all of your company’s clients have financial problems and needs. The hardest part is getting your customers to understand that they have needs and that your business can be the answer to do it all together.

The concept of a financial planning audit has been in my head for a while. In effect, it is designed to reveal and document deficiencies in a family’s financial plan. The challenges in such an offer are not in the tactics of getting the job done, but 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 on: home renovations, medical issues, car repairs, vacation planning, wedding planning … the list goes on and on. However, when it comes to personal financial matters, why are they so sedentary and “content” with their financial situation? There are many responses that I have heard from clients and prospects, but most are just cover-ups so they don’t sound silly. Answers commonly thrown include:

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

All excuses valid in the eyes of your client, but not acceptable to the family financial unit if your personal and business financial situation is riddled with gaps and neglected items. That’s where your financial planning audit can make sense.

A different kind of audit

The financial planning audit is a non-offensive way to probe your clients’ personal financial lives to verify that they are, in fact, in good shape. I think this offer is easily accepted by clients, as the service sounds like something they expect from a public accounting firm: an audit. In communicating the value of an audit, you are not making any reference to the possibility that they will have to remove any of the tenured assessors.

Throughout the audit process, you are likely to uncover many gaps and gaps that will make your clients wonder why their incumbents have not addressed these gaps. You and I know why, but clients are always the last to know that they haven’t received enough services. The reason your existing team didn’t discover the gaps is because everyone is sticking tightly to their silo and everyone is trying to spend as little time as possible on the revenue dollars they are billing.

Perhaps the biggest challenge in carrying out a job like a financial planning audit is the estimated time it will take to complete. Your best clients may agree to an hourly type of commitment and understand that you can’t really give an accurate estimate of the time and costs associated with the commitment. Everything from your insurance policies to your estate documents could be bulky.

These commitments are also easily subject to scope fluctuation. That is, like renovating an old house, you do not know what you are going to find until you open the walls or, in this case, read its documents.

To document this engagement, I would create a work schedule to ensure that the engagement is complete and can be reviewed by another professional in your company. I find the guides created by the PFP division of the American Institute of Certified Public Accountants particularly helpful. With the many guides that are published and kept up to date, you can easily create your company standard to document these commitments.

Like a financial plan, your financial plan audit services should be comprehensive, unless the client has requested a scope limitation. These areas should include a cash flow review and your forecast of 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 firms that we all see advertising at golf tournaments and the like believe that independence predicts the scope 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, business and family governance reviews, and any another important part in the financial life of the family.

A perfect example of scope variation is when you look at their succession plan. If your client has documents that are more than 10 years old, should you just stop reviewing and tell him that the documents are out of date? I would suggest no, keep checking the docs to see what other shortcomings exist. Common areas of deficiency lie in issues like wasteful protection of heirs. Just because your daughter is 35 doesn’t mean she should have direct access to her clients’ fortunes.

In older documents, it is common for adult children to have full access to inheritances upon reaching a certain age. While this may have been what your client wanted when the documents were drafted, you should ask about the stability of the marriages, the health of the grandchildren, the risky circumstances surrounding their children, and whether they care about line planning. of blood.

Your client may not realize that if their 35-year-old daughter dies prematurely with full access to the inheritance, the assets are likely to pass directly to her son-in-law, also 35. Most would agree that a remarried for he is 35 years old, and when that happens, his grandchildren are no longer the first in line of his inheritance; They can be seconds, even a distant second, after your son-in-law’s new spouse! I have yet to meet a client who did not find this possibility disturbing and did not want it to change.

Identifying threats

Risk management is another area that is often overlooked in the financial planning process. When conducting your FP audit, I suggest approaching risk from a broader perspective than just looking at policies. You want to see risk from all angles. You want to start with a general risk assessment and reveal where risks may originate.

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

Some of these risks may reside in the form of ownership. Ownership in individual names 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 together with someone else. In this case, your client still has all the personal exposure as if he were the owner of the property, but is now compounded by the fact that there is a second owner whose responsibilities and demands could create problems for any assets he owns, including the they own with their client.

Beyond the form of ownership, you must read the policies. Chances are, your existing financial advisory team hasn’t. Simply asking for the policy is a differentiator in their eyes. This is also a good example of something that may be outside the financial planner’s area of ​​expertise, so you may need to hire an insurance specialist to help you review the contracts.

You may want to see your leases. Are they using canned leases they found online, or did they have a draft from their attorney that has protections built in? It would seek protections such as the obligation of tenants to insure their contents or replacement dwelling in the event of a problem with the building.

The form of ownership can be even more significant with your clients’ top business assets. Do you own your business in your individual name or is it held in an estate planning trust? If you leave it in the person’s name, this asset will be subject to legalization and public notification if it is not in trust. What about the real estate that the business houses? Are you in a separate trust or LLC, with a current and adequate lease with your client’s business? Probably not!

Taking into account personal insurance such as life, health, disability or long-term care is also part of the VET 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 near age 65. Is the cost still worth it or should this policy be dropped?

Life insurance can be a bit more complicated, but just as important as anything else. A life review should begin with reestablishing your client’s need for coverage, then a review of what they currently have, followed by a recommendation on what to do. With life insurance, many clients have agents who just want to sell them insurance and not give them advice. This is very evident if you have a client with many small life policies. I hate putting agents under the bus, but when I see a customer who is sold a new policy for life every year, it really bothers me. Worse still is when they start to borrow from older policies to buy new ones.

Investing is what many of your clients think financial planning is all about. In many cases, your investment advisor does not literally do any financial planning, however the client may refer to that person as their financial planner. Rather than going into deep investment analysis here, you would see that your risk tolerance matches your portfolio and that the expected results are in line with your investment needs. This is also a good time to tell them that asset management has become a commodity and that they can get asset management alone at a much lower cost than many other companies. When planning firms charge full retail for asset management services, there must be a heavy financial planning component, unless the investment advisor is highly specialized or consistently generates amazing returns.

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





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