Who’s on Your Financial Team?

By Peter Shanahan, CFP, CRPC, MPAS

Peter Shanahan is a graduate of the College of William and Mary, a Certified Financial Planner and Chartered Retirement Planning Counselor. Most recently, Peter earned the distinguished designation Master Planner Advanced Studies (MPAS). He’s one of the founding partners of a wealth management practice with Hilliard Lyons in Hendersonville, North Carolina. He has been in practice for over 30 years, and has contributed to the training of hundreds of financial advisors. Peter owns a horse farm near Tryon, North Carolina, and has earned colors with two local hunts, having served as treasurer for one of them. He also currently serves as president of a local equestrian trail association. He has lectured extensively on a variety of financial topics, but his primary area of interest is the intersection between his two passions: financial planning and equestrian pursuits. Do you have questions you want Peter to answer? Send questions to editor@sidelinesnews.com.

 Who’s on Your Financial Team?

Ok, so you’re not filthy rich. Let’s just stipulate that. Because if you were, you would most likely have a team of people working just for you in what’s called a “family office.” Your people would be arranging your next trip as you read this. They would have made reservations for dinner at your destination city; your theater tickets would be waiting for you; and the Bentley would be waxed, gassed up and ready to go.

Your accountant and investment person would also be waiting for you, to discuss a tax strategy for your consideration. They would already have discussed it with your attorney, who would have had papers ready for your signature. Each member of your team would know a lot about the whole picture. They would talk to each other, and together they would strategize on your behalf to help you make the most of what you’ve got.

“Wait!” you say. “Remember, I’m not filthy rich. I’m not even just plain rich. And I don’t have any team of people.”

Making A Plan

Good, because it’s you I want to talk to. Let’s say that you have a farm in the Carolinas with a few good jumpers (or just trail horses). Maybe you also own a condo in Florida, and possibly a lake house in another state with a boat dock and boat. You probably have an investment portfolio, property/casualty insurance and, hopefully, wills, trusts and powers of attorney. You meet with your CPA once a year, at tax time, so that you and she can discuss what happened last year, and what you will owe as a result. There will be little or no advance planning. You last met with your estate attorney when your first grandchild was born. You now have three more. Your investment advisors, CPA and estate attorney have never met.

Two things are true here. First, you may not be ready for a family office (yet), but let’s face it: You’ve got a lot going on. Second (and this is important), you are more than likely being under-served by your team. That’s because, in all likelihood, your team doesn’t communicate proactively with each other on your behalf. I’ll bet they have never all met to discuss you. Your investment people probably never reach out to your CPA to give her a heads-up on realized and unrealized capital gains, or distributions from retirement plans, and tax withholding on those distributions.

Your CPA may never have discussed your charitable inclinations with your investment advisor, who, by the way, never told your attorney about your special-needs grandchild, or the fact that your daughter’s marriage is a bit shaky. The insurance on your farm is residential, not commercial, and it won’t protect you if someone riding the trails around your farm is injured. The equine liability or recreational use statutes in your state might have helped, but the signs you posted don’t meet the requirements for your state. Your insurance agent also doesn’t know that you own the lake house, because you insured it with a local agent in that state, and so your “umbrella” liability insurance won’t protect you if there’s a boating accident.

Hopefully, you won’t have a heart attack when you realize this, because if you do, your estate will go through probate in three states, because you forgot to title your real estate to your trust, and no one ever checked up on it.

You may remember the line from “Cool Hand Luke:” “What we’ve got here is failure to communicate.” Over the years, I’ve seen countless instances where the failure of a client’s various advisors to communicate has led to disastrous results and missed opportunities.

So, what can a person who isn’t rich do to avoid these problems?

Virtual Family Office

Let me suggest that you build your own virtual family office (VFO). Under this type of arrangement, you allow each of your advisors to speak directly to the others on your behalf. It allows your CPA to tell your investment advisor things like when to capture gains or losses and when not to, to distribute efficiently from IRAs and other retirement plans and so on. It will also allow your investment advisor to keep your CPA up to date on any distributions from your retirement plans and tax withholding on those distributions, as well as special situations, like your plans to sell real estate. It allows him to keep your estate planning attorney informed about how your accounts are titled, and how the beneficiary designations read; and so on. Just like the super-rich, you have a team of experts working for you; they’re just not all working exclusively for you. So, you also don’t have the expense that goes along with that.

The first thing to consider as you begin to create your own VFO is who will be the “quarterback,” which is to say, who will coordinate the flow of information between all of your team members. It may be possible for you to be your own quarterback; but, this may defeat the whole purpose, both because you may want to free yourself from this burden, particularly as you age, and also because you may not have the broad-based knowledge required to know when it’s necessary to involve particular members of your team.

So, who should be the quarterback? First, you should favor whichever team member has the broadest knowledge base of all the areas that need to be coordinated: tax, investment, risk management and estate planning. Second, you should favor the team members whom you see or talk to most frequently, since they will be in a position to know what’s going on in your life. Finally, the quarterback should be proactive in nature. He or she should ideally have a formal process in place to review the whole picture and to keep other team members informed on an ongoing basis — particularly about issues related to their areas of expertise.

Once you’ve chosen a team quarterback, you’ll need to authorize each team member, in writing, to share information with the others. You should have a formal mechanism in place to do this. And there’s an added benefit: You will quickly learn which of your team members are willing and able to operate at this level of play, and which are not. This is useful to know, and it is sometimes a good bellwether indicator of the team members’ overall skill level.

The long and short is that you can come fairly close to the benefits of integration and coordination found in a family office without having to have the team members on your payroll. Of course, you will still need to arrange your own theater tickets.

Next Installment: Using your team to save taxes when you sell your farm.