By: John P. Napolitano, CFP®, CPA, PFS, MST

As practitioners in front of fantastic clients each day, we should genuinely be grateful.

We should be grateful for our clients, the other professionals that value us enough to introduce their best clients, and to the financial complexities that create our need and value. I am also grateful for the Advisor Community at large. So frequently I see new clients that were so underserved by their prior advisor that I am grateful for their laziness or incompetence. Although I do wish for the professions advancement and that advisors at large will rise to the task of delivering a higher level of service.

The moving parts in your best clients’ financial lives are so plentiful and complex, that there will always be demand for a practical, critical thinker to coordinate all of the subject matter experts and the execution of the ensuing plans. And the best news is that in our complicated world, there will always be events that will give you a reason to rise to the occasion to deliver greater service. This is what leads me to conclude that there is never a bad time for you to make sure that personal financial planning is a core service offering by your firm.

Frequently, the financial moving parts of your clients’ lives have significant tax consequences, keeping you front and center in most financial conversations. And many things, like a new tax act, frequently strike the tax nerve but then impact many of the financial planning matters that clients care about. Matters such as estate plans, retirement distributions, tax planning and having a dependable team or advisor to prevent things from falling through the cracks now and in the future.

Most recently we received another gift that will keep on giving courtesy of our friends in Congress. This time it’s called the SECURE Act. There are many technical publications circulating already detailing the act’s pitfalls, benefits and the planning needs that it creates. By reading this, I’m hoping to show you how to use this act as well as future policy changes as a catalyst for delivering a higher level of service for your clients.

The most relevant changes for your clients would be surrounding the new rules for IRAs. Contributions for earners older than 70½ will be permissible, RMD ages increase to 72 and the most painful change appearing to be with the elimination of the lifetime ‘stretch’ IRA rules.

One of the more significant estate planning strategies in the past was to take advantage of the stretch IRA rules. Essentially, these rules allowed named beneficiaries to spread distributions from an inherited IRA over the life expectancy of the beneficiary. Under the SECURE act, distributions must occur within a 10 year period. It’s not an even 10 year spread. As long as the IRA accounts are fully distributed within 10 years there’s no penalty. This will require regular tax planning for beneficiaries of inherited IRAs.

A more immediate concern may be for people who died before 12/31/2019 as long as nothing has been done to the IRA yet. In the case of an IRA beneficiary being a surviving spouse, there are no issues. It’s business as usual with the spouse receiving the assets as a spousal IRA. But what if the spouse beneficiary doesn’t need any of the qualified money to support their desired lifestyle?

If you’ve left an IRA to your spouse, who will eventually be bothered by RMDs and whose beneficiaries will be exposed to the new non-stretch 10 year limitation, an immediate tactic for evaluation may be to disinherit that IRA. If a spouse disclaims the IRA, and it flows to a properly named contingent beneficiary, a longer stretch period may be advantageous. Assume that the contingent beneficiaries are your children, and the benefits can be meaningful. 

For a 50 year old beneficiary, that means taking distributions out over a 34 year period rather than the 10 year rule imposed by SECURE. This can significantly mitigate the near term tax implications of that inherited IRA. This works exceptionally well if the contingent beneficiary is in the middle of their peak earnings years when the RMDs may be subjected to a higher rate of taxation.

There are other moving parts to your clients’ lives that will give rise for the need for greater service.  Amongst the most significant are life changes and events. These changes may include the birth of a child, marriage or re-marriage, the passing of a client, the sale of a home, the sale of a business and so on. I think that you get the picture. Any material change in the lives of your clients may give need to a complete overhaul or a refresh of any financial plans that have been made.

The key to ensuring that your clients’ financial house is in order, and remains that way through the wide range of life changes that we encounter is to be connected. To know your clients well enough to select a portfolio is easy. To know them and their family well enough to anticipate their needs based on the changes that will occur in their lives is what’s required to serve at the highest level. The proof for this, at least for me, lies in my personal experience.

90% of the new clients that we see had an advisor somewhere else. The old advisor wasn’t doing a bad job with the portfolio, but the problem for them was that was the only area where they served the client. Most come to us with old estate plans, no business succession strategy, no oversight of their risk management plan and insurance etc.

Occasionally, it is difficult to unseat the incumbent due to a long term relationship. But in most cases, after the planning process develops, clients will see just how underserved they have been. That is, assuming that your planning process is detailed enough to include all of the financial issues that one may reasonably conclude should be addressed in the course of a planning engagement.

We have created a checklist- an audit guide work program for what we believe would be included in a comprehensive financial plan. The planning process delivered with integrity and comprehensiveness definitely takes longer. And for some accountants looking at net realization rate, the inclination is to short cut the process to save time. In my opinion, this isn’t a good idea. Going deep on literally every area of your client’s financial life is the only way that you’ll understand the situation, including family and business dynamics that are shaping who the family is financially.

From this point, you are now in a position to continuously serve through all of the life and other changes that your clients will experience. But being in the right place at the right time only helps everyone if you are aware of your position. And in the PFP world, that means providing pro-active and holistic service. 

Annual (or more frequently) Review meetings with your clients need to be more than a portfolio review and a check up on their forecast for retirement or financial independence. You must cycle through every moving part of the financial plan on a regular basis. Not that the estate plan needs revision each and every year, but a conversation about the family or a change such as the SECURE act, and the plan may need revision… even if it is only a few months old. This is the job of a financial planner. That job is not only to fix things in your initial planning engagement, but to keep them in good order throughout the course of your professional relationship and the changes that life, laws and economies will throw at it.

For the planner that is dedicated and able to be pro-active and holistic, you have the gift that keeps on giving. Your clients are one such gift, in that you will be hard to replace. The gift of long term relationships with significant recurring revenue is highly likely unless you fall short on your promise and try to cut corners to save time.

The second gift is change. Accountants in particular don’t like change and frequently do whatever they can to keep things the same. In the PFP world, it would be wise to embrace change as it is inevitable and the root cause of your recurring revenue and satisfied client base.  If it weren’t for the of the changes we will all face, why would anyone continue to pay you for a service such as asset management when the markets have turned into a commodity service available just about anywhere at a very low price?

John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This information is not intended to be a substitute for individualized legal advice.

John Napolitano, U.S. Financial Advisors, U.S. Wealth Management and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.

U.S. Wealth Management, U.S. Financial Advisors and LPL Financial do not offer tax advice. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through U.S. Financial Advisors, a Registered Investment Advisor. U.S. Financial Advisors and U.S. Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.

 

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