Implementing the Wealth Management Index E-Book

Ross Levin

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg Professional
• Sprache: Englisch

Seitenzahl: 417

Veröffentlichungsjahr: 2011

Beschreibung

The gold standard for measuring financial progress, updated for today's market From Ross Levin, a trusted financial planner, comes Implementing the Wealth Management Index. The new edition of the book Investment Advisor called a "landmark opus," this revised and updated volume expands upon his legendary Wealth Management Index tool. A benchmark system that, through a series of questions and evaluations, enables advisors to score their performance for individual clients, the tool is used by firms around the world. In this new edition, the index looks at asset protection, disability and income protection, debt management, investment planning, and estate planning. The new edition adds more how-to information, as well as actual client examples and case studies to show how Levin's firm successfully uses the index as a daily strategy. * Asks the important questions, like "Did you use all reasonable means to reduce your taxes?" and "Have you established and funded all the necessary trusts? Have you made your desired gifts for this year? * Newly revised and expanded for the first time since 1997 Essential guidance from a top man in the game, Implementing the Wealth Management Index is the one-stop resource for measuring client financial progress.

Leseprobe

Contents

Chapter 1: Turning a Concept into a Practice

The Format

The Wealth Management Index Overview

The Wealth Management Index

Conclusion

Chapter 2: Building and Operating a Practice

What Do You Want to Be When You Grow Up?

Partners

Broader Ownership

Conclusion

Chapter 3: Growing Your Business

Quantitative Prospect Metrics

Behavioral Types of Prospects

The Prospect Meeting

Questions

Other Questions

Next Steps

Conclusion

Chapter 4: Developing Staff

Leadership Pipeline

Conclusion

Chapter 5: Training Staff in Using the Wealth Management Index

The New Hire Process

Conclusion

Chapter 6: The Work Plan

Pre-Meeting

Post-Meeting

Agenda

Conclusion

Chapter 7: Objective Setting

Asset Protection

Disability and Income Protection

Debt Management

Investment Planning

Estate Planning

Conclusion

Chapter 8: Scoring the Wealth Management Index

Spreadsheet

Chapter 9: Asset Protection (Preservation)

Components

Have You Articulated a Life Insurance Philosophy?

What Are Your Concerns Regarding Risks of Large Losses from Medical, Long-Term Care, Property/Casualty, and Personal or Professional Liability Issues?

Have You Defined and Protected Your Business Interests?

Conclusion

Chapter 10: Disability and Income Protection (Protection)

What Are the Income and Lifestyle Needs and Wants of Your Family Currently and Prospectively?

Have You Evaluated All Current Sources of Income and Potential Changes to These Sources?

Are You Fully Utilizing All Benefits Available to You?

Conclusion

Chapter 11: Debt Management

Have You Established Your Philosophy Regarding Using Savings or Credit?

Is Your Type of Debt Appropriate Given Your Wealth-Management Objectives?

Conclusion

Chapter 12: Investment Planning (Accumulation)

Have You Developed an Investment Philosophy?

Have You Determined the Mechanics for Managing Your Portfolio and the Evaluation of What Success Looks Like?

Conclusion

Chapter 13: Estate Planning (Distribution)

Have You a Philosophy on Wealth Transfer?

Have You Articulated Your Charitable Philosophy or Mission Statement?

Have You Planned for Incapacitation, Elder Care Issues, and Final Planning Needs?

Conclusion

Index

IMPLEMENTING THE WEALTH MANAGEMENT INDEX

Since 1996, Bloomberg Press has published books for financial professionals on investing, economics, and policy affecting investors. Titles are written by leading practitioners and authorities, and have been translated into more than 20 languages.

The Bloomberg Financial Series provides both core reference knowledge and actionable information for financial professionals. The books are written by experts familiar with the work flows, challenges, and demands of investment professionals who trade the markets, manage money, and analyze investments in their capacity of growing and protecting wealth, hedging risk, and generating revenue.

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Copyright © 2012 by Ross Levin. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

The first edition of this book was titled The Wealth Management Index: The Financial Advisor’s System for Assessing & Managing Your Client’s Plans & Goals, Published by McGraw-Hill, Inc. © 1996.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax [phone], or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Wealth Management Index (WMI) is a registered trademark of Accredited Investors Inc.

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Library of Congress Cataloging-in-Publication Data:

Levin, Ross.

Implementing the wealth management index: tools to build your practice and measure client success / Ross Levin.

p. cm.

The first edition of this book was titled: The wealth management index. Published by McGraw-Hill, Inc. 1996.

Includes bibliographical references and index.

ISBN 978-1-118-02764-6 (cloth); ISBN 978-1-118-15978-1 (ebk); ISBN 978-1-118-15979-8 (ebk); ISBN 978-1-118-16022-0 (ebk)

1. Financial planners—United States. 2. Financial services industry—United States.

I. Levin, Ross. Wealth management index. II. Title.

HG179.5.L48 2011

332.6—dc23

2011029929

To Mimi, Vera, And Bridget, Who Continue To Give Me Riches Far More Vast Than I Could Have Imagined.

Introduction

I wrote The Wealth Management Index when our daughters were two, our business was tiny, and life was fun, but complicated. Now it is 16 years later, our daughters are heading off to college, our business is bigger, and life is fun, but complicated. So while things have changed or shifted in ways that I may not have expected, they are merely different, not better or worse.

I bring this up because I have a few operating principles that have helped guide me over most of my life:

I feel incredibly grateful for all the people I have met who have shared hours or moments with me because they make my life richI believe that while it is really important to think about what we want, I think it is more important to want what we already have.I believe that impermanence is part of lifeI believe in the Serenity Prayer—Grant me the serenity to accept the things I cannot change, the courage to change the things that I can, and the wisdom to know the difference

These precepts are the groundwork from which the index was created, our business was built, and hopefully, how I live my life. I hope that this book is a gift to the profession, only in the sense of sharing the ideas on which Accredited Investors was developed, while acknowledging that many of you do certain aspects of wealth management differently than we do. Our business has been transformed through the sharing of ideas at conferences, study groups, and friendly interactions with people one would think could be competitors. But we really don’t compete with each other; each of our fundamental objective is to serve the right clients for our practices.

I have a long list of thank-yous which is guaranteed to be incomplete.

I want to thank my business partner of a quarter of a century, Wil Heupel, for walking this path with me from the beginning. His skills offset my weaknesses.

Kathy Longo came into Accredited Investors a dozen years ago and became an owner shortly after. She has done an amazing job of being a partner, when Wil and I had such a storied history, and has effected change in the firm that we never would have been able to see or do without her.

The staff at Accredited, many of whom are mentioned in the book, have been a tribute with which to partner. They continue to help me grow as they grow. While I can’t mention all of the staff, a few in particular helped with this draft of the book. Jacob Wolkowitz and Sean P. Smith helped develop and test many of our investment planning concepts. Steve Gilbertson and Chris MacBean have done extensive work on our spending policies. Joan Kurlander used her law background to insure that I didn’t embarrass myself with estate planning, and W. Alan Williams put his CPA to use with regard to my tax planning work. Brandon Jones and Lori Dierke gave me the approved Accredited Investors documents and spreadsheets (many of which they developed) to be included in the book, and Suzy Ridenour helped make sure that everything was where it should be.

Our clients have come to us believing in how we deliver wealth management and have shared their lives and stories with us.

The biggest outside professional influences in my life have come from my two study groups—The Alpha Group and Group 2020. The Alpha Group—my first study group currently consisting of Mark Balasa, Jim Budros, John Cammack, Chris Dardaman, Harold Evensky, Charlie Haines, Tucker Hewes, Mark Hurley, Deena Katz, Ram Kolluri, Don Phillips, Peggy Ruhlin, Lou Stanasolovich, Mark Tibergien, Greg Sullivan, and John Ueleke—has openly shared practices and friendship with me that has made a huge difference in my approach to business. I met most of these friends through my involvement on the boards of International Association for Financial Planning (IAFP), the Financial Planning Association (FPA), and the Certified Financial Planner Board of Standards (CFP)—the payoff for my volunteer experience far exceeded my contribution.

I was invited to join Group 2020 a few years ago, and it consisted of many people whom I knew of but did not know. Janet Briaud, Tim Chase, Cheryl Hollins, Michael Joyce, Richie Lee, Kathy Lintz, Ron and Suzette Rutherford, and yes, Charlie Haines again, opened their firms and hearts to me and have continued to help me grow and see things differently.

There are far too many others in the profession to name, for example, all the people with whom I served on the boards of the IAFP and CFP Board of Standards, the number of writers who have asked for my opinion and sometimes even used it, and the various people who have e-mailed me, called, or written to me because something in a column I wrote for the Journal of Financial Planning caught their interest.

My editorial team at Wiley/Bloomberg was incredible: Judy Howarth edited my chapters almost before I wrote them and put up with my missing of deadlines (okay, I am a Myers/Briggs ENFP); my acquisitions editor, Laura Walsh, believed in the book and sold it to the publisher; and Vincent Nordhaus, who was responsible for the editorial production.

My biggest thank you goes to my wife Bridget, and our daughters, Mimi and Vera, who continue to show me unconditional love, even when I have bitten off more than I can chew.

CHAPTER 1

Turning a Concept into a Practice

When I wrote The Wealth Management Index in 1996, it was at a time when we were experiencing a bull market of epic proportions. As clients were making money hand over fist, we were trying to temper their enthusiasm with an approach to wealth management that would measure their personal success based on all the things that they had expressed as important to us—and many things which they had not considered. We were implementing a tool that consolidated all the various aspects of financial planning into a process by which the client could begin to understand the many components of their financial life on which decisions needed to be made.

Much has changed since 1996 and nothing has changed. We still need to help clients understand the importance of all areas of wealth management and they still often place too much importance or attention on asset management. The most important change for our firm is that we have a much bigger practice—more than 35 employees, around a billion dollars of managed assets, and an approach to building a business and delivering comprehensive wealth management in a way that has been true to our values.

My intention with this book is to open up our practice to you as a way for you to incorporate those things which you find beneficial and let go of those ideas that may not resonate with you. This is not a book on how to run a practice; my belief is that each wealth management practice has to discover its own unique role in the vast space of helping clients achieve their objectives. But regardless of what your business currently looks like, I know that you will benefit from me sharing the stops and starts that we have experienced in trying to do what is right for our clients and our business. We certainly don’t have all the answers, but I think we have some. The difference between building a wealth-management practice and a long car ride with young kids is that with a practice, you are never there yet. Circumstances change, staff changes, the clients change, the environment changes. The only guarantee is impermanence. Yet it is important to draw a line in the sand as to what your firm stands for and who you wish to serve.

A few years ago, I invited 20 practitioners from around the country to make a donation to the Foundation for Financial Planning and in return spend a day with us to meet our staff and go through all the aspects of how we do business. We labeled this program Be Our Guest, and since then other firms, in concert with the Foundation, have also done this. When we first chose to offer the glimpse into our firm, we discussed whether we should exclude firms from our community from participating. Was there a risk that our openness could be used against us in competition for clients? Only if we believed that there were a finite subset of clients and it was in the best interest of them to work only with us. That is not our belief. There are a number of great firms doing great work for a wide variety of clients. In fact, just subscribe to Bob Veres’s newsletter, Inside Information or regularly read Financial Planning, Investment Advisor, FA, or Investment News and you’ll see how many different ways there are to succeed in this business. I know that our firm will continue to grow because our offering resonates with a certain subset of the client population. Certain prospects are better suited to our comprehensive practice than others. It is always in the prospect’s best interest to work with a firm who can not only deliver sound advice, but do so in a way that reaches that prospect.

As I write this book is there a risk that firms may try to capture our intellectual property and become more like us? I could not think of a greater compliment. But what I really hope is that firms take some of our ideas and make them their own. And I hope that they improve upon some of the things that we are doing and continue to share them with others so that clients can be served in ways that improve the quality of their lives.1

The Format

This book is both a practice management guide as well as a tool introducing, explaining, and implementing the Wealth Management Index (WMI). In the area dedicated to practice management, I will go through how we run our practice. I will be covering our technology, processes, communication, and client interaction. I will go through what we do when the prospect first walks in the door to how we manage the client relationship over the course of our years together. I will also discuss how we try to engage our staff. Chapter 9 through the end of the book covers the index’s distinct components. This will break down all the areas of the WMI and how we discuss each area in the client meetings. It will also include some of the tools that we developed or purchased to help in our analysis.

While I am writing this book, it is based on all the efforts put forth by my partners, our staff, meetings that I have attended, and my two key study groups—the Alpha Group and Group 2020. My coworkers will be the first to tell you that I am not a detail guy, so it may seem somewhat ironic that I developed a concept around detail. But it was really a way to protect me from my weaknesses and emphasize my strengths. Talking with the clients and understanding their motivations was more fulfilling for me than going step by step through tax returns and documents. The index made sure that I didn’t miss anything when forced to do the necessary work that was less engaging for me. Each of us has areas that resonate with us and we would be far happier spending most of our time doing these things. But as we grow a business, we may find ourselves working doing the things that don’t represent our callings, but are necessary to help our client’s reach theirs. Even if you only use the index for its checklist component, you will be certain that you haven’t missed some key area of your client’s plan. And you won’t be facing the unmitigated dread we have all felt at some time in the past when a client asks “why haven’t we discussed this.” Our practice has become large enough where I am spending the majority of time doing the things to which I can add the most value. I describe myself as someone who knows better what is happening 10 years from now than 10 minutes from now, and now I spend most of my time reading, writing, thinking, and working with clients. A dream job.

Fortunately, my partners are the opposite of me. This started with me creating the initial concept of the WMI, but Wil Heupel, my co-founding partner of Accredited Investors, Inc., making it possible to use this in our practice. From there, people within the company have taken the role to great lengths with an ardent fervor of how to communicate what we are doing in a way that clients can receive the information.

The Wealth Management Index Overview

The index itself has changed from when I first wrote the book. We have modified categories and included new ones. The wealth management landscape is dynamic and it has been important for the index to keep up with the changing environment. It has become more detailed than the first version, but not so detailed that it becomes an impediment to planning—where looking up and out is often more valuable than looking down.

Another discovery that we made was that many clients are not interested in a score; they are interested in the progress that they are making toward their objectives. This means that the scoring portion of the index has been changed within our practice to a progress component. We communicate to the client where we stand with the various areas as we are going through them. There is no set point when a client is done with planning, so progress is forever monitored. But I have heard from many of you that scoring was something that you valued about the index. For those of you who are interested in this, the scoring component still exists. There are more categories and more decision points than in the first version, yet not too many to make scoring impractical.

We use the index by creating main categories with subcategories underneath them. The subcategories are how we outline the goals for the client and report progress back to them through our agendas, meetings, and follow-up letters. Each subcategory has a number attached that flows through our WMI database.2 The key advantage to this system versus the original WMI is that as new areas begin to develop, we can add them more easily. For example, long-term care insurance was a relatively nascent industry when I first wrote The Wealth Management Index. Today it is an area that we review with every client, regardless of whether or not we recommend the purchase of a policy.

For this chapter, I simply will lay out the index, without providing a detailed explanation as to its use. The fundamental premise of the index is a blend of the right and left brains. We need to combine the thinking and feeling aspects of the client in order to best serve them. Therefore, the index does not simply give technical solutions. In addition, it creates a framework for opening up discussions in the areas to be analyzed. But f you are the type who wants to know who wins the reality TV show without watching the episode, then by all means, jump to Chapter Nine and get right into the guts of the index.

The Wealth Management Index

There are five key components to the index:

1. Asset Protection (Preservation)

2. Disability and Income Protection (Protection)

3. Debt Management (Leverage)

4. Investment Planning (Accumulation)

5. Estate Planning (Distribution)

Under each of these components there are a series of broad questions that are then addressed through their subcomponents.

Asset Protection (Preservation)—25 Percent

Have you articulated a life insurance philosophy?—34 percent3

111 Assess the living and liquidity needs of survivors and dependants— 60 percent (5.1 percent)

112 Assess the possibilities of living benefits from existing insurance— 10 percent (0.85 percent)

113 Analyze the strategy of maximizing pension income through life insurance—10 percent (0.85 percent)

114 Assess estate tax wealth-replacement needs and wishes—20 percent (1.7 percent)

What are your concerns regarding risks of large losses from medical, long-term care, property/casualty, and personal or professional liability issues?—33 percent

121 Review medical insurance including liability limits, co-pays, Medicare, and COBRA—20 percent (1.65 percent)

122 Understand feelings regarding long-term care and evaluate needs—20 percent (1.65 percent)

123 Determine amount of self-funding on property/casualty deductibles and limits—10 percent (0.825 percent)

124 Understand personal liability needs—10 percent (0.825 percent)

125 Review professional liability limits and appropriate tail insurance—20 percent (1.65 percent)

126 Review benefits and drawbacks of asset transference and retitling for long-term care or liability considerations—20 percent (1.65 percent)

Have you defined and protected your business interests?—33 percent

131 Evaluate business structure—10 percent (0.825 percent)

132 Determine business valuation and develop succession plan— 30 percent (2.475 percent)

133 Establish/review buy/sell and business continuation agreements— 20 percent (1.65 percent)

134 Determine needs due to disability—20 percent (1.65 percent)

135 Establish appropriate funding mechanisms for buy-out upon death—20 percent (1.65 percent)

Disability and Income Protection (Protection)—20 Percent

What are the income and lifestyle needs and wants of your family currently and prospectively?—35 percent

211 Review current cash flow and budget needs—30 percent (2.1 percent)

212 Determine the amount of income that you wish to replace if you were to become disabled—20 percent (1.4 percent)

213 Determine purpose and costs of one-time large expenditures including education, vacation homes, or assistance for family members— 10 percent (0.7 percent)

214 Establish your financial independence goals and the price to be paid to achieve them—30 percent (2.1 percent)

215 Review your annual charitable giving objectives and how they should be funded—10 percent (0.7 percent)

Have you evaluated all current sources of income and potential changes to these sources?—25 percent

221 Understand current and projected earned income for your family— 20 percent (1 percent)

222 Review all pass-through income from S-corporations, Limited Liability Corporations, or Partnerships—20 percent (1 percent)

223 Review the cost/benefits of various pension pay-out options— 15 percent (0.75 percent)

224 Analyze social security income options including those for children under 18—15 percent (0.75 percent)

225 Understand required minimum distributions from retirement— 10 percent (0.5 percent)

226 Determine the amount of portfolio withdrawals to fund expected three-year cash-flow shortages—10 percent (0.5 percent)

227 Objectively consider any expected gifts or inheritances—10 percent (0.5 percent)

Are you fully utilizing all benefits available to you?—15 percent

231 Review participation in pre-tax reimbursement and cafeteria plans—25 percent (0.75 percent)

232 Determine levels of participation and type of company retirement plans (qualified and non-qualified)—25 percent (0.75 percent)

233 Review all available stock purchase and stock option plans including any necessary filings—25 percent (0.75 percent)

234 Evaluate whether any forms of IRA contributions, rollovers, or supplemental retirement plans on self-employment income are appropriate—25 percent (0.75 percent)

Are you proactively engaged in tax planning for you and your dependants?—25 percent

241 Determine appropriate levels of withholding and estimated tax payments—15 percent (0.75 percent)

242 Determine whether tax-loss harvesting is possible and appropriate— 15 percent (0.75 percent)

243 Review gifting opportunities and strategies—20 percent (1 percent)

244 Determine whether to accelerate or defer income and/or deductions for tax bracket or AMT reasons—30 percent (1.5 percent)

245 Evaluate the recharacterization or conversions of IRAs to/from Roth IRAs—20 percent (1 percent)

Debt Management (Leverage)—10 Percent

Have you established your philosophy regarding using savings or credit?—30 percent

311 Determine desired level of emergency fund and credit lines— 35 percent (1.05 percent)

312 Evaluate appropriate credit cards for limits and benefits—25 percent (0.75 percent)

313 Develop a strategy for when you wish to be debt-free—40 percent (1.2 percent)

Is your type of debt appropriate given your wealth-management objectives?—70 percent

331 Review the best financing terms on all properties considering time horizons, interest rates, and deductibility—34 percent (2.38 percent)

332 Review the best financing terms and deductibility terms on lines of credit and alternative debt—33 percent (2.31 percent)

334 Determine your current ratio as well as credit ratings—33 percent (2.31 percent)

Investment Planning—25 Percent

Have you developed an investment philosophy?—60 percent

411 Define your attitude toward investment risk—10 percent (1.5 percent)

412 Determine whether the portfolio return objectives are consistent with these attitudes—10 percent (1.5 percent)

413 Define the various time horizons for which you are saving— 10 percent (1.5 percent)

414 Determine legal, investment, regulatory restrictions or unique circumstances impacting your portfolio—10 percent (1.5 percent)

415 Determine a suitable asset allocation—60 percent (9 percent)

Have you determined the mechanics for managing your portfolio and the evaluation of what success looks like?—40 percent

421 Decide accounts to consolidate, transfer, or maintain separately and how they will be handled for policy and advice—55 percent (5.5 percent)

422 Determine asset location—15 percent (1.5 percent)

423 Review portfolio performance relative to appropriate benchmarks— 30 percent (3 percent)

Estate Planning—20 Percent

Have you a philosophy on wealth transfer?—70 percent

511 Determine the amount of after-tax inheritance and how it is to be received—40 percent (5.6 percent)

512 Determine survivor liquidity needs outside of trustee control and to pay estate taxes—10 percent (1.4 percent)

513 Direct proper ownership (including revocable trusts), beneficiary designations, and determine guardians and trustees—10 percent (1.4 percent)

514 Determine where estate discounting techniques and wealth-transfer entities—Family Limited Partnerships, Qualified Personal Residence Trusts, Grantor Retained Annuity Trusts, defective trusts, Irrevocable Life Insurance Trusts, and others—are appropriate—10 percent (1.4 percent)

515 Finalize documents and Crummey notices—10 percent (1.4 percent)

516 Determine whether a family meeting should be facilitated and appropriate family governance prepared—15 percent (2.1 percent)

Have you articulated your charitable philosophy or mission statement?—10 percent

531 Develop and share your charitable mission statement and money values—50 percent (1 percent)

532 Evaluate lifetime giving and/or giving at death—25 percent (0.5 percent)

533 Evaluate charitable lead trusts, remainder trusts, gift annuities, donor-advised funds, and private foundations—25 percent (0.5 percent)

Have you planned for incapacitation, elder care issues, and final planning needs?—20 percent

541 Discuss writing an ethical will as well as creating a DVD through a personal historian to communicate your values—30 percent (1.2 percent)

542 Implement power of attorney documents for financial and health care purposes—40 percent (1.6 percent)

543 Establish pre-need written procedures for family to execute final wishes—30 percent (1.2 percent)

Tracking Progress

Overwhelmed? Actually, this process makes it easier to keep track of the areas on which we are working. No longer do we fear that something is not being covered, because it is all laid out in a manner that is relatively easy to follow.

It’s clear, though, that no practice can work on everything at once. Later in the book, I will spend considerable space going through the analysis of the component pieces of the index. There is a significant amount of advice being delivered to the client. We have found it most effective for meetings to break down the five main categories of the WMI and tackle only one or two of them in the client meeting. Each meeting uncovers further work to be done and new objectives to be established. Therefore, updates on the previous meeting’s assignments are provided as new analysis on the current area is being introduced. Essentially, the wealth-management plan is rolling.

This is central to the theme of what we do. You cannot deliver a financial plan once and be done. Any decision closes the door on certain possibilities and opens it on others. Some prospects will think that the plan would be delivered and after that it is mostly housekeeping and investment management. I have said that wealth management is like running a marathon—just because you have trained for and completed one doesn’t mean that you will be in shape for the rest of your life. In any given year, certain components may take priority over other areas, but each area needs to be addressed as a way to insure that issues are constantly being uncovered.

This points out another truth about what we do—over the life of a client relationship, there will surface one or two things that inevitably will make the relationship incredibly valuable to the client. In our practice, we have handled deaths, disabilities, chemical-dependency issues, sales and purchases of businesses, marriages, divorce, and everything else that can happen in life. Invariably, after any of these startling events occur, clients will become more grounded in the relationship and fully understand the value of comprehensive wealth management.

Since there are so many things that must go on at once, we have established a tracking system that measures the progress we are making on each objective. The system involves 10 components:

WMI—status updates for goalsNot Discussed/Not Defined0Opened Discussion2Redefine or Revisit Goal3Goal Established4Research and Modeling Completed5Analysis and Recommendation Completed6Presentation and Approval7Implementation in Progress8Goal Strategy Implemented10Archived (Goal no longer applies)1

As we go through each of the areas of the index, we are monitoring our progress in all of our communications to the client in the following way:

Objective is established and categorized using the numbering system.

For example, a client letter or agenda item would state:

241: You wish to insure that you are withholding enough from your regular earnings to avoid having to pay estimated taxes on your outside earnings.

We then discuss how this objective was decided.

Since you feel that last year’s outside income was unusually high, you would rather, if necessary, adjust withholding later in the year to avoid penalties.

We assign the staff person (or client if it is their responsibility), establish a due date, and put a number as to where we are in the process. When we first establish the goal, we assign 4 to it. As we make progress through the analysis and implementation, the corresponding number will change. These numbers serve as the tool for scoring the index.

If a strategy was implemented, the client would get a 10 in that particular area under which the goal was stored and therefore get full index credit. If we only presented the analysis, the client would receive a seven and therefore get 70 percent of that particular component. If there are multiple objectives under the same component, then each objective is scored separately to create a combined score for the component.

Conclusion

The practice of comprehensive wealth management is complex. There are constantly moving targets, various assignments and follow-up, shifting priorities, and personalities. A disciplined, accountable approach increases the likelihood of success in the client relationship and client outcomes. This book will share with you the things that we have done to build a thriving practice that combines systems to create consistency coupled with the approach that ensures each client a unique and personal experience.

Notes

1. I think Roy Diliberto from RTD Financial Advisors based in Philadelphia was the first one I heard describe our purpose as wealth managers “to improve the lives of our clients.” This has always resonated with me because it speaks to the depths to which our relationships are formed and the importance of the work that we do.

2. Our database was developed internally by Lorenz Oliver-King, who spends his days improving it and upgrading it. The advantage of this is that we have a database for customer-relationship management that is centered completely on how we do business. The disadvantage is that we have a full-time employee updating it and modifying it. If we were starting over, we would probably purchase a system like Junxure (www.junxure.com) or ProTracker (www.protracker.com) which can incorporate some of our principles but by which we could offload the programming to a company established to do it.

3. The formula for the value of each component of the index is determined by first taking the value of the particular category (Asset Protection, Disability and Income Protection, Debt Management, Investment Planning, and Estate Planning), multiplying this by the value of the broad, value-based question within the category (i.e., Have you articulated a life insurance philosophy—34 percent) multiplied by the value of the technical question underneath the value-based question (i.e. Assess the living and liquidity needs of survivors and dependants—50 percent). The value of the example above would be 0.25 × 0.34 × 0.50 = 4.3 percent of the total index.

CHAPTER 2

Building and Operating a Practice

This chapter covers the various questions to consider as well as the steps needed to take as you build or operate your practice. I will be sharing many of the tools which we have incorporated into growing our own business. I will also discuss some of our successes and mistakes.

What Do You Want to Be When You Grow Up?

When I started in wealth management in 1982, I had no clue as to what the field would become or how my future would be shaped. And as we grew from a solo shop to a partnership to a business with three owners and more than 35 employees, I was struck by several things that influenced us over the years. This list makes sense for us; I know that other firms may have a different (and even contrasting) viewpoint.

1. Avoiding big mistakes may be more important than getting big decisions right. Over the course of several years, we have survived problematic hires, working with the wrong types of clients for our offering, administrative snafus, regrettable investments, and even a misadventure into a whole new business—becoming a sports agent. The key for us, though, was honestly reviewing the situations into which we got ourselves, and quickly trying to extricate ourselves from the problems. For example, after I just finished negotiating with the Green Bay Packers on a contract for our only client, the General Manager at the time asked if I would be interested in representing a friend of his family’s. I paused, took a breath, and told him “No thanks.” I said that I hated doing this and it distracted me from what I was good at doing. This leads to point number two.

2. Incremental growth works better than giant leaps. There are some who have built their businesses through acquisitions. This is something that we have never really attempted. One of the strengths of a firm like ours is a very clear culture. We work well with a certain type of client, in a particular way. We look for staff that has certain characteristics which are consistent with this culture. Many of our hiring mistakes came from bringing in senior people from places with a radically different approach to business. We were enamored with credentials or background, but lost sight of the fact that the very act of success in these other environments could preclude the same thing from happening in our environment. This is one reason why we get concerned about purchasing other practices. We are not only buying the clients, but their shared history with the wealth manager. While growing through referrals and other marketing approaches is slower, it has some distinct advantages. Clients who come from other clients have a better sense of what they are getting and often share some personality traits with their referrers—with whom we have a successful relationship. Also, gradual growth puts less of a strain on cash flow and enables you to invest resources on your strengths. As Marcus Buckingham writes in his book Now Discover Your Strengths, “Each person’s greatest room for growth is in areas of his or her greatest strength.”1 I believe that this is true of practices as well. By focusing on the areas where we have been successful, rather than entirely new areas that would come from the integration of another practice, we have built a sustainable and enduring business model.

3. Don’t let your reach exceed your grasp. The big decisions that we have made, such as buying our office building, were really not that big. When we bought our building, we were faced with a leasing decision for 8,000 square feet with no opportunities for more contiguous space if we grew versus, for virtually the same payment, purchasing a 16,500 square foot building that we could renovate. This building will allow us to grow to around 55 people. While there was certainly a resource commitment to the renovation project, we don’t find ourselves in lease negotiations with the possibility of moving every five years. In the February 2011 edition of Investment Advisor magazine, Mark Tibergien writes that “a study on operating performance conducted three years ago {2008} revealed that 25% of all independent firms with assets over $100 million had at least a second location.”2 We believe that we have such a small market share in the Twin Cities that we are better off building market share here rather than venturing into new markets—even if our clients lead us there. While I think it is critical to keep thinking about what you wish to become, I think one should do this very thoughtfully and carefully. Just an aside, we try to make sure that we have the staff in place to bring in new clients before we develop marketing initiatives. If we are successful with the campaign, we don’t want to end up compromising our service because of the new business.

4. You control far less than you think. I keep a copy of Reinhold Niebuhr’s Serenity Prayer on my desk: “God, grant me the serenity to accept the things I cannot change, Courage to change the things I can, And wisdom to know the difference.” These words have had a tremendous impact on me as things swirl around me. I remember being quoted in an article several years ago that my partner and I wanted to keep our practice small. Guess what—we couldn’t. Happy clients referred us to their friends and family. Great staff needed opportunities to grow and be challenged. Success often begets success. Economists Brian Arthur and Kenneth Arrow describe path dependence and increasing returns. Returns can expand when you find a niche in which you can excel or dominate. Positive feedback loops are created where success leads to more success.

5. Good fortune plays a pretty significant role. If you do everything that I suggest in this book, you will still have a vastly different practice than what we have. It may be better, it may be worse, but it assuredly will be different. For example, not all of our clients refer people to us. We have been fortunate that some of our bigger clients also happen to be good referrers. While there may be programs we could institute to increase the chances of obtaining referrals, it is still a little bit of a crapshoot as to who will refer you to whom. Great business or great fortune? I think good business practices enable you to jump on good fortune as it’s presented, but if it never shows up, there is nothing on which to jump. Most of us should take a step back and pay attention to the fact that our success has come from not simply our own choices, but from the pioneers of the industry before us as well as a sizable dose of good fortune.

6. None of us really know what anyone else is doing or why. It is easy in this business to get discouraged. You may look at someone who appears to have great success and wonder how the heck they could have done it. The truth is you don’t know if they really have done it nor do you know what they have done. When I give talks on practice management, I try to be as open as possible. But my talks still are my interpretations of looking back from where I am today. I am not completely sure that the stories I tell accurately reflect what happened, I know that they simply reflect my view of what happened. More important, we have no real way of knowing what could have happened with alternative histories. Which decisions could we have made that would have enhanced or impeded our growth? In the complex adaptive systems in which we operate, there are an infinite number of choices and results from those choices.

7. Resilience and forgiveness are essential. There are inevitably going to be things that go wrong, but how you recover from them, and how you both ask for and give forgiveness will have a huge influence on your fate. Forgiveness is forever giving up hope of changing the past. At times we need to forgive others for things that they have done and at other times we need to forgive ourselves for things that have happened. During the dark days of ‘08, it was very difficult to look clients in the eye and say that our diversified portfolios were down less than the market’s but way more than we had hoped. We were genuinely sorry that clients were feeling anxious. But unless we forgave ourselves, we would never have been able to stay engaged with clients during these tumultuous times—which were thankfully very short-lived.

Integrating some of the concepts listed previously, the real question becomes what is the type of practice that you wish to have. I have been a firm believer in crafting your personal plan before developing your business plan. I have seen far too many people with successful practices and bankrupt personal lives. I believe that the great thing about our field is that we can have great flexibility as well as great opportunity.

One of the reasons that we began to grow the practice was because my wife (Bridget) and I had young twins. Bridget and I knew that we wanted to be able to create experiences for our family. Since our practice at the time was quite small, vacations never really were vacations—it felt like I had to be on call to handle client situations. This was especially true because my partner, Wil Heupel, and I had discrete areas of expertise; I ran the investment planning area and Wil handled the estate planning. Both of us were involved in general financial planning. By beginning to build the firm, we could have people who could handle questions and issues when either of us was gone. This may seem obvious, but it is amazing how little time you get to reflect on the practice when you are steeped in the middle of it. As the firm grew, I was able to create pockets to spend more time with my family. We were able to take three to five weeks off at a time to visit various places in the world. Now that our daughters are heading off to college, we have few regrets about the time we spent together. This would not have been the case if we didn’t make a decision to build the business around our life goals.

I think the areas that you want to get right in your business plan are relatively easy:

1. Who do you want to serve? You can slice this objectively and subjectively in many ways—size of client, profession, personalities, and so on. Currently, we serve clients with $2,000,000 or more of investment assets. We also have developed specialty practices with physicians, business owners, and intergenerational wealth. We also want to work with clients who value the comprehensive and integrative nature of our work. This we screen by how forthcoming they are in the prospect interview. While you may change your target client over time, you will have to deal with those legacy clients who no longer meet your profile. This is a tough thing to do. One of the ways we have tried to deal with this is by establishing criteria for other firms to whom we can send either prospects who don’t qualify or clients who are too costly for us to continue working with (but who may be very profitable for a smaller firm).

2. How do you want to serve them? Obviously, our stake in the ground is the Wealth Management Index whose essence is comprehensive and personal wealth management. This decision means that we need more time with clients and more staff to execute our vision. Because of the time commitment and necessary staff resources, we also have to have higher minimum retainers or fees.

3. Who do you want on the bus? This is right out of Jim Collins’s Good to Great. In describing great companies, he says “they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.”3 Traditionally, we have been lousy at this. We originally hired people that we liked rather than people who could do the job. We were slow to let people go who were not able to do the job. When they eventually were transitioned out or quit (because they could not handle the position) they would leave frustrated with the organization and negatively communicate things about us that we may have felt were unjustified but, as professionals, did not feel it appropriate to try and refute. We have learned a lot over the years. I think the best advice is to hire slowly (but by all means hire), put new hires on a probationary period, manage hard during that period, and give honest assessments as to their likelihood of making it. This is not only right for the business, but it is the humane thing to do. Deena Katz likes to call this “freeing up their future.”4

4. If you were successful, what would it look like? We use this with clients as it relates to our relationship, but it is also a great question to ask of yourself when you are trying to figure out your practice. One of the things that I had to learn to do was build in time to think about the practice. This is different than managing it. Setting strategic directions needs to be done in a climate of possibility. I believe that this can best be handled through quiet time.

These decisions are equivalent to Lorenz’s butterfly effect for chaos theory—initial conditions have a huge impact on the future that you are going to craft for yourself. If you start by taking any client who walks in the door even though they are not with whom you really want to be working, you will be unhappy. If you do a great job, you will continue to get referred to more clients of the same type. Eventually, your practice is a mess.

Accredited Investors, Inc. Guiding Principles

We have some guiding principles for our firm that have helped us to define who we are and who we want to be. We share these principles with our clients.

We believe that our purpose as an organization is improving the individual and collective lives of all that we serve. This statement is meant to include clients, staff, community, and others with whom we are involved. Our fundamental premise is that we believe in the value of comprehensive professional wealth management. We see this value every day at work with our clients. Our purpose is to help the client determine what is important to them and bring congruity between their actions and their values. Our aspiration is to build a committed relationship with our clients and sustain this relationship over their lifetime. In order to do this, we have core beliefs that we tell our clients:

Wealth management involves maximizing your wealth. At Accredited Investors, Inc., we define this as integrating all of your resources—financial, emotional, physical, and spiritual.Our planning expertise will help you strike a healthy balance between these resources.The in-depth level of communication between us will determine our level of success. Wealth management is personal, so we often ask that you share with us some of the many things that you don’t share with anyone but your family.We believe in integrating the five key areas of wealth management—Asset Protection, Disability and Income Planning, Debt Management, Investment Planning, and Estate Planning. We believe all of these areas are integral for achieving your personal financial success.We also believe in spending your life wisely. We believe that life decisions cannot be made solely based on their financial impact.We believe that a competent and fulfilled staff is critical to develop and execute the goals of our clients. We treat our staff with respect and ask that our clients do as well.We believe that we should enjoy this process and trust each other. If that stops happening, we believe our relationship needs to be reevaluated.We believe in the value of synergy. A healthy communication and exchange of ideas between all related advisors is essential to achieving your desired success.

Our Commitment to Clients

In addition to the guiding principles on which our firm was built, we have commitments that we make to clients.