Case Studies and Articles

Private Wealth Advisor – Finding (Or Being) A Good Advisor

Private Wealth Advisor – Finding (Or Being) A Good Advisor

Reprinted from Private Wealth Advisor – February 2001

© Campden Publishing Limited 2001, London




How should an estate plan advisor be selected to ensure the best legacy for the wealthy family?  Vaughn W. Henry looks at the issues involved.

There’s more to finding a good advisor than judging competence by expensive office furniture.  And while many successful professionals have done adequate work based on their gregarious social skills, today’s financial problems have become more complex and clients are more sophisticated.  The use of Internet databases, search functions and software resources now provides many clients with more capacity either to better solve their problems or dig themselves into a deeper hole.  Without some level of expertise, many web surfing amateurs are misled by a wide range of misinformation and outright scams.

It is important to find a team of professionals who can guide, advise and coach.  That means it is often a function of an advisor to teach a client about their choices.  While some professionals might prefer to tell the client, “don’t worry, I’ll deal with it, sign here and it’s all taken care of”, clients may be better off to ask themselves whether or not their advisor can be all things to all people.  There is often an underlying battle for influence, and it is rare to have a team work together as well as they should to address all of the estate and financial planning hurdles.

How does it happen?  Understandably, clients use advisors they are comfortable with, but  too often clients rely on their accountant who has done audit and income tax preparation – or an attorney who may have handled corporate work or a divorce.  They might lack the expertise needed to offer a full range of financial or estate planning options and be unwilling to let the client know their limitations.  Frankly, that attitude leads professional advisors into malpractice or errors and omissions liabilities when they give advice beyond their expertise.  A recently released study by Prince and Associates (see box) surveyed donors, professional advisers and planned giving officers employed by nonprofit organisations. The survey results were alarming to some experts, and disappointing to say the least.  The most surprising finding was, in terms of competence and technical expertise.  The advisers who claimed planned giving as a major part of their practice generally lacked the necessary background to give proper advise.  Randomly generated estate planning and planned gifting questions on a self administered exam produced no group average scoring above 70%, the minimum passing grade.  Test scores were best among attorneys who practiced in the estate planning arena and worst among the charity’s fund-raising employees, but it’s important to note that all groups performed well under acceptable levels.

What this means is that ongoing education needs to be a requirement and different levels of training needs to be available for all those who make financial planning, estate planning and planned giving a part of their practices.   Too few professionals make an effort to stay current, much less on the cutting edge.

What does this mean for planners and their clients?  More consideration should be given to creating teams of specialists who can craft a plan that meets the family’s need for liquidity, tax reduction, control and security.   There are professional advisors who do not feel a responsibility to save taxes or preserve an estate.  It is common to hear ‘the kids inherited more than they deserved’ or ‘it’s not my job to cut a tax bill’ or ‘the client never asked me about taxes, they only wanted a simple will’.  Many commentators feel that an advisor has an ethical duty to present a range of options to a client that includes tax reduction and a discussion of family values.  One might contrast this situation with a patient going to a physician about a head cold, and the examining doctor observes a large irregular and discoloured mole.  The patient did not ask the physician about skin cancer, but the doctor has a duty to pursue the diagnosis and treatment, not wave it off and later claim that the deceased patient never asked him to do anything about an obvious problem.

There should be no more excuses about clients not asking about whether or not tax saving techniques were available, clients generally don’t have enough background to judge what is appropriate.  After all, they chose an experienced professional advisor.  Clients should have a family-friendly plan crafted to meet their unique needs for flexibility.  Professional tax and legal advisors should make a greater effort to educate their clients and help them understand the problems and provide solutions that meet all of their clients’ concerns.  Good plans address more than great investment returns and tax efficiency – they must also meet the needs of the family.

For instance, will the plan provide for proper management by underage or unprepared heirs?  Has it been decided if there’s an upper limit on what heirs could or should receive?  What does the concept of money mean to the client?  How much is too much?  Could an inheritance provide a disincentive to work and succeed?  Does the plan try to pass assets to all heirs equally, or have past gifts and interactions been considered in an effort to be equitable?  Since there’s more to a legacy than just money, the estate plan should include passing down a family’s value system and influence.  How have the family’s core values been addressed in the master plan?

The problem is that few professional advisors like to deal with such intimate and personal questions.  Most tax and estate planners spend years honing their analytical skills only to find that clients don’t create and implement estate plans for purely logical reasons – there is an overriding emotional motivation often unsolicited in discussions with the client.  The problem is that even an elegant estate plan that does everything it is supposed to accomplish will not be well received if the family doesn’t understand and agree with its goals.  As a result, there is paralysis by analysis, and nothing gets accomplished until both the logical and emotional needs for family continuity planning occur.  Rather than try to plan an estate on an asset-by-asset basis, take a big picture view of the family’s goals and values, and see how the planning can be made to meet those needs.  Often a good advisor helps the client take the first step to address what money means to their family.  While most families do not discuss wealth, it is often illustrative to ask:

  •  Did an inheritance play a significant role in the family’s acquisition of wealth?
  •  Does the estate plan promote equal or equitable distributions? (They are not necessarily the same.  For example, heirs who have sweat equity in a family business may be entitled to preferential treatment since they helped create the wealth.  However, some families feel that past salary and bonus plans have more than compensated those working in the family business.)
  •  Have intra-family gifts been a component of the estate plan?
  •  How successful have these gifts been?
  •  Did the recipients make good use of the asset?
  •  Will it be possible to continue a gifting programme?
  •  Have heirs been prepared to manage the estate’s assets?  (Wealth should be the glue that binds the family together, not the dynamite that blows it apart.)
  •  What has been done to help heirs learn to manage wealth?
  •  Will there be disagreements among the heirs over future inheritances?
  •  Has the plan set up future conflict, a ‘partnership from hell’, when heirs are forced carry on a family business with in-laws or ex-partners?
  •  Has the plan managed to protect family assets from unnecessary expense and tax?
  •  Does family wealth create ethical burdens?
  •  Can wealth be used as a tool to modify character development, responsibility and skills of heirs?
  •  Will the plan achieve a zero estate tax liability?
What Donors Want in Their Charitable Advisers Charity




Expertise in the technical details of executing the planned gift 16.0% 97.9%
Skill and efficiency in working with the donor’s professional advisers or with the charity 60.3% 75.2%
Willingness to let the donor set the pace in the planned giving process 67.2% 86.0%
Help in deciding what type of planned gift to make 85.5% 96.8%
Knowledgeable about the advantages and disadvantages of each type of planned gift 94.7% 99.4%
Sophisticated understanding of the donor’s personal motivations to give 99.2% 82.2%
Effectiveness in getting the charity to treat the donor as he or she wants to be treated 69.5% 11.2%
Note: 603 donors surveyed: donors in the survey had made planned gifts worth at least US$75,000 and had a net worth of US$5 million or more.

Source: Prince & Associates and Private Wealth Consultants, 1997

‘Over and over again, the courts have said there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor, and all do right for nobody owes any duty to pay more tax than the law demands. Taxes are enforced exactions, not voluntary contributions.’  Judge Learned Hand, 1934

If you adopt this philosophy – and most reasonable people do – consider this: with income tax, you get a chance every year to make sure you’re arranging your affairs the way you want them, but you only get one chance with estate taxes and that chance is your estate plan.  Everyone should have a plan that conserves and distributes assets, provides income for survivors and prevents unnecessary payment of excessive tax or transfer costs. A carefully crafted estate plan even offers an opportunity to pass down something more than property – that is, your system of values.  Not only should you have this kind of plan – you can.

Vaughn W. Henry