While 20 years ago it was possible to thrive as an investment specialist only, that’s becoming increasingly difficult in today’s financial planning services environment. Now clients want advisors who do more than manage their investments – they expect advisors to offer comprehensive financial planning.

Comprehensive financial planning can deliver more value to investors. Vanguard’s Advisor’s Alpha framework estimates that a good advisor can add up to an extra 3% per year to a client’s return. While some of this added value comes from investment management and rebalancing, the largest boosts come from behavioral coaching and support with spending strategies.

When weighing financial planning services for advisors, set your sights on building stronger client relationships. Clients are more likely to stay with an advisor who understands their entire lives, including their short- and long-term goals, and refer friends and family to them.

If you’re looking to expand financial planning services within your practice, this essential guide covers the key areas to focus on so you can deliver the most value for your clients.

Table of Contents

How to Assess Client Needs

The foundation of financial planning is figuring out a client’s needs and goals, as well as the steps required to work toward these goals. Here are some considerations for your initial assessment.

Cash flow-based planning vs. goal-based planning

These are two ways to help clients establish goals. Goal-based planning, helps the client prioritize what they’d like to accomplish and creates strategies for funding these goals. It’s a great way for a client to go from a general idea to a specific goal. For example: “I would like to retire at some point in my life” to “I want to retire at age 65 with a spending goal of $120,000 a year.” Goal-based financial planning starts with the end result and works backward on how to achieve that goal.

Cash flow-based planning, on the other hand, is a method of financial planning that focuses on exactly that – cash flow. It looks at what is coming in and what is going out. Once that is established, the surplus is then deployed to help the client achieve their objectives. This is very similar to a budgeting exercise, but on a slightly grander scale.

Goals-based planning looks at the bigger picture and shows the client how much they can spend and save. Cash flow-based planning tells a client how that spending and saving affects when and how they achieve their goals.

No one method of planning is better than the other. It comes down to how you think about financial planning and what fits your clients best. It’s a bit like ice cream flavors. Do you like chocolate or vanilla? Some will say chocolate, and some will say vanilla, but at the end of the day, it’s about what suits the client.

Tax-efficiency planning

While clients are likely to work with an accountant or other tax professional, financial planning services should still maximize tax efficiency for clients. Make sure your clients are aware of year-to-year rule changes that apply to their unique situation, such as the relevant deductions for a family with children.

Advisors should also keep a long-term focus on tax optimization. Clients can earn income through three buckets:

  • Taxable income: This includes income that’s taxable the year it is earned, such as investment earnings in a brokerage account or income from a rental property.
  • Tax-deferred income: Investment gains in a tax-deferred retirement account like a 401(k) or traditional IRA, which will be taxable only when withdrawn.
  • Tax-free income: Earnings in a Roth IRA or Roth 401(k), cash value life insurance which can be taken out tax-free in retirement.

Your financial plans should consider how to balance these buckets not only to minimize taxes this year, but also in a way that’s most beneficial long term. For example, your plan might consider whether it makes sense to owe more taxes now, such as through a Roth conversion, in exchange for lower taxes in retirement.

You also want to understand your client’s legacy goals. If they are going to pass assets on to the next generation, it would be wise to look at what tax bracket your client is in and where you think the tax bracket of the heirs will be. If you are in a lower tax bracket than your heirs, you would want to spend the tax-deferred assets or do a Roth conversion strategy to lock in a lower tax bracket for them. If your client is in a higher tax bracket, you would want to look at passing on those tax-deferred assets, so your heirs realize that income at the lower brackets.

Social Security analysis

Social Security is more complicated than most people realize. The number of rules is frightening, and it’s so easy for clients to make mistakes. As you know, clients can begin claiming Social Security at age 62. If a client sees the chance to receive an extra $1,500 benefit a month at this point, they might jump at it. They might not realize they would get penalized by not waiting until their full retirement age to start claiming payments: age 67 for those born in 1960 and later. Clients also may not realize that each month they delay benefits increases their monthly payment until it maxes out when they turn 70.

Social Security planning is even more important when a client is married. If one spouse has a larger payment and dies first, their surviving spouse can take over their larger Social Security check. In other words, these decisions can impact both people for the rest of their lives.

Social Security planning is an area where you can really deliver long-term value to clients.

Financial Planning for Business Owners

Many financial advisors work with business owners. When advisors meet with business owners, however, there’s a tendency to keep their business planning separate from their personal financial plan. This is a mistake because the two overlap in important areas.

Tax-efficiency strategies for business owners

Business owners have access to a wide range of tax benefits that could connect with their personal financial plan. For example, a C-Corp could deduct financial planning fees if the business is paying for it. But if you aren’t looking at their personal and business finances together, you could overlook tax-saving opportunities for your clients.

When the business owner decides to sell, they can use strategies to minimize the taxes on their eventual exit, such as setting up trusts or using charitable giving. The earlier they start working with an advisor in these areas, the more they can do to improve their future tax prospects. If they wait until the year of their sale, it might be too late.

Business valuations

Business owners pour their hearts and souls into their ventures, but often don’t take the time to get a true understanding of what they are worth. They’re running blind regarding a critical part of their financial plan.

Given how hard they worked, it’s possible they overestimate the value of the business when they eventually sell. They end up with less than they expected for retirement and other goals. The business could also be worth much more than they expect, potentially changing their opinion of when they should retire.

As their advisor, you should push them to get a valuation as part of their financial planning. A professional valuation costs thousands and makes sense if they are close to selling. If they aren’t, they could get a less expensive or even free estimate by using online valuation tools like Flippa and BizEx. Even advisors, as business owners, should understand their valuation.

[How much is your business worth? Whether you’re looking for a succession plan or want to acquire another firm, knowing your company’s valuation is key. Use our valuation calculator today.]

Succession planning

Business exit planning is spiking. Baby boomers who were already close to retirement are looking for ways to get out while maximizing value. Your clients need a succession plan that outlines whether they will give their business to a family member, make an internal deal with a current employee or sell to an outside party, and the terms of their chosen plan.

Advisors who specialize in this type of work typically hold a Certified Exit Planner (CExP) or a Certified Exit Planning Advisor (CEPA) designation. If you don’t hold this certification, you should connect them with someone who does. Together, you can help your clients prepare for a successful exit and succession plan.

Carson’s Advanced Solutions Team helps our partners assist high net worth clients in this important area.

Estate Planning

Estate planning is another crucial yet complex part of a financial plan. It’s the roadmap that outlines what clients want to happen at the end of their lives. Essentially, a client’s assets can end up in three places after death:

  • Assets can be passed on to beneficiaries.
  • Assets can be left to charity.
  • Assets can be used to pay taxes.

A financial planner works with their clients to figure out how they want things to equal out between these goals, and to come up with an action plan to that end. This could mean setting up the right trusts to reduce estate taxes or, if a client wants to donate, seeing that the donation happens according to their wishes. Without a proper estate plan, more money could end up going toward taxes instead.

Besides coming up with a plan, you should help your clients connect with the right professional and follow the steps needed to complete the plan, such as preparing documents like a will, living will and trust.

As their advisor, you should also make sure the client uses these estate planning tools properly. A common mistake is to pay to set up a trust, but never transfer the assets into the trust, so it doesn’t accomplish what it was meant to.

Developing estate planning partnerships

Estate planning attorneys specialize in this area, offering a great partnership opportunity as you fill this need for your clients. To meet experts in this field, you can attend networking sessions from industry groups like the National Association of Estate Planners & Councils. You can also look for local estate plan attorneys and advisors with a Chartered Advisor in Philanthropy (CAP) designation.

Use the same approach you’d use to develop any partnership: send emails, call up practices, suggest a coffee meeting. Let them know you are trying to build these relationships for yourself and your clients. You could also ask your clients which attorneys they work with, as many likely have already done some estate planning.

Referring your clients to an estate planning attorney is a great way to network and earn referrals yourself.

[Read more: How to Gain Effective Leads Through Strategic COI Relationships]

Carson resources

For in-house support, Carson’s Advanced Solutions Team acts as an extension of our partner-advisor offices. We have attorneys who can review existing trusts and wills for our partners’ clients. They can make sure the documents are up to standard and that clients are in a good position. They can also help you build estate plans for our partners’ clients.

In other words, you have a team to assist you with complex financial planning services or provide a second set of eyes.

Risk Management

Risk management and insurance planning are fundamental parts of a financial plan, so much so that they make up an entire section of the CFP exam. Some of the insurance products you should discuss with your clients include:

Life insurance – At a minimum, life insurance covers a client’s final expenses and replaces their income for their family. The most common way that life insurance plays a big part in a financial plan is to replace the income a person would have earned over the course of their lifetime. Adequate life insurance will provide the assets needed to keep the standard of living for your family if you are not there. It could also play a valuable role in estate planning by creating an inheritance and covering estate taxes.

Annuities – Annuities are complex products where mistakes can be costly. Your clients need help navigating between the different types of products, understanding the fees and determining what role, and if an annuity should play in their financial plan. Annuities are one of the few ways to create guaranteed income that a client can’t outlive. They can be a valuable planning tool, but only if clients use the right products.

Long-term care planning – Roughly 70% of those who turn 65 will need some type of long-term care, according to the U.S. Department of Health and Human Services. With the cost of facilities averaging more than $100,000 a year in some areas, your clients need to plan how they will access and pay for this care, without burdening their loved ones. Even if your client has substantial assets, long-term care insurance could still be a good option for them. This will help preserve assets for the next generation that would have been used up by long-term care costs.

The fiduciary standard and risk management products

When it comes to a financial plan, the risk a client has across these areas is huge. Yet many advisors shy away from discussing insurance products, due to historically bad industry practices – namely, pushy salespeople selling these products on a commission. This directly contradicts the requirements of advisors working under a fiduciary standard, who are required to put a client’s interests ahead of their own.

Of course, you should never push products that your clients do not need. But if you aren’t talking about insurance products, you are leaving your clients’ plans exposed to potential disaster.

In response to industry trends and demand, there has been a rise in fee-only life insurance and annuity products that don’t pay commission. Advisors can recommend these products without running into conflicts of interest. Hybrid LTC life insurance products can solve multiple risk-management problems for your clients.

How to identify a carrier

If you’re going to recommend insurance products, you need to work with an appropriate carrier who provides them. At Carson, we work with an Insurance Marketing Organization (IMO), which is similar to a broker in that they can recommend products from many carriers.

Our strategy was to find an IMO that was a top-10 provider for many carriers but not number one for any of them. They do well enough to get a lot of attention and educational materials from their partners, but aren’t so embedded with one that they don’t look at the rest of the market.

This mindset could work well as you search for your own insurance carrier. Alternatively, Carson advisor partners can work with our IMO so they don’t need to find their own.

Policy and Legislation’s Impact on Financial Planning

The only constant with financial planning laws is that they change all the time. We’ve seen substantial updates through bills like the Tax Cuts and Jobs Act of 2017, the SECURE Act of 2019 and recently the SECURE 2.0 Act. Smaller changes also come up each year, including at the state level.

These changes can dramatically impact planning strategies. For example, the SECURE Act delayed when required minimum distributions must start from age 70½ to age 72, which could impact a client’s withdrawal plan. Then the SECURE 2.0 Act changed the RMD age again, going from 72 to 73, and eventually 75.

Advisors who don’t understand the 2022 loan forgiveness program and miss the window could cost a client $10,000. Then, there are incentive programs, like a dollar-for-dollar tax credit for installing solar panels. Clients who buy solar panels but miss the credit window potentially miss out on thousands in tax savings. If you aren’t tracking these laws and changes, you aren’t doing right by your clients.

Staying up to date

Keeping up with all these policy changes is easier said than done.

As an advisor, you may need help staying on top of changes. The best use of your time is not to sit down for 20 hours to read a 200-page bill like the Tax Cuts and Jobs Act. That’s 20 hours you could be spending with clients.

There are resources and training courses designed to explain these changes to advisors, potentially from your RIA, your broker-dealer, a coaching company or an industry group. Carson’s team stays on top of these important legislative issues and breaks down the impact for our partners, including materials to use with clients.

New laws will impact clients in different ways depending on their circumstances. It helps to use both tax planning and financial planning software. These tools stay on top of legal changes and can give recommendations in both areas so you can adjust the plans as needed for your clients.

How to Draw on Retirement Income for Clients

Once your clients reach the retirement finish line, your work as an advisor is far from over. You also need to make sure they can draw on their retirement income for the rest of their lives. There are three main approaches, each with pros and cons.

Systematic withdrawal approach

In a systematic withdrawal approach, clients take a set percentage or amount out of their portfolio each month and year. They adjust their annual withdrawal for inflation, but beyond that, there are no other adjustments.

The 4% rule is the most famous version of a systematic withdrawal approach – clients start taking out 4% a year from their original balance and stay at that amount each year. Someone with $1 million would start with $40,000, increasing their withdrawal each year only for inflation.

A systematic withdrawal approach is the easiest to manage, but doesn’t adjust based on market returns. This potentially increases the risk of a client running out of money, especially if they hit a downturn early in retirement.

Bucketing approach

With bucketing, clients position their money across a few different areas. The first bucket is their spending bucket. It should include one to two years of their living expenses in cash or other very safe assets like a Certificate of Deposit (CD). The value won’t fluctuate based on the market, so clients don’t worry about investment risk for this bucket.

The second bucket is safer investments, like bonds. The third bucket contains the client’s riskier equities. When the market performs well and a client has extra in their third investment bucket, they move money down into two and one. During downturns, they don’t touch three and instead spend down one and two. Bucketing takes a little more work, but can help a portfolio last in response to market swings.

Flooring approach

Flooring is the least common strategy but can be the most successful if your clients are open to trying it. With this strategy, clients determine what their minimum needs are for living expenses – or their “floor.” They then put part of their portfolio in investments with a guaranteed return, such as life income annuities, so they always earn enough per year to cover these needs.

The rest of the client’s portfolio goes into normal market investments. When the market does well, the client uses the extra earnings to spend more. When the market does poorly, they rely on their guaranteed income flow.

Key Takeaways

As you expand your practice to provide comprehensive financial planning, remember these key points:

  • Focus on more than investment portfolios – You could generate even more value by helping clients with retirement spending strategies and behavioral coaching.
  • Prepare for a variety of planning styles – There are different ways to set up a plan. Understand the pros and cons of different approaches, such as cash-flow versus goals-based planning, so you can match the preferences of different clients.
  • Look at the entire financial picture – All parts of your client’s finances impact each other. Dig into the details during client meetings so you don’t inadvertently fail to account for a key component of your clients’ financial lives.
  • Stay on top of changes – Every year laws change, and financial plans should keep up.

For insights to help grow your business and to learn what’s driving the success of today’s fastest-growing advisors, subscribe to Carson’s newsletter, The Trend Line.

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