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The Future Value of a Financial Advisor’s Expertise

Date: December 30, 2020

In addition to our normal responsibilities and services, we financial advisors also provide a level of expertise that can create a lot of future value but often gets forgotten since it falls outside the scope of our standard services. 

This includes everything from responding to a crisis to solving problems before they negatively impact your client’s finances. While existing clients appreciate this in the moment, we often forget to include this in the conversation with other clients and with prospects.

The Value of Your Expertise

Let’s start by making it clear that you’re providing a lot more value than you think. While some might argue that managing a portfolio or making smart financial plans to achieve specific goals is something a client could do on their own, there’s a lot more to the service we provide.

Sure, a client with enough financial education could probably find the right asset allocation for their needs. What they may not be able to do, however, is react quickly and appropriately to changes in the market, sudden changes in their financial status, or unexpected problems.

Financial advisors catch problems that the untrained eye can’t see. We know the industry and we have the knowledge and skill to advocate for our clients when they’re being dealt a bad hand.

Even clients with some financial knowledge can’t catch everything and may not be able to devote the same amount of time to chasing down the right person to talk to and keeping up the pressure until problems are corrected.

As a financial advisor, a lot of this expertise and experience can feel like common sense to you. You’re using it every day so it’s easy to take for granted just how valuable that is. If you take it for granted, your clients likely will to.

The Case of the “Irreversible” 401(k) Distribution

It’s easier to understand the future value of expertise when you see it in action. So, I’ll give an example from my own career that demonstrates the ways financial advisors create value outside the normal scope of their services.

A few years ago, we received a referral due to the untimely death of a man in his 50s. The referral was the younger brother of this man and the beneficiary of the trust. Unbeknownst to him, the trust was the primary beneficiary of the deceased man’s 401(k). 

Prior to coming to us, the paperwork for all this had already been processed. The younger brother walked in with a $300,000 check, ready to deposit.

After taking a closer look at the situation, we realized that this disbursement of the 401(k) was not the most favorable way to handle the fund. By disbursing the funds instead of rolling them over into an IRA, the inheritance had been exposed to taxation and the financial firm withheld 20% for taxes, or approximately $75,000!

In addition, the added income would have increased his tax bill by almost $190,000!

This client thought he walked in with a check but he actually walked in with a problem. Without our insight into the situation, he would have just eaten those costs without realizing there was another way.

However, we didn’t just stop at alerting him to the problem. 

We reached out to the financial firm to find a way to deposit this check back into the 401(k). We immediately ran into a wall. The firm claimed that, since the younger brother was a trust beneficiary, even if they did take the check back, they couldn’t distribute it any other way.

So, we reached out to a couple estate attorneys that we work with often to confirm that the trust had the necessary pass through language for transferring the retirement funds. The attorneys confirmed that it did.

With that, we reached out to the financial firm again. After two or three weeks of discussing the matter with different representatives, they finally agreed to reverse the transaction. That wasn’t the end of the road, though. 

There was still the matter of that 20% withholding. Having been in this field for a decade, I knew that many firms do not immediately wire withheld funds to the IRS. They usually hold them over until the end of the month and then batch process them. 

I asked the representative if this was the case for this financial firm. My suspicion was confirmed but the batch containing the withheld funds had, unfortunately, already been processed. 

It seemed that the $75,000 was lost. 

However, we still did not give up. We spoke with the firm’s attorneys and made a strong case that these funds were mishandled since the trust was a pass-through trust. 

After a lot of back and forth, the firm finally agreed to credit the $75,000 withholding to our client’s account. They would figure out on their own how to get the money back from the IRS.

The full value of the 401(k) was then processed as an inherited IRA, thus protecting our client from that $190,000 tax bill.

Provide Examples of the Future Value of Expertise to Prospects

It’s not practical to build these things into your fee structure because these are the kind of unpredictable situations that are bound to happen but not easy to anticipate and are usually unique to each client. You can’t really advertise “chasing down a mishandled inheritance” as a standard service.

Yet, our industry knowledge and expertise helped our client avoid a $190,000 tax bill! That is a lot of future value that’s not really baked into your fee conversation.

While you can’t disclose private information about your clients to prospects or other clients, you can talk about your experiences in a general and anonymous way as I did in the example above (details were changed). Doing so can really drive home the point that you are more than just a person who takes X fee and gives clients Y return in exchange. 

Take notes of events in your own career. Think of examples where you noticed and solved a problem your client wasn’t even aware existed or where you provided a solution they didn’t know was an option. In fact, develop a system to capture these “value” moments. 

Use these experiences to help prospects better envision the level of care and expertise that comes with your services. By giving specific examples (without violating anyone’s privacy), that future value you can create becomes more concrete.

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