Most high net worth individuals and families employ a collection of professionals to help them navigate their financial lives. These individuals and families are typically served by investment advisors, tax accountants and estate planning attorneys. Since the financial landscape is complicated, specialization is necessary to obtain the best ongoing advice. Aside from the technical expertise of these professionals, it is very important that these advisors work harmoniously as a team to solve their clients’ problems.
Following is a very brief description of the roles played by these financial professionals:
Investment Advisors: An investment advisor’s first objective is to understand a client’s financial goals and how investments fit into the client’s life. Most clients require a certain return to meet their needs. However, any returns goals must be considered in relation to the amount of risk that someone is both willing and able to bear. Once the advisor understands these goals, he or she determines an appropriate asset allocation between risky securities that provide higher returns and safer securities that hedge risk but provide lower returns. The advisor then builds a portfolio containing securities such as stocks, bonds and funds to satisfy the allocation. The advisor then monitors the portfolio and makes changes as market conditions or changes in client circumstances dictate. Finally, advisors may bring other financial issues to a client’s attention that may touch on accounting or estate planning issues and frame the issue for the appropriate professional.
Accountants/Tax Professionals: A tax accountant’s primary job is to help clients prepare and file their returns and make plans to minimize upcoming tax liabilities. The Federal tax code is horrendously complicated so a high level of expertise is necessary to comply with myriad and potentially conflicting rules. Most clients have overlays of state and local taxes. Further complicating matters, many individuals and families utilize personal trusts or participate in partnerships that exist as distinct legal entities and require separate returns. Accountants may also advise clients on the tax implications of the various financial decisions they face over time.
Trusts and Estates (T&E) Attorneys: These specialized attorneys help individuals and families formulate plans to pass their assets to future generations or charitable organizations through wills and trusts. As importantly, T&E lawyers develop plans to address incapacity so that someone can act on the behalf of a loved one who lacks the ability to care for themselves. These attorneys also draft trusts and other legal entities which hold investment portfolios. It’s important when working with an attorney to ensure that he or she is a specialist in trusts and estates rather than a general practitioner. The field is very complex and the negative consequences of relying on poorly crafted instruments can be severe.
Coordination between professionals is important on an ongoing basis for tasks such as annual tax filings and to update ever-changing family information. Investment advisors can access tax statements such as 1099s and can forward them directly to accountants for annual tax preparations.
It is also important that all professionals work together during difficult transitions, such as the passing of a loved one. Death often triggers the closing of certain accounts and the opening of newly titled trusts according to estate plans. Attorneys provide investment advisors with trust documents to open new accounts as custodians. Accountants are then involved in preparing final tax returns for trusts and estates to minimize future administrative burdens. The better that the professionals work together, the easier it is on clients and families, especially when those families are grieving.
Both clients and their advisors play an important role in fostering teamwork within the group. This is accomplished through transparency and posing questions to the group to determine who is best suited to help with each issue. Lawyers, accountants and investment advisors often bill for their services according to different metrics. Investment advisors typically charge fees based on assets under management while attorneys and accountants usually charge hourly fees. Regardless of this distinction, it is important that lawyers do the legal work, accountants advise on taxes and investment advisors manage portfolios. For clients to achieve the best overall outcomes, it is vital each professional stick to their core competency. When an issue moves outside of their arena, it is important an advisor bring in the expertise of the appropriate team member.
Eagle Ridge works collaboratively with dozens of attorneys and accountants on hundreds of matters every year. We consider these efforts an essential part of our fiduciary duty to our clients to provide them with the best service possible. These coordinated efforts are especially important during times of economic and market stress, such as we are now experiencing.