There is nothing like a great, perfectly cooked steak with a beautiful bottle of Cabernet Sauvignon. If you prefer fish, maybe a buttery Chardonnay, but the bottom line is that executive chefs and sommeliers spend years of training to put together great food and wine pairings and we pay a lot of money to enjoy them.
Another perfect pairing in the pursuit of delivering holistic financial wellness to clients is the wealth manager AND the insurance advisor.
In a February 21st 2020 article in WealthManagement.com, Larry Roth discusses How RIAs Can Maximize Their Sale Value During a Recessionary Cycle.
While an 1,800 point drop in the Dow Jones Industrial Average as experienced this past Monday and Tuesday may not cause a knee-jerk reaction to change the way a wealth manager does business or makes portfolio recommendations, it is clear, as Larry Roth points out, that “many high-visibility economists are starting to predict a recessionary cycle could be around the corner” and that a recession would diminish RIA fees and ultimately firm valuations. I have made the point, in many previously written articles*, that there are things that both can and cannot be controlled to preserve the value of a wealth management business. If the Wealth Manager is building a business that he or she intends to sell some day, a recession causing a diminished book value and a reduction in the value of the practice is out of their control but has a meaningful impact on their personal financial well-being. Mr. Roth indicates that an RIA must look beyond AUM fees and that “growing investor interest in receiving more holistic financial advice” is one avenue to pursue to maximize practice value.
Risk management is an integral part of providing holistic financial advice and acting as a fiduciary to clients. Insurance advisory for risk management not only protects and preserves the client’s assets but also serves to stabilize the value of a wealth management practice as well. I am not talking about commission revenue, as many RIAs do not or prefer not to take commissions. I am talking about retaining assets in the RIAs AUM portfolio and not selling into a down market when their client needs:
- The financial means to pay for care during a long-term care or chronic illness event;
- Cash to pay living expenses during a short- or long-term disability; or
- To provide beneficiaries with the funds to pay for final expenses, probate expenses, taxes or other post death needs to preserve the value of legacy assets for their heirs.
We all know that insurance provides the non-market correlated means to handle these needs. Insurance proceeds are always available at par value and often income, capital gains and estate tax free, if properly structured.
In a February 24th article, also in WealthManagement.com, author Eric Lawton, in Stress Testing Client Wealth Plans, discusses the benefits of stress testing financial strategies and that it is “becoming an increasingly popular activity among the wealthy and their advisors”.
“Stress testing can also be done, and often is done, when people don’t know if they have the best wealth management solutions for their situation. If you feel confused or uncertain about the wealth management solutions your clients are employing – which might occur after a big life change, for instance – then stress testing may be a good idea” says Mr. Lawton.
What is a bigger life changing event than severe illness or death? During the financial planning process with clients, are clients’ financial goals and objectives stressed in the event of death, disability or long-term care? If your answer to this question is “no”, then both the clients’ financial plans and wealth manager’s enterprise value are at risk. Mr. Lawton concludes by asking “are you (the wealth manager) technically proficient?” and continues by stating that “this question involves a bit of harsh honesty and some self-awareness” and “that it won’t do much good if the person doing the stress test can’t expertly evaluate a client’s current wealth solutions or ones that potentially could be a good fit for them”.
Collaboration between the disciplines of wealth management and insurance advisory is critical to the long-term success of any financial plan for any client. Whether the client is in the early stages of wealth creation or in the decumulation phase of their lives, both disciplines must be a part of the plan.
AgencyONE’s select network of the top life insurance advisors in the country, combined with our own technical proficiency in insurance planning for both individuals and businesses, product knowledge, as well as medical and financial underwriting, are available to wealth managers, investment managers and registered investment advisors. Expertise, transparency and communication are the key elements for successful collaboration, and these are benchmarks of AgencyONE.
Our life insurance experts at AgencyONE can act as your “technically proficient expert”. They will partner with wealth managers to help stress test a client’s financial goals and objectives. The end result — helping the wealth management community serve their clients more holistically, enhancing relationships with both them and their heirs and, ultimately, preserving the value of your own practice.
Call AgencyONE to discuss how we can help you partner and collaborate to better serve your clients.
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