The Wealth Counselor

The world changes; clients’ circumstances change; motivations and interests change. As these changes occur—often gradually—“hidden” risks emerge that can significantly deteriorate future wealth if left unattended. By “hidden” risks, we mean exposures of which the client or potential client is likely to be unaware. Identifying hidden risks in an education-based marketing program delivers an important service to your marketplace and, with this knowledge, provides you with a gateway to meaningful conversations about the added value you can deliver to prospective clients.

Key Takeaways:

From the past several years, people understand the devastating impact of unmanaged financial risks.
A client’s changing circumstances, needs, and aspirations open holes that allow hidden risks to creep in.
Identifying the variety and impact of these hidden risks provides the opportunity for thoughtful and informed risk-management discussions.
Presenting these hidden-risk categories as an education topic offers the practitioner a platform to secure new clients, particularly those that have hidden risks but have been lulled into thinking that “everything is fine with their plan” by their current advisor.

Most Practitioners Require “Demand Pull” Marketing to Increase Growth
The two basic types of sales circumstances are “Demand Push” and “Demand Pull.” The Demand Push client is a prospective client who has already identified the need for a financial plan and investment solution and is conducting due diligence to hire a practitioner. You’re hearing from a Demand Push client when you receive a web inquiry, a referral, or a phone call. Your market presence (local search access, professional connections, active client referrals, and website clarity) activates this demand. A strong market presence will increase the regularity of inquiries from Demand Push clients. For some financial professionals, Demand Push marketing and word-of-mouth activity produces growth sufficient to meet the firm’s revenue objectives.

Demand Pull marketing is education based. You, as the practitioner, operate in an educational mode, illustrating your prospect’s needs that exist but are unrecognized either at a basic level or in a matter of degree. You identify these needs and motivate the prospect to act by providing education opportunities.

What you need to know: For the vast majority of financial professionals, achieving the desired revenue growth trajectory requires an ongoing, proactive marketing and sales effort to fuel demand. The key challenge in this common scenario is accessing a market of prospective clients with an educational message that drives action where little or no energy existed before.

Inertia Is a Force to Overcome
Inertia is a powerful force to overcome in today’s marketplace. You find inaction with this sentiment: “I already have a plan or program.” Indeed, the financial planning industry fosters this inertia by treating the planning phase as a discrete, infrequent step; the industry emphasizes the initial investment program deployed to execute the financial plan.

In fact, for most investors—and often unbeknownst to them—legal issues, tax issues, demographics, life stages, interests, anxieties, and aspirations change with regularity, and often altogether.

What you need to know: Treating a plan or program statically in the face of a changing world and uncertain future is a sleeping pill . . . not far from the frog that passively rests in the pot of warming, and soon to boil, water.

Fear Is a Real and Important Motivator Leading to Positive Outcomes
Fear is a high-impact investment force. Fear creates emotional memory that acts as a joint force to inertia or complacency. We see this today in investor caution borne from the 2008 financial crisis (similar to the financial behaviors of the Depression-era generation).

But fear can also be an important driver of good outcomes. Fear-induced motivation is an education opportunity for your Demand Pull marketing strategy.

Over time, a client’s circumstances, needs, and aspirations deviate from what they were when the client’s financial and investment plans were first constructed. The more time that transpires, and thus the greater the changes in the environment, the more likely hidden risks reside in the client’s plan.

What you need to know: Just as a doctor diagnoses bad eating habits as a likely indicator of future health risks, so too can you diagnose hidden financial risks as threats to the prospect’s or client’s need for financial comfort, confidence, and purpose. Activating “fear” of these hidden risks produces demand to have additional consultations with you.

Identifying Hidden Financial Risks Opens Doors to Added Value

The chart below lists some financial circumstances that pose hidden risks. Your educational efforts to identify and illustrate hidden risks (i.e., a Demand Pull approach) offer an important service to the prospective client, just as the doctor’s advice to correct poor health behaviors can add years of life if followed. (For your existing clients, diligence in monitoring changes to the client’s circumstances, needs, and aspirations—thus avoiding hidden risks—attaches to the fiduciary standard, strengthens the advisor-client bond and increases your client-referral prospects.)

Client Circumstance	Hidden Risk	Outcome If Identified and Resolved
Low-basis stock (i.e., appreciated securities portfolio)	Capital gains tax exposure Medicare surcharge tax exposure Exposure to creditors’ claims	More money available through reduced taxes Wealth is protected Stock distributions to trusts providing tax benefits, wealth shifting
Low-basis property	Same as low basis stock PLUS Replacement value insurance mismatch in an appreciating market climate	Same as low basis stock PLUS Tighter loss-risk management
Unexercised, in-the-money stock options	Income or gains taxes (depending on the option type) Medicare surcharge tax exposure Overconcentration to an employer’s operations, competitors, and market environment Inefficient allocation of wealth to investment horizons or purposes	Tax efficiency considering other income and gains sources Improved investment diversification
Life insurance with substantial cash value	Using other income sources with less tax efficiency	Monetize the policy to support income needs Improved tax efficiency
Unmatched life insurance death benefit	A death benefit too high, risking encroaching on estate tax thresholds A death benefit too low to support wealth shifting in estate planning A death benefit too low to replenish lost income due to premature death	Too High: Estate tax savings Too Low: Achieve target wealth distributions to beneficiaries Too Low: Fund income replacement Too Low: Peace of mind that survivors will be sustained
Sub-optimal insurance products	Surrender charges in wealth realignment Too-high premiums that become a financial burden and thus increase the potential for policy lapse	Comprehensive planning to minimize dollars lost to fee and cost inefficiencies
Earned income in retirement	Creating additional tax exposure in concert with other income sources	Restructuring distributions to achieve tax efficiency
Ownership of an employer’s stock	Poor diversification and risk management due to a concentrated exposure to the employer’s operations, competitors, and market environment	Improved overall risk management
Current chronic illness, poor family health histories, or both	Faster wealth depletion through increased medical liability Increased family burden	Wealth protection through a long-term care funding plan Peace of mind that family burdens will be lessened
Obsolete trusts	Unnecessary estate costs Estate execution inefficiencies Mismatched wealth to desired purposes	Lower costs Lower taxes Viable estate execution Comfort that wealth’s purposes will be fulfilled
Estate plan relying on wills	Unnecessary exposure to probate Exposure to legal costs of incapacity Loss of control of wealth and wealth transfer timing	Estate execution efficiency Control of wealth and its distribution Comfort that the plan matches desires, values, and interests
At-home, teenaged dependents	Legal liability exposure in the case of accidents that have resulted in another’s disability or death	Wealth protection

Actions to Consider:

Educate yourself on these hidden risks and how your solutions have the potential to manage the risks.
For hidden risks beyond your expertise or solution set, partner with other practitioners (e.g., trusts and estates attorneys, insurance professionals, CPAs, investment advisors) to present a holistic solution proposal.
Conduct seminars or small-group meetings with prospective clients to create leveraged sales opportunities.
- In a group setting, plan on presenting the entire hidden risk list to ensure coverage of the variety of attendees’ circumstances.
Regularly meet with existing clients to ensure that a hidden risk hasn’t crept into the client’s life. If one has, engage in a plan and solution update for optimal risk management.
- This activity identifies new business opportunities and is in keeping with the fiduciary standard.

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About the author

Stan Miller

Mr. Miller served as a Special Justice of the Arkansas Supreme Court and as a member of the Arkansas Commemorative Commission which is the governing body for Arkansas’ first state capitol and the chief administrative authority for the state’s historic preservation program. He has also previously served as an elected member of the Board of Directors of the City of Hot Springs, Arkansas, and as a member of the Board of Directors of St. Joseph’s Regional Health Center, an affiliate hospital of the Sisters of Mercy Health System, St. Louis. Mr. Miller also served as an associate editor of the Vanderbilt Journal of Transnational Law, and, prior to law school, was the president of the student body at Arkansas Polytechnic University.