More On Tax Planningfrom The Advisor's Professional Library
- IRAs: Eligibility The eligibility rules for contributing to traditional and Roth IRAs are complicated. Learn how to effectively use them in retirement plans.
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
It is not uncommon for people who have suffered through some sort of adversity to dedicate their professional lives to helping others steer clear of some of the same difficulties.
While such a course may be meaningful, even noble, when it comes to the financial advisory profession it may also be quite lucrative. That’s what Justin Reckers has come to find in establishing a financial advisory firm dedicated to the needs of individuals and couples going through divorce, and with his finely tuned approach has garnered a whopping retention rate.
“I’m a child of divorce," Reckers, the CEO of Pacific Divorce Management, told ThinkAdvisor in a phone interview. "Both my parents went bankrupt and lost their house to foreclosure. That gave me the motivation and ambition to find the best way to help people going through the same thing.”
Reckers says there is an unmet need for professionals with financial planning knowledge to take the long view of a client’s financial needs amid the disruption of divorce.
“What does it mean five, 10, 15 years down the road, not just today? Lawyers are not educated on how to do that kind of stuff. Many avoid any kind of numbers or financial products.
“So there’s a very real place for financial planners like us to be part of the decision-making process,” says Reckers, a certified financial planner (CFP) and certified divorce financial analyst (CDFA).
That “very real place” is perhaps evidenced by a substantial and growing business that Reckers, at just 32 years old, has already attained.
His average client, he says, is a divorced woman in her early 50s with $3 million in net worth, half of that in investable assets. His average account size is currently $1.5 million, post-divorce, and “trending bigger and bigger over time,” he says.
The reason for that is that Pacific Divorce Management’s various divorce services, which he operates on an hourly fee basis, serve as a pipeline to his separate fee-based wealth management platform.
The San Diego-based RIA, who says he’s been engaged in divorce financial planning for 10 years, conceived of specialized divorce-based financial planning services when one of his current business partners commented that not only did he feel “royally ripped off and unheard by a judge,” but that his ex-wife felt exactly the same way.
“The idea came from the realization that there was never a financial planning approach to divorce," Reckers says. "The model was always a lawyer representing the parties with no awareness of the long-term ramifications from a financial planning perspective.”
To address that gap, Pacific Divorce Management offers assistance in three alternative approaches to avoiding the cost and acrimony of a court battle.
In a “collaborative divorce,” where the divorcing couple are willing to work together to part ways amicably, the financial advisor acts as a neutral party who collects financial data from third-party sources.
“I work with the individual to gather financial information,” Reckers says. “It is common for one party to have all the financial knowledge and financial data. Knowledge is power in a divorce, and withholding financial data is common.
In this role, Reckers helps level the playing field between the separating spouses and helps guide the negotiations by developing financial options and strategies.
“I gather data, build a cash-flow statement, strategize,” he says. “When it comes to meetings, I’m a facilitator, not an advice-giver. I’m going to be agnostic until I understand the situation.”
Importantly, the entire team of professionals — which includes attorneys for both sides who help their clients understand their legal rights and obligations — are committed in advance to a non-adversarial process from beginning to end.
“If we don’t succeed, the entire team withdraws its services,” Reckers says, meaning that the professionals won’t condone one party deciding to pursue an advantage in court.
Another advantage of the collaborative approach is its nonpublic, discreet nature.
“I’ve had clients buy professional sports franchises without anybody knowing they were getting divorced,” he says.
Also, because of the unique neutrality of the advisor’s role in the collaborative model, Reckers will not serve either party as wealth management clients post-divorce.
“I’ve said no to someone with in excess of $50 million in investable assets and a $250 million estate,” Reckers says.
A second alternative to a court-fought divorce is mediation. In this scenario, the financial advisor is always representing one party in the dispute, providing the financial expertise in conjunction with the attorney’s legal role.
Reckers says that 80% of the time, approximately, Reckers is on the woman’s side—helping to even out the financial knowledge playing field. He said that between 90% and 95% of mediation clients end up as wealth management clients post-divorce.
The third approach short of a full-blown trial is an adversarial pretrial process where it is hoped that a final agreement can occur prior to trial. The financial advisor works closely with the attorney representing one of the parties in gathering and analyzing the financial data and considering the opposing party’s proposals.
In this scenario, an attorney will typically hire Reckers (“it’s the lawyer who is hiring me and giving me my retainer check”) as a means of understanding what kind of wealth the opposing side controls.
“It’s helping them build a case theory,” he says. “I’m engaged with both lawyer and client. Almost 80% are women. The vast majority will become my wealth management clients.”
Some advisors offer this sort of divorce financial planning at no cost, Reckers says, for the sake of attracting future wealth management assets, but Reckers considers this unethical.
In all three approaches, Reckers bills hourly. But the trust that develops in the relationships with divorcing clients has indeed been a boon to his wealth management business.
Of some 40 to 50 divorce cases a year, some 80% are prospective future clients at any one time, Reckers says, noting that he has 19 post-divorce clients currently in the process of moving assets to his wealth management platform.
Reckers’ RIA, Pacific Wealth Management, serves some 300 households with about $210 million in assets under management, some $20 million of which he says is a direct result of his divorce niche gathered in just the last two years.
Reckers finds his niche line of work professionally gratifying, saying that a more typical financial advisor focusing on retirement planning has to wait 20 years before seeing his planning efforts come to fruition, whereas his wait to post-divorce recovery is closer to 20 months.
A believer in niche financial planning, the Pacific Divorce Management CEO is taking his show on the road, teaching a two-day course at Texas Tech University’s department of personal financial planning on Jan. 24-25.
“A greater benefit to the American economy is for me to be an expert in something—to be a jack of all trades and a master of at least one,” Reckers says.
Titled “Financial Intricacies of Divorce and Introduction to Strategies for Assisting Individuals and Couples During and After a Divorce,” the course details the family law, ERISA and tax law rules a divorce financial planner needs to know. Particular emphasis is on increasing the divorcing couple’s “pie” before it has to be divided.
Reckers also plans to discuss the value of niche practice.
“I was taught to be generalist, but I owe my success to mastering a niche,” he says.
Check out these related stories on ThinkAdvisor: