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Financial Planning > Trusts and Estates > Estate Planning

Fee-Based Estate Planning

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For Closely Held Business Owners

I want to share with you why I changed from being a commission-only life insurance agent to a fee-based wealth advisor. I will explain how I differentiated myself from other life insurance agents and transitioned my 30 years of insurance selling with over 2,000 policies down to 75 clients. If I hadnt charged fees, I probably would never have sold the products I did.

After 30 years of selling insurance on a commission basis, mostly to closely held business owners, I realized that most of my bigger clients (those who bought insurance to fund buy-sell agreements, key-person coverage, estate planning, and employee benefits, including group insurance, pension/profit sharing plans and 401(k) plans) would not buy much more life insurance from me. They needed servicing, which required staff and provided little revenue.

I also realized that I should get paid for my time because of the value I deliver as a financial advisor. Thats when I decided to reverse my roles: charge for ideas and information, then get paid commissions for installation of the plan. This was the start of my fee-based business.

Why give away knowledge for free when other advisors, including accountants and attorneys, charge for their knowledge? Im knowledgeable not only about products and tax laws but also about the client.

When I charge a fee, I am also in charge because my fee pays to quarterback the deal. The attorney and accountant are on my team; I let it be known they will be expected to help accomplish what the client wants in an expeditious and timely manner.

And I explain that we will discuss differences of opinion openly and not work independently behind someones back.

By charging a fee, I get the accountant and attorney to see me as a trusted advisor and no longer “just” an insurance salesman. (Often, they become good referral sources.) The client is also more likely to accept my recommendations because he or she has paid for my advice.

How to Transition to Fees

Probably only 25% of your current clients will be willing to pay a fee. The remaining 75% will not accept the fact that you have differentiated yourself from other life insurance agents who dont charge fees.

In my practice, I graded my best 300 policy holders and divided them into A, B and C clients. Then I arranged appointments with each to explain how and why I was changing the way I do business. After the meetings, I reclassified the clients, as necessary.

My presentation would vary with each client, depending on the type of planning I had done. Generally, I would also ask, “If we were meeting here 3 years from today and looking back those 3 years, what would have to happen during that period for you to feel happy about your progress?”

Those clients who couldnt share this information with me were not classified as “A” clients (i.e., candidates for paying fees). For those who could answer, I would then ask 3 more DOS (dangers, opportunities and strengths) questions relating to the business.

Specifically, I would ask what were the 3 biggest dangers to eliminate, what were the 3 biggest opportunities to focus on, and what were the 3 biggest strengths to be reinforced or maximized during the next 3 years.

Once I had this information, I told clients that I would put together a plan detailing how I could help them achieve their 3-year goals. Then I would set a second meeting to outline the plan.

Through this process I had whittled a starting base of 300 people down to about 100 “A” and “B” clients. Sounds Scary? You bet!

About 25 of these were “A” clients who agreed to pay a start fee and yearly fee for continuing planning. I placed “B” clients on the Farm Club; they were potential fee-paying clients.

“C” clients have no future with me. They will never pay a fee and probably wont buy more insurance. I gave them an 800 number to call for service questions, etc.

To further differentiate myself, I set up business models for each component of my sales process. I charge a fee for each business model.

The first model, which I require everyone to go through, is the “the financial roadmap.” This is a plan to help clients achieve their life goals. See the chart for what it does.

The financial roadmap identifies and implements realistic lifetime cash flow, wealth accumulation and asset distribution objectives. Because estate and retirement planning is an ongoing, lifelong process, the roadmap requires fine-tuning of goals and adjustments to accommodate changing tax laws and financial environments.

The Financial Roadmap leads to the other programs I charge additional fees for:

The Successor Plan succession planning;

The Retirement Plan Maximizer the design or redesign of qualified plans to maximize the owners retirement income;

The 4 R Plan recruit, reward, retain and retire key employees (nonqualified plans);

The Estate Tax Minimizer estate planning that ties everything together using wills, trusts, family limited partnerships, personal residence trusts, etc.; and

The Estate Bypass Program charitable estate planning, including charitable remainder trusts, charitable lead trusts and donor-directed foundations.

The minimum fee I charge for a business owner is $5,000. This usually involves the Financial Roadmap and one or two models.

The average fee is $7,500, but depending on the complexity of the planning and the length of time involved, the fee could be from $12,000 to $25,000 the first year. The ongoing annual minimum fee is $2,500, but the average is $5,000.

I might add that finding new clients has been a lot easier than working through the 300 old clients. New clients have nothing to compare you with; old clients still see you as a life insurance agent.

Generally, my fee-paying clients are in their late 40s, mid-50s or older. Theyre married with children; possibly, one or more children work in the business.

The business is worth $2,000,000-plus, and the owner typically pays taxes on $500,000 or more of profits. He is interested in minimizing taxes and preserving what he has built.

He is also interested in passing the business on to one or more of his children, or in selling the business to employees or outside buyers. And he has done some planning (wills, trusts, etc).

Moving To a Fee-Based Firm

Before you get all excited about charging fees, let me give you the bad news. Depending on where you live, I am certain you will have to jump through some hoops.

First, you will have to deal with your broker-dealer: Their rules may or may not let you charge fees. Next, you have to deal with the SEC and your local states.

They all have requirements and some require tests. You need to be registered with either the SEC or your state, again depending on where you live and what you charge fees for.

You will need, in summary, to do some homework. But I believe that to be thought of as an advisor and to level the playing field, you need to be fee-based. And I believe the top producers in the future will all be fee-based.

Kenneth V. Byers Jr., CLU, ChFC, is president of Ken Byers & Associates, Cincinnati, Ohio. You can reach him at [email protected]. This is an abridged version of a presentation he gave at the MDRT annual meeting in Anaheim.

Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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