Quantcast
Channel: Wealth Management - Trusts & Estates
Viewing all articles
Browse latest Browse all 733

Selling Advanced Estate-Planning Services

$
0
0

Overcoming your client’s perception of a commoditized document

With a new administration in Washington, many clients worry about tax increases (particularly with gift, estate and income taxes). Your clients consume information from webinars, on websites and, of course, the ubiquitous Google. Consequently, they arrive at your conference room (or appear in your videoconference) believing they already know the strategy that’s best for them. 

So, how do you respond to a client asking for a spousal lifetime access trust (SLAT) or any other advanced estate-planning strategy, especially when they believe that it shouldn’t “cost that much because it’s all boilerplate anyway?” (Actual words from one of my clients!)

While our mind immediately goes to the “it’s not boilerplate” response, we also realize that it’s difficult to change client perceptions, no matter how off-base we may find them. 

What’s the Solution? 

Allow me to answer in three parts by examining the root cause of client perceptions, reviewing the challenge of charging appropriate fees for advanced planning services and finally specifying a standardized yet custom value proposition approach that you can use with every client who seeks planning beyond their will and revocable trust (whether it’s a grantor retained annuity trust (GRAT), irrevocable life insurance trust, qualified personal residence trust, family partnership, sale to an intentionally defective grantor trust (IDGT), self-canceling installment note . . . well, you get the picture)!

Client’s Perception 

An attorney in my practice development group recently asked what to do about a client whose net worth exceeded $30 million but was unwilling to part with anything more than $6,000 for a SLAT.  

His client harbored a perception that the strategy they sought and “ordered” was right for them and that it was widely available from any estate-planning attorney. That is, his client viewed advanced estate planning as a commoditized transaction, much the same as walking into a McDonald’s to order a Big Mac! 

Avi Z. Kestenbaum, a colleague of mine on this magazine’s editorial advisory board, citing a similar encounter, wondered if his client “wanted fries and ketchup with that.” 

The definition of “commodity” generally refers to a raw material or product in which the only differentiating factor is price. The definition expands in our digital economy generally to refer to anything that’s widely available and can be readily purchased without much thought or interaction. 

The consumer wants it easy, fast and cheap. 

The tax, financial and legal fields are no exception. CPAs compete with online tax prep while financial advisors contend with robo-advisors and no-cost online trades. Lawyers are commoditized by LegalZoom and Rocket Lawyer, so how do we break free of that perception?

Attorneys treat their own services like commoditized transactions. Millions of dollars are often at issue when a client considers advanced estate-planning strategies. Why would clients view strategizing and implementing complex strategies as commodities? It’s no wonder, because many attorneys themselves treat those strategies as commoditized transactions, not realizing they’re doing so. 

How is that? They’re giving away most of the value for free or for as little as an hour of time charged at an hourly rate.

Asking the client to pay for a commodity. Consider what happens in your office when a client begins to discuss advanced estate-planning concepts with you. You get excited and begin explaining various strategies. You discuss advantages and disadvantages of each strategy. You transition into a conversation about the documents that might be necessary to implement the strategy, and you even review which of the client’s assets or accounts could be used to arrive at an ideal outcome. 

What did you just do? You gave away your value, your years of training and experience and your ability to spot issues that your client couldn’t anticipate, all for a few hundred dollars of your time, if that. Your client probably doesn’t expect you to bill him for that conversation, depending on your relationship. 

Now what are you trying to sell? The documents! Which are, to the client, a commodity. The client doesn’t understand the difference between your documents and those of your competitor down the street, or even from an online preparation website. They intuitively know, deep down, that your documents are first-rate, but they don’t understand the intricacies of the law nor how you expertly navigate them to fashion an effective strategy.  

“Why should I pay you $15,000 for an irrevocable trust?” the client asks. You know that it’s not the trust that they pay so much for. It’s everything that leads up to the trust and beyond. 

In your monologue explaining the strategy from soup to nuts, you gave your value away. Moreover, you still want to run numbers or perform additional research to ensure that what you just told the client will result in the outcome you envisioned. The client considers your time doing so as necessary to cover yourself appropriately and won’t be willing to pay much for research or number crunching. 

What prompts the client to pay you an appropriate fee for the complexity surrounding advanced estate-planning concepts? What is it that clients find valuable?

What Clients Find Valuable 

George, one of the best clients I’ve served for almost three decades, is now in his 90s. Before COVID-19, he and his wife took my wife and me to dinner at his country club. 

“Craig, I want to thank you for all your help and guidance over the years,” George said, raising a glass of wine. “I value your friendship and your wisdom. You’ve seen me through some very important family issues that I appreciate very much.” 

George’s estate plan has many facets to it beyond his foundational revocable trust. What struck me the most about our conversation was that he never once mentioned any of the strategies I helped him employ or when I walked him through the advantages and disadvantages of each. He didn’t reference the many documents my office drafted, the flowcharts we created or the multi-page letters we sent to him and his family explaining how to maintain the plans put into place. 

It was my friendship and wisdom that he valued.

Clients value the time that you spend with them, discovering what their underlying goals are and what they’re concerned about. When you point out opportunities that they can take advantage of and show them how to maximize their current situation, you show true leadership and create client value. 

Forging a relationship with your client and using your capabilities to advance their wishes is what client value creation is all about. Obviously, expanding on an existing client relationship is easier than forging a bond with a stranger. 

Engaging existing clients. Existing clients who want to investigate advanced estate-planning strategies already have a relationship with and trust you. They understand the value proposition they received from your firm and anticipate a similar experience going forward.

The challenge with higher end planning is that you should and typically do charge significantly more for it. Unlike will and revocable trust planning, most advanced planning requires irrevocable transfers. The risk of a client misunderstanding the ramifications leads to more of your and your team’s time. 

Like a financial planner, you likely assess your client’s risk tolerance. Many advanced strategies aren’t, as my grandmother once said about aging, for the weak.  You review advantages and disadvantages of each strategy and create and discuss spreadsheets. Unlike revocable trust planning, you also likely spend a significant amount of time interacting with appraisers, CPAs, trust officers and financial advisors.  

Advanced planning also carries increased liability consequences should something go wrong. 

Not every firm has the knowledge and expertise that it takes to design and implement advanced strategies. Becoming board certified (in states that so offer), attending high level continuing education workshops, investing in drafting software or keeping your own documents up to date combine to provide exceptional value that may not be readily apparent to your client.

In my experience, a significant portion of my firm’s clients expect that the fees to create their advanced, irrevocable planning shouldn’t far exceed that which they paid for their foundational revocable trust plan. 

How then do you package your wisdom? The good news is your existing clients are less likely to shop advanced planning services. Nevertheless, you don’t want them to have a feeling that you’re taking advantage. So, how do we effectively communicate the value of advanced planning services leading to fair engagements? More on that later. 

First, let’s consider the more difficult situation of engaging a new client for advanced planning strategies.

Engaging new clients. The challenge with new clients is that they have no idea about the exceptional value they’ll receive from you until after it’s complete. I call this the “Experience Gap” (which I wrote about in the December 2018 issue of this magazine).1 Closing this experience gap is always a challenge.

The urge to demonstrate your knowledge and expertise (and therefore give away much of your value during the initial conference) elevates with a new high-net-worth prospect sitting across the conference room table. 

You avoid this urge by giving the client what they want: to be heard. In this scenario, you act as a guide, and a good guide asks insightful questions rather than dictating a course of action:

“What do you hope we accomplish together?” 

“You say you want to reduce estate taxes yet retain control over the assets and the income?”

“Tell me about your adult children. What are your hopes for these gifts?”

“What about making large transfers to your loved ones concerns you?”

“If I told you that it’s a choice between saving income taxes or protecting the assets, which would you choose? What if I told you there’s a way to accomplish both but it has a higher degree of risk?”

“Could there be a tug of war between your spouse and your children? Why or why not?”

Note that these questions are relatively easy for your client to answer. The questions also avoid discussing legal theory or tax law. By asking these and the natural follow-up questions that arise, you’ll internally formulate strategies that would achieve the results your client wants. 

Just don’t voice those strategies during this stage of the process. 

You won’t know which strategies or which set of advantages and disadvantages your client prefers until you deep dive into them together. By focusing your initial conversation on questions relevant to your client’s goals and objectives, you gain their confidence and trust without spilling all the candy in the lobby.

Selling a Process

Now that you’ve gained the confidence of your client and have an idea of their goals and concerns, it’s time to get engaged. Recall that you’re not selling documents, you’re selling your wisdom to accomplish your client’s goals. How do you get from the proverbial Point A to Point B?

You’re going to get there through a process. The process likely started when you had your client complete your organizer or gave you a current balance sheet and will end when you (or their CPA) report the transaction on gift tax and/or income tax returns.

There are many steps in between, aren’t there? You’re selling the knowledge of those steps and the wisdom to properly navigate them!

Engagement

First engagement letter. Let’s review the steps that you lay out in your engagement letter:

Goals conversation. This stage, as mentioned above, begins with an insightful conversation meant to reveal your client’s goals and concerns. Those conversations will give insight as to which strategies might be appropriate for that client. Typically, you charge by the hour for this stage of the engagement, unless you choose to have a fixed fee engagement that includes this stage. 

Illustrations. The next stage includes illustrations of various strategies you recommend. In my office, we prepare both written and numerical illustrations, often complete with spreadsheets and flowcharts. Because we can’t be sure which strategies the client might prefer until we’ve reviewed the illustrations together, our initial engagement letter is limited to these first two steps. 

Note that you’ve received either a deposit or payment in full for this stage of the engagement. Here you’re using your knowledge, skills and expertise to fashion strategies—and you get paid for it. If the client ultimately decides not to go forward, you were paid for your wisdom to this point.

Design, document and implementation. On settling on the strategy(ies), the next phase of the engagement includes the design, document creation and implementation steps. In the second engagement letter, describe each of these steps separately. I previously expressed exasperation when clients said “I want a SLAT,” not knowing that the acronym is generic, yet the strategy must be drafted to the specifications meeting your client’s goals. 

Implementation generally refers to the selection of the assets to be transferred, explanation of the various tax consequences and funding coordination into the estate-planning vehicles created. 

Reporting. The final phase of your client engagement focuses on reporting the transaction. If you don’t prepare the returns, you still need to coordinate efforts with appraisers, tax return preparers and others. For continuing trusts (especially those like discretionary trusts or GRATs that require annual distributions or trusts subject to the estate tax inclusion period regarding generation-skipping transfer tax), ongoing consulting might be established in the engagement letter. 

The Cost Question

If you stage your engagement as I suggest, your client inevitably asks, “What will all this together cost?” The attorneys in my firm explain that we won’t know until we select the strategies, and we’re not at that point yet. We also note that if clients don’t want to implement any of the strategies, they limit their fee exposure to the investigative stage. Further, if they want to take our initial findings to another firm to implement, they aren’t bound to us. 

We assure our clients that once they select the strategies, we’ll provide an engagement that lays out the details, including the fees and costs. We rarely encounter problems, and when we do, it’s for the best as the client didn’t have the right mindset for us to work well together. 

Note that when setting out the engagement into the steps that I enumerated, the documents are but a small segment of the process. You’re no longer selling a SLAT, IDGT or GRAT. Instead, you’re selling a process to achieve your client’s goals.

Outside Your Comfort Zone?

Engaging clients in the manner I suggest takes getting used to. Estate-planning attorneys especially seem to jump right to their value propositions before getting engaged and paid. If holding back is outside of your comfort zone, try it anyway. 

What happens, however, when a client’s situation calls for an advanced strategy that you’re unfamiliar with? Some attorneys will turn down good work because they don’t feel competent. Certainly, taking on work you’re not qualified to complete is a violation under most state bar ethics codes.

There’s nothing to prevent you from co-counseling with a colleague who’s familiar with a given strategy. I’m puzzled that attorneys, particularly solo shops or those in smaller boutique practices, don’t co-counsel more often. I’ve brought in colleagues from other firms, both large and small, who are experts in strategies I wasn’t familiar with at the time.

Your clients won’t think anything less of you and will appreciate your quarterbacking the process. It’s important to explain and first obtain permission from the client and clearly state in the engagement letter who’s responsible for what and how much the client will be charged and by whom. Chances are you learn how to implement a new strategy so the next time you have the opportunity you can go it alone.

Appreciating Firm Value

Offering advanced estate-planning uncovers opportunities to avoid the commoditization trap. You’re not selling documents. You’re selling your wisdom in navigating a process. So long as you remain aware of where in the process you are, advise the client as to the steps you take together and establish separate engagements for each phase, your client will better appreciate your firm’s value. 

Endnote

1. Craig R. Hersch, “Bridging the Experience Gap,” Trusts & Estates (December 2018).


Viewing all articles
Browse latest Browse all 733

Trending Articles