A fellow estate planning colleague of mine called the other day and asked me to review a client’s investment portfolio for legal issues. I had previously reviewed my colleague’s portfolio and had pointed out some issues that were not consistent with his estate plan. When I met with his client, I found similar consistency issues and advised him accordingly.
Far too often I see excellent estate plans jeopardized by “questionable,” investment recommendations. Since the effectiveness of an estate plan generally depends on preserving the assets needed to implement the estate plan’s objectives, effective wealth management should integrate a number of legal areas, including wealth management, asset protection and tax law.
Far too often the wealth management process disintegrates into various experts concerned about defending their particular “silo,” with little or no consideration for the best interests of client. Ironically, in addition to reducing potential malpractice claims, professionals who work together to develop an effective integrated estate plan could potentially benefit from future referrals and other networking opportunities.
Asset protection has become a hot topic, especially for high net worth clients. Yet there are still estate planning attorneys who do not even discuss the topic with their clients. The area of special needs planning has become a more relevant issue in today’s society. Yet there are attorneys and financial advisers who do more harm than good due to their lack of understanding about the special legal issues and requirements involved in this field.
There has been a significant increase in attorneys practicing in the area of elder law. Elder law involves a number of legal issues, including Social Security, estate planning and general legal rights of the elderly. Unfortunately, there has not been as much attention financial fraud and its impact on the elderly. What makes this more confusing and disappointing is the fact that studies have shown that financial fraud is the number one crime against the elderly.
Investment fraud can often be very subtle and difficult to detect for a non-attorney. Studies have shown that cognitive biases, internal beliefs and opinions, may often prevent someone from acting even when they have suspicions of wrongdoing.
Wealth management is an ongoing process that requires constant vigilance. Perfectly designed estate plans can quickly become an expensive lesson in futility if needed asset protection measures are not implemented and/or unsuitable investments are avoided or removed in order to protect the needed asset base for a client’s estate planning goals.
Fiduciaries have a legal duty to always put a put a client’s interest first. Attorneys and, in many cases, financial advisers are legally fiduciaries. Therefore, adopting an integrated process would seem to benefit both client and fiduciary. However, clients should also be proactive in protecting themselves against “questionable” practices. Steps to consider include:
(1) Bringing up the issues of asset protection and integrated estate planning with your attorney.
(2) Reviewing your investments with your financial adviser for issues such as excessive fees and lack of effective correlation within your investment portfolio.
(3) Reviewing your estate plan and your investment portfolio on an annual basis to ensure that both are still consistent with your personal goals and personal situation.
I created a simple, straightforward metric, the Active Management Value Ratio™ that investors can use to evaluate the efficiency of a mutual fund in terms of both cost and performance. The information required for using the metric can be found online at sites such as morningstar.com. The metric itself only requires the ability to subtract and divide. For more information about the new Active Management Value Ratio™ 2.0, see https://investsense.com/the-active-management-value-ratio-2-0/
This article is for informational purposes only, and is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional adviser should be sought.