Identifying Hidden Risks Creates Sales Demand

Posted on: 28 Oct, 2014
By Jim Bohm
Estate Planning
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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 existing and 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 Practices 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.

Client Circumstances	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 distribution to trust 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 Over concentration 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 (consider ownership by an ILIT)	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 truts	Unnecessary estate costs Estate execution inefficiencies Mismatched wealth to desired purposes Increased income tax liability	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
High-risk business or investments	Exposure to frivolous claims Unnecessary exposure to creditors and predators Increased anxiety over financial well being	Reduced risk of frivolous lawsuits Significant reduction of exposure to creditor and predator claims Increased control and well being
At-home, teenaged dependents (or “rebound” children)	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 help manage the risks.

– For hidden risks beyond your expertise or solution set, partner with other practitioners (e.g., our firm, CPAs, insurance and investment advisors, etc.) to present a holistic solution proposal.

– Consider seminars or small-group meetings with prospective clients to create leveraged sales opportunities.

– In a group setting, present 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.

Identifying Hidden Risks Creates Sales Demand

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