introducing the private cfo

Introducing the Private CFO: Building the Right Team for Your Clients

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awyers, accountants and other professionals continuously seek ways to enhance their clients’ lives. In part, it’s good business to readily demonstrate that you have your clients’

best interests at heart. Beyond that, it’s likely integral to your mission: to help others enjoy meaningful lives while earning your own livelihood doing what you do best.

At the same time, both you and your clients are busy beyond belief. Jam-packed schedules typically include demanding careers, high-energy families, and calendars filled with community and other personal commitments. Add the fears and complexities of an ever-changing world in which the future is never certain.

To address such multifaceted issues requires sophisticated financial, tax and legal expertise. Your clients require — and may already have built — a team of expert advisors, each specializing in his or her niche, to help them navigate into the future.

And yet, a key component may be missing. Who ensures that each team member is pulling in the same direction? Too often, the client feels he or she must personally take on this time-consuming oversight. The typical result is wasted time and energy. Even as each team member acts appropriately within his or her role, continuity can too easily be lost, resulting in duplicative efforts and missed opportunities.

You’ve probably seen it happen countless times in your practice. How often

have you thought to yourself:

“If only they had spoken to me first.”

As a valued member of your client’s trusted team, you are in a unique position to introduce the vital concept of the Private Chief Financial Officer (CFO) — the answer to this dilemma. The Private CFO coordinates various relationships among your client’s advisor team, providing continuity while overseeing financial, tax and legal components. He or she frees you to focus on your area of expertise while helping to ensure that your talents and services are being maximized for efficiency and effectiveness.

Today’s affluent individuals are an active and engaged group with a full plate of obligations and activities. Many are business owners. Others are high-level executives or professionals such as doctors and lawyers. Regardless of their careers, most have other responsibilities in trade associations and community boards. Add commitments to family and personal interests such as travel or education, and you have a very busy and a sometimes over-committed group of people.

This group typically has a more complicated financial picture as well. They usually own one or two homes, are invested in the market, contribute to some sort of retirement plan, and are often in other types of financial ventures. In addition, they need to address estate planning, business succession plans and tax management. It’s no wonder they worry about whether or not they will have enough money to live within their life style both in the short run and through retirement.

Research indicates it’s a common concern among the affluent. Survey results published in 2005 by Russ Alan Prince (a respected private wealth market research specialist) revealed that, “First and foremost, middle-class millionaires are worried about losing their wealth.” The same survey indicated that those at the upper end of the $3–$10

Introducing the Private CFO: Building the Right Team for Your Clients

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Introducing the Private CFO

million range of upper-middle-class were even more worried.1 And that data was gathered at a time when the market was relatively stable.

Even if your clients had the time to fully evaluate every financial implication of every decision, they may not have the expertise to properly analyze all aspects of their lives, or to know what questions to ask or actions to take. Additionally, most have little time or desire to weigh into their financial planning to the degree typically required. They’re too busy living their lives to orchestrate all the details involved.

Traditionally, these individuals hire a variety of professionals to assist in managing their wealth-

and life-planning issues. This structure often looks like

the pie chart at left, with separated pieces managed by separate individuals. Each piece is distinctly different than the others, and advisors for each may

only talk or coordinate efforts based on how much

the individual chooses to actively oversee his or her affairs.

Most thriving businesses hire specialists or consultants to manage these same accounting, legal, financial and resource management roles. But they also typically name a Chief Financial Officer to oversee these various efforts in a cohesive manner, providing a model for success.

Just like a thriving business requires a corporate CFO to

provide companywide oversight, affluent individuals are well-served

by seeking a Private CFO to fit together the pieces of the financial pie — to anticipate and prepare

for consequences, side effects and ramifications of each decision.

We would caution against the individual client taking on this role personally. It is too time-consuming, requires a high degree of objectivity, and calls upon advanced and extensive expertise.

A Private CFO is a financial point person; someone who oversees the financial planning and relationships for a family. This individual often has degrees and training in a range of financial disci-plines such as accounting, finance and investing. He or she also is comfortable coordinating with allied professionals such as CPAs and attorneys, with sufficient experience to be aware of issues of importance in these fields. This enables him or her to ensure that the right team members are engaged at the right decision-making times.

While there is an increase in individuals and companies calling themselves wealth managers, a Private CFO takes wealth management to a higher level. The true wealth manager oversees all of these critical functions:

Investment advice at a fiduciary level of care •(client’s highest interest always is tantamount)

Advanced planning services (such as cash flow •and liquidity event management, income tax planning, estate tax planning, risk management, business succession planning, charitable pursuits and more)

Relationship coordination among the client’s •advisor team

Continuity to ensure that wealth processes run •smoothly at set-up as well as over the long-run

A premium that the Private CFO brings is a holistic planned investment approach. By developing and adhering to a plan that is carefully crafted and specifically articulated, the client’s wealth (business, ownership, real estate, investments, etc.) can be managed within the appropriate context of seeking to achieve family goals balanced within individual willingness, ability and need to accept market risk.

Further, the Private CFO manages relationships among the client’s attorneys and CPAs. Attorneys need to participate in estate planning, succession plans, gifting, wills, and other events requiring

Taxes, Gifting Estate Planning,Wills, Gifting

CashInvestments

Real Estate,Partnerships

CPA Attorney

Money Manager

Other Assets

1 Russ Alan Prince with David A. Geracioti, Cultivating the Middle-Class Millionaire, pages 13–14. Copyright ©2005.

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legal advice and documentation. Accountants and related tax planning specialists should be involved not just at tax time, but also when gifting and estate planning decisions are being considered.

What is the process for selecting an excellent Private CFO to ensure that all specialists are acting in concert with one another? It’s similar to when clients are making other important life decisions. It typically requires research, questions and appropriate due diligence. Perhaps the best way for an individual to seek introductions to a Private CFO is through his or her CPA or attorney. As your client’s trusted advisor, you can add enormous value by already having a relationship in place with a qualified, vetted Private CFO.

Beyond helping your clients do what is right for them, you may also ensure their continued reliance on your services when you assist them in establishing their private CFO. This is particularly so if they are currently using a traditional brokerage account to manage their financial affairs. Many are unaware that the typical broker is held merely to a “suitability standard,” rather than the significantly more robust fiduciary level of care to which the Registered Investment Advisor firm must adhere.

The suitability standard obligates the broker to ensure an investment

is “suitable” for the client, but it does not require it to be in the client’s highest interest.

For example, a broker who adheres to suitability can recommend an investment based on the higher

commission it may pay out, even if there is an essentially identical but less costly choice available. In contrast, a fiduciary advisor is obligated to recommend the comparable lowest-cost choice that is in the client’s highest interest, even if it results in less income for the advisor.

Affluent investors have recognized the difference in care, particularly in the current market climate. Many have or are considering voting with their feet. A September 2008 article in The Wall Street Journal cited a Russ Alan Prince study indicating that, “Fully 90% of clients of brand firms plan to take their money away from their advisor.”2 It is worth noting that “brand firms” more typically rely on a broker/suitability business models. The article continues: “That compares with a mere 29% for the boutique, local advisory firms … smaller shops with fewer conflicts, lower turnover and more personalized service.”3 In other words, those typically adhering to fiduciary standards of care.

You can help your clients by pointing them to a Private CFO who:

1) Provides a fiduciary level of care

2) Is compensated directly by client fees rather than by outside commissions that can generate conflicts of interest

Even though many individuals are dissatisfied with their current advisor or broker, few are moved to change without a jump-start. Your role of helping them move to higher grounds can be simplified if you recognize when one of the following “triggering” events occurs and follow up with a referral:

1) There is a liquidity event on the horizon such as the sale of a company, a large inheritance or a retirement plan cash-in.

2) They are already retired but admit that they lack a plan. In the last two decades, many Baby Boomers have entered retirement, thinking they were financially secure. With life expectancies rising and markets turning highly volatile, they may now feel considerably less certain and in need of skillful retirement planning, even if it is in retrospect.

3) They are not yet retired, but have acquired a substantial nest egg and are afraid of losing it. They have a gut feeling that their current situation may

2 Robert Frank, “Wealthy Investors Stage Revolt Against Advisors.” The Wall Street Journal, September 30, 2008.

3 Ibid.

CLIENT(ceo)

Family Legacy Private CFO

CPAAttorney

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not be working, but they’re unsure how to achieve a higher level of life planning for enhanced peace of mind.

When you and your client ally yourselves with a Private CFO, it is a process not an event. You build a long-term relationship grounded in an understanding of your mutual client’s short- and long-term needs and goals. The relationship is developed through a series of meetings, proposals, plans and commitments as depicted below.

Discovery Meeting — The first meeting is exploratory — for both the client and the Private CFO. The client discusses his or her values, goals and risk tolerance as well as the status of any existing financial plans or accounts. If the relationship is to succeed, it will likely last for a lifetime, so it is well worth taking the time to ensure a good fit before commitments are made.

Gap Analysis — The Private CFO takes the information gathered in the Discovery Meeting and conducts a Gap Analysis to identify points where results may be falling short of intentions.

Wealth Strategy Proposal — The Private CFO reunites with the client to present the Gap Analysis. Together, they explore current financial strengths and weaknesses, potential solutions and actions, and costs and mutual expectations.

Mutual Commitment — A contract is signed, and the Private CFO’s efforts begin in earnest.

Wealth Management Expert Team Meeting — Among the Private CFO’s initial actions is to meet with the client’s team of professionals (attorneys, accountants and others) to foster solution-oriented, two-way communications.

The Wealth Management Plan — A custom-designed Wealth Management Plan is a comprehensive evaluation of the entire range of the client’s financial needs, with the Private CFO’s recommendations for moving forward. The evaluation includes a series of financial modeling

to address goals and objectives defined during the Discovery Meeting. We refer to this as “doing the math.”

Regular Meetings — Once the client and Private CFO agree on the Wealth Management Plan, the Private CFO sets the plan into motion. For example, he or she may need to oversee initial asset allocation or hard asset revisions, while ensuring that any legal- or tax-management issues are

addressed appropriately. The Private CFO will meet regularly with the client to provide updates and determine next steps. Far more than a static set of tasks, the Wealth Management Plan represents a dynamic, evolving process to facilitate building family wealth amidst constant change. As such, regular contact is critical to continued success as the plan progresses and matures over time.

To fully understand the financial profile of each client, the Private CFO “does the math.” This process is a series of financial modeling steps, including a

Monte Carlo simulation and other types of analysis and projections. No plan is complete without

“doing the math.”

DiscoveryMeeting

GapAnalysis

WealthStrategy Proposal

MutualCommitment

Meeting

Wealth Management Expert Team Meeting

WealthManagement

Plan

Regular Meetings

Wealth Management collaborative Process

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This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. Copyright © 2009, Vantage Point Advisors

About the AuthorBarbara Ray, CPA/PFS, MBA, founded Salt Lake City-based Vantage Point Advisors in 2004 as a Private CFO to individuals and businesses seeking a higher level of wealth management. Offering a broad range of business and financial expertise, Ms. Ray has successfully bridged the gap between small businesses and major corporations alike, enabling her to apply realistic solutions to the business and personal financial management challenges faced by the affluent, C-level executive.

Ms. Ray has worked within both the small business arena as well as within Fortune 40, Fortune 500 and multinational companies such as Ernst & Young, American Stores Company and Ingenix. She has overseen high-profile accounts, financial integration of multibillion-dollar mergers and other high-level financing needs.

Under Ms. Ray’s leadership, Vantage Point offers a holistic approach that focuses on personal and unique financial planning needs. Best serving affluent investors beginning at $5 million in net worth, Ms. Ray incorporates all aspects of the financial picture including:

Liquid assets•

Estate planning•

Tax considerations•

Retirement and compensation plans•

Mergers and acquisitions•

Business succession plans•

Ms. Ray can be reached at: 801-272-0908 [email protected] www.vp-advisors.com

The Private CFO is the solution to enhance peace of mind among busy and affluent executives and their families.

As the designated point person and guardian of client wealth, the Private CFO manages and monitors financial affairs with a fiduciary level of care, applying a cohesive team approach to draw upon the gamut of available expertise. He or she

enables professional team members, such as the client’s lawyers or CPAs, to excel in the things that they do best, while freeing the client to pursue his or her own dreams and interests.

introducing the private cfo

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