6 minute read

February Financial Planning Focus: Compliance & Estate Planning with Kyle Happe

Our team spoke with Kyle Happe all about compliance and estate planning– watch it or read the summary below!

How, as an advisor, can I position myself so that I'm providing education, versus making sure my client does not feel like I’m providing legal advice?

In dealing with compliance and estate planning, I think that can be the biggest potential red flag for advisors. At the end of the day, you have to remember that unless you are an estate planner, or have a JD, you are acting in the realm as a financial advisor, giving guidance and giving education. You don't want to find yourself in a situation recommending certain language in a Will or Trust, going over the benefits. You want to focus on giving the benefits and the pros and cons of the different structures out there, educating your clients so that they can make informed decisions themselves. 

Helping Clients Make Informed Decisions

Instead of being the ‘be all’ of saying, "This is what you need. This is what the language should read, like." You're not an attorney– that's going to upset compliance departments, that's going to upset regulators, potentially, and it could lead to client complaints down the road. You're not going to be very happy if a couple years down the road, you have a client complaint coming back saying my financial advisor told me to do XYZ on a Medical Directive. You have no leg to stand on; you're not an attorney; you're not on that side. 

However, if you provide the information necessary on what is a Medical Directive, or the importance of having one– that's where an advisor not only builds that client relationship, but can really build into the estate planning process, where they are that educational resource. They can be the one place to go so that the client is not running around to three different estate attorneys trying to get an answer, or being dinged at $250 an hour to talk to an attorney for 15 minutes. You can provide those resources to the client, give some suggestions, give some best practices– but be that educational resource, not the actual estate planner. Let that process be handled by the attorneys.

So I just think estate planning can be a big world and I know it's another thing to learn. But I never felt more dangerous until I started learning more about taxes. And I think that's what comes with estate planning, too. It's just another arrow in the quiver, and especially being educated allows you to figure out problems that clients are having. And that's all we're really doing is being problem solvers. And there's so many problems with estate planning: it creates a lot of different ways to be able to speak to the whole family. If you have young kids, you speak to the retirees; if you have retirees, you get to speak to the kids. There's so many opportunities to become the family advisor, but I don't think any of that starts without education, because you're going to be scared of talking about anything that you don't understand.

Proving Value Through Estate Planning: Best Practices

Well, first of all, a lot of compliance comes down to documentation. So the best practice I can give to advisors is properly documenting all of these conversations with clients. When you have these types of discussions, they often move outside of the realm of traditional financial planning and investment management and enter into estate planning, tax planning, or anything like that. You don't want to simply give the date and say "Hey, I talked to client XYZ about estate planning today." That documentation is not going to serve you any purpose in the future, in case somebody asks any questions. So if you really want to get into those conversations, you need to provide proper disclosures. This can be as simple as saying, “Just a reminder, I am your financial advisor. I am educated on estate planning, however, I am not an estate planning attorney. We have services that we can offer you, but at the end of the day, those will be created outside of our firm.” 

Proper note taking is the biggest step you can take today when you start talking about estate planning with your clients. And be detailed, be explicit with it– don't just say that you discussed terminology, define the terminology you went over with the client. I know Trust & Will has a great resource center. And they're very receptive to creating more information, too. But having a welcome or informational packet that you discuss with clients can help you point to and know what exactly you went over. That type of information is very key on the compliance side, in case of an examination and they pull a client file. In the case of a client complaint, if you have proper documentation of notes, and even a little wealth, estate planning, information card or disclosures, all of that– that is where you can really say, this is what we talk about. And then that's great for the adviser, too, to kind of keep them within the guardrails. We all get into the most trouble when we start improvising, when we start kind of going off the cuff. And something with estate planning that is incredibly important– you really want to stay within your realm as the advisor. 

Client Profile

I'm a big believer in being open with your clients. If 80% of your clients that you work with are going the Trust route, your client that you're talking to today can know that. You can say the kind of general profile of those clients. They kind of match you, they're in their 30s or early 40s, they have children, we are setting up Trusts because of XYZ, Guardianship, asset protection, everything like that. Or if you're the opposite, you can tell your client that most of our clients don't need a Trust– they're working in the Will space, and this is why. When you provide those documented examples of why somebody would go that route, you're still protecting yourself in the compliance way, but you're also greatly helping your client make that decision. 

At the end of the day, the client comes to you for information. They have financial questions that want answers. But they need to make that educational decision for themselves. Be that resource for your clients; you're there to help those situations. You can really become the center of their financial lives that they truly go to for advice.

Why It’s Better to Over-Document the Process

When we talk documentation, one of the things I’ve noticed with advisors I work with, there can be a fear of oversharing in client notes, especially because those are reviewed by a regulator. And I'll be the first to tell you– I've been an examiner, I've gone to offices and audited financial advisors. And when I pull a client folder, and it has nothing but one sentence notes on it, I'm gonna dig a little bit deeper of what's going on. If I get a client folder that's thick with all the documentation, it tells me you're taking it seriously. It tells me that you are truly documenting everything that's in there. I'm going to read it and make sure there's no real compliance issues, of course. But I have the firm belief that you can't really overshare on your notes. No regulator or compliance department is going to ask, "Why is this client file so big with your notes?" In fact, I would rather you almost not have one because having an insufficient one can be viewed as even worse than not even doing it. Because you're basically saying, "I know you should do this, but I don't care enough to." 

How should advisors brand or market themselves from a compliance perspective? 

As an advisor, do you need to worry about how you market or brand yourself when it comes to compliance and legality? Anything with marketing needs to be measured. You start putting yourself out there as maybe a one-stop shop (I always take it to extremes because I'm a compliance person). Think about it for yourself, if you go into a place or you send your parents to a place that's a one-stop shop for everything, things there need to be outsourced. You're not going to be very happy with that if I go to a mechanic and they say, "don't worry, this is a one stop shop, one, we can do it cheaper and all together." And then I find out that that's not the way it is. It's going all over the place and now my bill is triple. I'm not going to be happy about that. The difference in our industry is there's legal and regulatory ramifications of that. So I wouldn't go as far as maybe suggesting in print those types of marketing materials, but instead say that you have a comprehensive process that includes estate planning, review, or creation, or assistance in the creation. That's saying, “Hey, we do it, but not everybody might fit into that solution.” Because you might have clients show up and say that they actually have a $15 million estate, and maybe you should go talk to an estate attorney that works explicitly with the ultra high net worth. It's not a bad marketing ploy to just say we offer these services and kind of break it down compared to saying we offer these services and it's for everybody, because it might not be. 

How do you show the integrated value of estate planning? 

If you are implementing estate planning as an added service, how do you show that integrated value, very similar to all of your other services? And that starts with providin and is shown in the documentation side of– not just saying, we talked that this is what we talked about. But showing clients the materials, walking them through the process of using Trust & Will or using an outside estate attorney. That's how you provide that value, and the resources show that if you are charging for the service, that you are checking off those boxes, that you're actually providing this. Because at the end of the day, regulators care the most when you start collecting fees for that service– offering it even if it's included in your financial planning fee, you know, if you're not doing it pro bono, and if you're charging clients for it, they want to know what you are offering. So providing that educational material, documenting that you have, providing those resources if it's a referral into Trust & Will or if it's a referral to an outsourced estate planner, if they're a little bit more complex, that's a great way to show that you're adding that value, justifying the fees associated with it.

Can an advisor be held accountable for bad estate planning advice?

In this industry, we almost have a fun kind of way of framing anything that comes across your desk as something you're responsible for. While you're not expected to be an estate planning expert, again– you want to be that resource. However, you can handle this by asking questions like, "Now, Mr. And Mrs. Client, when was the last time you had your Estate Plan reviewed? Is this up to date and current? Just an FYI– estate planning laws and tax changes, they change year to year. You can't have a Trust written 10 years ago and be set for life. You should have that incorporated and part of your financial plan of having that reviewed, if not annually, every couple of years.”

The key here is there are ways to get clients thinking about estate planning without saying, "Hey, you should change your Trust." I would limit that type of language unless you see a glaring, glaring red flag. Your clients are going to respect you for it, too. And especially if that client has gone through a traumatic situation, they're gonna love the fact that their financial advisor is thinking about them, not just on their AUM, not just on their portfolio, but their overall financial lives, and being a resource for them when they truly need it. Advisors don't earn their fees during a 10 year bull market, when you throw a dart at a stock or an index, and it's gonna go up, they truly earn it when they're there in the hard times. 

Work with Your Compliance Department

“How do I" versus "how can I" is a big difference when you're talking about compliance. For anybody who's able to reach out, I got very friendly with my compliance department. And on a similar note, I was making sure I wasn't sneaking by any means. I just wanted to make sure we had the open means of communication so they didn't keep shutting me down, quite frankly. So I made sure to get them to like me, so that they're pushing my stuff through. But I also wanted to have an open conversation that starts with, hey, how can I make this happen? 

Work with your compliance department. Figure out what policy that you were potentially violating to get there. Pushing back is okay. The last thing you want, though, is– you have to be educated in saying this is why I think I should do it, or this is how I want to do it. The last thing you want is them saying no, you saying yes, and it just becomes a standoff that doesn't need to be. If an advisor comes to me and says, I really want to do this, here's why and here's how I will do it. I'm going to listen to you more than just the advisor that says I'm doing this.

Trust & Will is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice.


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