Lawyers and financial advisers working well together

Sonnie Bailey

6 August 2015

I have worked as a lawyer and have worked extensively with financial advisers. I’m especially sensitive to how the two professions overlap. In particular, in relation to succession planning. 

I’m aware of some financial advisers and lawyers in Australia who work very closely and effectively. They meet with clients together to discuss their broader financial situation and what they are looking to achieve. They work collaboratively to implement effective strategies for their clients.

I’d love to see even more collaboration of this nature between the two professions. I’m confident that it would lead to great outcomes for people throughout New Zealand and Australia if this were the case.

The lawyer’s perspective

I’ve had a number of conversations with lawyers who express a degree of discomfort when the topic of financial advice comes up. They often haven’t had a lot to do with advisers and are influenced by the negative public perception that some advisers have created for the industry as a whole. To top it off, the extent they may have had dealings with financial advisers, it’s when things have gone wrong. 

My experience is that this is largely driven by a lack of understanding about what good financial advisers do for their clients, and perhaps because they haven’t developed relationships with advisers they know and trust.

What a good financial adviser can do for his or her clients is the subject of another article. But it’s important to stress that good financial advisers don’t just recommend investments or insurance products to their clients. Good financial advisers have a deep understanding of their clients – not just their financial circumstances, but what they want to achieve both financially and in terms of lifestyle, and what their values are. Good financial advisers also work with clients to identify financial risks to which they might be exposed, and help to develop strategies to manage these risks. This includes providing insurance recommendations.

In Australian I ran a legal practice focusing on providing succession services to clients. Many of my clients were professionals with young children. I would prepare wills and enduring power of attorney documents. Of course, I would consider their broader circumstances and how their assets were owned and controlled, whether via trusts, companies, and, importantly in Australia, in superannuation. Understanding their personal insurance arrangements was essential.

For some of my clients, the most important piece of advice I gave wasn’t to do with their wills or enduring power of attorney documents or their trusts or their superannuation. It was to do with their insurance. Once they told me what they were wanting to achieve if they passed away, it would be clear that their insurance arrangements weren’t even close to what they needed to achieve their testamentary wishes.

For the majority of my clients, I felt compelled to recommend that they consider their insurance arrangements. I had relationships with financial advisers who I was confident would provide them with quality advice, so I was happy to provide my clients with their details. 

Some of my clients were close friends. When I speak with them, I still ask whether they’re sorted out their insurance.

A benefit of  having a financial adviser referring a client to a lawyer is that, if the client consents, the financial adviser can provide the lawyer with a wealth of information that can inform their succession advice. If you’ve ever seen a fact find completed by a financial adviser, you’ll understand just how valuable this can be. 

And of course, a financial adviser can provide investment advice for clients, including trustees. Many financial advisers are not aligned with financial institutions and can provide tremendously well-informed advice about how best to allocate investments. On this point, it’s important to understand that a good adviser doesn’t start with the underlying investments or “top stock picks”. A good adviser starts with the client (or clients), and starts with getting an understanding of the relevant needs, objectives, and risk profile (based on a number of characteristics, including risk tolerance, risk capacity, and risk requirements) of whomever they are advising. 

The financial adviser’s perspective

Most financial advisers have a grasp of the most common succession matters. They’ll often recommend that their clients consult with a lawyer to prepare or update their wills and arrange to get enduring power of attorney documents in place. 

But that’s often where things end. I understand this. Although some financial advisers advertise expertise in relation to estate planning, the reality is that this is not an area that they can reasonably have a huge degree of expertise. Where this is the case, saying too much can be counterproductive.

However, that’s where things often end. I’ve spoken to countless advisers who say that, despite making such a recommendation to their clients, the clients very rarely act on these recommendations.

It wouldn’t be hard for an adviser to take an extra step or two to make it easier for clients to follow up on something that is really important, and that will ensure that their client is likely to get the best outcome from the advice that they give. This might include recommending a lawyer that they know and trust. 

(I understand that some professionals have reservations about recommending another adviser. Many go on the assumption that their clients have someone they go to (which they would change at their peril). But it’s worth asking the question. Many people don’t have a lawyer, in the same way that they have an accountant, for example. Recommending someone you know and trust can take one difficult part of the process out of the equation for a client.)

Let’s take insurance advice as an example. 

My wife and I pay premiums of somewhere in the vicinity of $500 per month for our life, trauma, TPD, and income protection insurances. That’s $6,000 per year. Over the course of the next 30 years that’ll be $180,000. (And that’s without factoring in the opportunity costs of investing and reinvesting these premiums over time, which would probably double this figure.)  

Let’s say that we’re typical of a young, professional couple with young dependants. If we’re prepared to put that much money towards having having the right amount paid out to us if something happened, shouldn’t we be prepared to put some money towards ensuring that money goes to the right people at the right time? 

After making a decision to be appropriately insured, making the decision to get your affairs in order is a non-negligible part of that process. 

It also comes down to how you conceptualise your role and your relationship to your clients. The reality is that although lawyers can build up good relationships with their clients, they don’t often regularly see their clients, in the way that financial advisers do. A financial adviser will meet with their client and regularly get a feeling for how a client’s circumstances have changed. In many cases this will be a prompt for an adviser to suggest that the client update their succession arrangements to reflect their changes. Whereas the client’s lawyer may have no idea of these changes, until the client decides to actively schedule a meeting with them.

Some ways of working well together

Lawyers and financial advisers are providing different services. They are professionals specialising in complementing, but different, areas. There’s some overlap in what they know and do but it’s very difficult to do both of them well. 

(You need to focus on your area of expertise. As they say, it’s hard to be half pregnant.) 

I see a real opportunity for lawyers and financial advisers to work collaboratively to ensure that their clients achieve the best possible outcomes.

What they need to have is a good understanding of how the other operates, and how their services complement each other. Each lawyer and financial adviser is slightly different. So it’s important to develop a unique, one-on-one relationship with other professionals. 

There’s a lot of opportunity here, both in terms of mutual referrals, and also from the perspective of professional development. And consider this: both parties are probably in a position to offer the other professional development for the purpose of each others’ formal CPD requirements.

If you’re a lawyer or financial adviser and want to discuss how such a relationship can work, feel free to contact me. I have the unique experience of having worked with a large number of financial advisers and discussing this point with them, as well as having operated a legal practice which provides estate planning/succession services. I’m always keen to develop my professional network. But more broadly, I’m passionate about the legal and financial advisory industries working more effectively together. Based on current demographic trends, the largest distribution of intergenerational wealth in human history coming up, it’s important to ensure that people get the best professional advice possible. 

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