For a moment, consider a football team. Each of the eleven players on the field has a different task to concentrate on: when on offense, the center must focus on getting the ball in the hands of the quarterback, then on blocking defensive players. The linemen are dedicated to protecting the quarterback and also creating a path for a ball carrier such as a halfback or fullback. The receivers are trained to run the correct routes and watch for forward passes from the quarterback. And when on defense, the players have similar specialties: linemen try to get to the quarterback or other ball carrier in the backfield to halt their forward progress; linebackers watch for runners coming through the line in order to tackle them; safeties and defensive ends cover the offense’s receivers, intent on interrupting or intercepting any forward passes that come their way.
At the center of the action on both sides of the ball are the quarterback and the defensive captain, both charged with seeing the “big picture” on the field and directing play accordingly. Quarterbacks are often referred to as the team’s “field general,” since they make the split-second decisions that determine whether the play will be a run up the middle, a forward pass, or a sweep around one end.
Who’s on your financial team?
Many persons of considerable means work with multiple professionals who perform specialized functions, much like the different positions on a football team. They likely consult with a CPA who prepares their annual return and advises on other tax-related matters; an attorney has likely prepared their will and perhaps one or more family or business trusts; the investment advisor helps them with decisions like portfolio design and asset allocation; a trusted insurance agent helps them manage the risks involved with owning property and ensuring both proper healthcare and the continuation of income in the event of death or disability.
But who is the “quarterback” for the team? Is anyone providing the coordinating function that brings all these financial and legal specialties together in a coherent, coordinated way? In many cases, the client who employs these professionals may be functioning in this role, but when the estate is large or otherwise complex, and especially when multiple generations are directly affected by how it functions, the job can quickly become too big for a client to handle, especially if they are also needed to provide leadership for a family business or other engine of wealth creation.
How does a personal CFO benefit a multigenerational enterprise?
Most large corporations have an individual on the executive team called a chief financial officer (CFO). As we’ve written previously, the CFO is typically responsible for overseeing all matters pertaining to the financial health of the business: the treasury function (including cash flow and investment), risk management, legal strategy and compliance, and strategic planning and forecasting. In most respects, the CFO functions as the “quarterback” for the day-to-day management of the business.
In the same way, a “personal CFO” can often benefit affluent families and multigenerational financial enterprises by providing oversight and coordination among the various financial and legal professionals serving the family. When guided by a fiduciary advisor who is providing guidance predicated on the family’s best interests, such a financial advisor can often free up family leaders to focus on vital matters like oversight of family business interests and nurturing the next generation of family leaders.
The personal CFO and the CPA
When fiduciary financial advisors and CPAs are in close communication, they can coordinate investing decisions in a way that enhances the overall tax-efficiency of the family’s investments. When the CPA is able to work closely with the financial advisor, they may be able to identify periods of lower tax liability, thus allowing the advisor to devise tax-loss harvesting, Roth conversion, or other investment practices geared to help the client save on taxes over time. They may also be able to time asset sales and purchases in ways that are more advantageous for the client.
The personal CFO and the estate planning attorney
Financial advisors who work closely with a client’s estate planning experts are better able to structure ownership of assets in a way that better aligns with the client’s plans for intergenerational wealth transfer. They can help to ensure that beneficiary designations, titling of accounts, and other details of the portfolio work in tandem with current wills, trusts, and other estate planning documents. They may also work together to provide funding for trusts and share data as needed to ensure the efficient functioning of both the estate’s legal structures and its assets.
The personal CFO and risk management
By working closely with insurance agents and other risk management professionals, the financial advisor can ensure that coverages are both adequate and strategic. When necessary, the advisor can help risk management and legal professionals coordinate on estate planning strategies being funded by insurance proceeds.
How do I know if my advisors are actually communicating?
When your financial team is functioning as a coordinated unit, you will often find that you are spending less time discussing tactics and making day-to-day decisions, and more time focused on long-term strategy and goals. You will likely realize that your most important values are setting the direction, rather than short-term considerations like market movement or changing tax laws. If you find that you are answering the same questions from different people, that is often a sign of weak coordination. On the other hand, when your cross-functional financial team is in synch, they are sharing information, consulting regularly, and providing consistent, non-contradictory advice. What all this adds up to is giving more time back to the client to attend to the foundational functions family leaders must provide: guiding the family and managing the wealth-generating activity that sustains it.
At Optima Asset Management, we provide “personal CFO” services to affluent individuals and families. We believe that by offering fiduciary guidance and coordination across the financial team, we empower our clients to spend more time doing what is most important to them.
