As a financial advisor, you probably work with people across a ton of different professions, right? From lawyers and doctors to business owners and CEOs, your title and your reputation can get you in the door with just about anyone. But once you’re in the door, what are you bringing to the table that they couldn’t get from another financial advisor?
A lawyer may need different services than a doctor, who may need different services than a business owner. Are you catering your services to each client based on the individual needs of their industry? If you’re not, you could be leaving a lot of money on the table.
This month, we’re going to talk about “specializing as a specialist.” We’re going to take a few of the industries or professions that commonly hire financial advisors, and we’re going to identify how to specifically target the distinct needs that come with membership in that profession.
To start, let’s talk about about lawyers.
Because a lawyer’s earnings are almost always tied directly to their ability to perform services, there are a few things you have to keep in mind when planning for them:
- There is a limit to the number of hours a lawyer can work, meaning typically there is a limit to how much he/she can earn over time without a team of people working under their name.
- A lawyer’s actual income can vary wildly, especially in cases of contingency billing, where the lawyer is paid a percentage of the amount paid to the client upon winning the case. This puts even more emphasis on the need for great financial planning and possibly the need to structure a credit plan into their finances.
- Many law firms hold back large payments until the quarter or year is complete, instead distributing compensation and profits conservatively throughout the year. This makes cash-flow planning even more important.
- There are often financial and lifestyle incentives built into law practices, which often require a different level of business planning. Think bonuses, company-paid cars and vacations and you’ve got the right idea.
- If a lawyer becomes disabled or passes away, it could place a huge financial burden on the family.
Often, firms are proactive and deal with many of these things up front, but a financial advisor must consider all of them when advising a lawyer, as supplemental planning is often required.
It is also important to consider not just the issues lawyers face, but how they’re trained.
Lawyers are trained to minimize risk. In financial planning, avoiding risk can be helpful but avoiding it altogether can ultimately be unwise. It’s important to find the balance between the two and to manage the dynamic resulting from a lawyer’s natural instinct to avoid risk as much as possible. This can especially make long-term investment planning difficult.
Lawyers are trained to be as efficient as possible. While this is helpful for the lawyer billing clients on an hourly basis, it can be a hindrance to the financial planning process if you can’t get your client to focus on spending a sufficient amount of time on non-billable work (in fact, on work that they’re paying you for). Be prepared to give a good argument for why it is so critical to take as much time as needed to go over everything.
Lawyers are trained to analyze, and even overanalyze, everything. They take nothing for granted and they never rely on another person’s opinion. Their livelihood often rests in their ability to spot errors and omissions. This can create another challenging dynamic for the financial planner working with them. Lawyers research every case ad nauseam and they generally expect you to do the same. You must have a compelling, research-based argument at your fingertips every time you present a new strategy or opportunity. Additionally, you should be prepared to spend extra time explaining (and re-explaining) concepts to them and persuading them to make a decision and act upon it.
Here are four areas you’re advised to really master if you want to specialize in wealth management for lawyers:
- Retirement: Many law firms offer multiple compensation plans for lawyers, complicating the retirement planning process. Additionally, lawyers have to consider how long they plan to work for and must plan for what happens to their capital investments as well as planning for clients to be transitioned to another lawyer upon their retirement.
- Asset allocation and investments: When planning for a lawyer, you may be required to place more emphasis than usual on maintaining a reserve of cash-based investment that will get the lawyer through periods of reduced income. This requires a strategy for short-term asset management. Unfortunately, this need for short-term reserves may limit a lawyer’s ability to save for retirement, resulting in a need for an even stronger asset allocation strategy. Lawyers are also often given the opportunity to invest in their clients’ businesses. These opportunities can be quite attractive but also quite risky, so you’ll need to be diligent in addressing the risks and potential profits with your client.
- Tax planning: Employment structure (employee vs. self-employed) and the structure/legal entity of the firm can play a huge role in when/how they are paid. Especially when the lawyer is self-employed, the tax obligations can be high and a failure to plan properly could lead to huge penalties.
- Risk management: This is important for every client, but especially vital when working with lawyers. It’s important to plan for the worst so be sure and address the need for malpractice and professional liability insurance to protect the lawyer’s assets should anything go wrong.
As you can see, there is a lot to consider when working with lawyers. If you can successfully address all of the dynamics at play for a lawyer, you will create a trusted relationship with your client and cultivate an extremely successful partnership long-term, that likely leads to loads of referrals.
Is it worth it to learn the ins and outs of a typical lawyer’s lifestyle so you can become known as the “go-to advisor for attorneys?” Maybe. Maybe not. You’re the only one that can make that decision. If the concept of specializing floats your boat, but lawyers don’t, check back every week this month for information you need to know on more niche markets. We’ve got a lot to share with you.