Helping a Client Navigate a Windfall
Financial planning is one of the advisory services we offer. Whether you are looking for guidance with a complicated strategy or want to expand the service offerings you provide to your clients, our experienced team is here for you.
As part of our mission, we encourage advisors to share stories of their success and challenges with their peers. The following scenario is taken from true events—names have been omitted to protect the anonymity of the parties involved.
A financial advisor came to us to create a financial plan for her long-standing clients, Bob (age 66) and Diane (age 67). The advisor had already put together a basic strategy focused on their retirement but wanted to go into additional depth.
The previous plan revealed that Bob and Diane might have to lower spending, work part-time and even cut some of their desired travel plans to sustain the post-work life they envisioned. Since the initial projection, the clients’ lives had changed drastically—Bob and Diane were expecting to receive a more than $10 million windfall from the sale of company stock options.
How would this change their spending, traveling, gifting and ability to retire? How would they deploy this windfall? How might they reduce their taxes in the coming year considering their temporarily elevated income? How would they preserve their wealth—and how would it impact their family?
Our goal was to provide as much clarity as possible surrounding the clients’ shifting financial situation. To accomplish this, we went through our systematic process:
- 1. We requested all relevant client data from the advisor through a secure link. Once it was received, we began entering the information into our financial planning software, RightCapital.
- 2. We also asked the advisor to ensure that any of the clients’ managed accounts were integrated and linked to RightCapital so our feed would be dynamically updated.
- 3. In this process, several questions arose that might not be included in the client data (e.g., Do the clients anticipate other sources of income that should be considered for tax planning purposes? What is the specific timeline of the payout? What is the distribution factor on their inherited IRA and are they drawing funds? etc.).
- 4. With the list of questions/clarifications compiled, we sent a communication for the advisor to respond to.
- 5. Once the advisor responded with the answers and we had made the necessary adjustments, we scheduled a short Zoom meeting to virtually run through the baseline assumptions and data. (It’s imperative that the financial advisor is confident in the assumptions and data inputs, as they are the backbone of accurate financial plan results.)
With the data and assumptions reviewed and confirmed for accuracy and completeness, we completed our financial planning analysis.
We extensively reviewed and provided recommendations on their financial outlook and strategy, including insurance, cash needs, Roth conversions, etc. More importantly, we provided Bob and Diane with confidence. They would no longer need to cut expenses or work part-time to retire confidently. In fact, they could not only retire immediately but also increase their travel expenses and gift a significant sum to their children for upcoming home purchases.
In addition to providing financial clarity and confidence, we highlighted high-level tax strategies to potentially help reduce income in the current high tax year, as well as various options to consider when selecting the optimal strategy for gifting assets to their children to preserve as much of their estate tax exemption as possible.
The advisor met with Bob and Diane to discuss their updated financial plan. Together, within RightCapital, they reviewed the findings and how their financial situation had changed from the windfall.
This article is intended for investment professionals and is provided for informational and educational purposes only. No representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. Reliance upon information in this material is at the reader’s sole discretion.
The scenario shared is not to be construed as a testimonial of any of its past or current clients, nor any assurance that we may be able to help any client achieve any specific results. There is no assurance that any financial plan or investment strategy will be successful. Investing involves risk, including the possible loss of principal.