Today's Advisory Career

Who is your client?

Building your planning-conversations around the family tree

by Herbert K. Daroff, J.D., CFP, AEP

Mr. Daroff, a contributing editor to this magazine, is affiliated with Baystate Financial Planning, in Boston. Visit

When working with a married couple, is the higher income earning spouse your client, and the other spouse simply referred to as “the client’s spouse”? I hope not! That’s the way it was when I started in this business 40 plus years ago. I define “my client” as the family tree. Usually, at least three generations. Sometimes, more. In a recent case, a newborn had six of his eight great-grand-parents alive, plus all four grand-parents, and his parents. Ask, “Who is alive above you, parents, grand-parents, maybe even great-grand-parents? Who is alive below you, children, grand-children, maybe great-grand-children?”

And, depending on the conversation, maybe include side to side, siblings, nieces, nephews, grand-nieces, grand-nephews, maybe aunts and uncles. For example, a wealthy client may want to help nieces and nephews with their college expenses. Or, a niece or nephew has some special needs that require additional financial help. This certainly applies to a single, not married, individual, as well.

Those in the family tree above the person you are meeting with can be positive or negative influences on the financial plan. The person you are meeting with may be receiving an inheritance from them. Or, the parents may need financial support from their children for their long-term custodial care. You should make a point of meeting with the parents, and above, to help provide multi-generational tax planning and multi-generational creditor protection (e.g., estate planning, elder care planning) to help the entire family.

Financial Support?

One question I like to ask each spouse of the couple I am initially meeting with is, “How much financial support will you get from your siblings (or your spouse’s siblings) for your parents’ (or your in-laws’) custodial care expenses?” That question is usually met with hysterical laughter because you are typically meeting with the most successful sibling. This conversation tees up the opportunity to place long-term care insurance for the parents (or in-laws), either a stand-alone product or combined with life insurance or annuities. However, if the client says, “No problem, my sister just took her company public.” That’s a referral. So, it is a win-win question.

Those in the family below the person you are meeting with can also be a positive or negative influence on the financial plan. One or more of them may be successful serial entrepreneurs; the founder of successful start-ups. Or, one or more of them may move back in with their parents or grand-parents until their student loans are paid off and they find a job.

Planning Between The Sandwich Generation

The new people that I get introduced to are typically the “tweeners” or sandwiched generation; those who have aging parents looking at the need to head off to assisted living and kids planning to head off to college or who already have student loans. I frequently help address student loans with the family tree. Who in the family tree is currently sitting on a bunch of money in the bank, earning next to nothing, while their child or grand-child is paying high interest to some stranger? The parents or grand-parents can either loan or gift funds to their child or grand-child to help pay off those higher interest loans. If the student loan is at 4-6%, for example, and those above the student on the family tree are earning 1-2% at the bank, then consider having those above the student provide a loan of some portion of that bank savings to the student at 2.5-3% to pay off the 4-6% student loan. Yes, there is a risk that the student will not be able to pay off the family loan. But, looking at the whole family as your client, helps with addressing issues like student loans.

Having a relationship with everyone on the family tree is key to preserving the assets that you manage. It also creates many new business opportunities

Here’s an idea that you probably have not thought about. If your children are just starting careers and beginning to fund retirement plans, project what they will have at retirement age. The traditional retirement accounts will be funded with pre-tax dollars, that grow tax-deferred, and will be distributed as ordinary taxable income, at whatever income rates may be at that time. The Roth retirement accounts will be funded with after-tax dollars (not a bad idea if they are in low income tax brackets now), grow tax-deferred, and be distributed tax-free. Then, look at having the career starter allocate at least some of that funding to life insurance on the life of the parent, parents, grand-parent, or grand-parents. I cannot assure that the person on the family tree above the career starter who is insured will die when the career starter retires. However, that parent or grand-parent will likely die during that career starter’s retirement. Look at the internal rate of return on death benefit, tax-free. And, if you use whole life, the cash value also operates like a Roth; after-tax dollars paid in premiums, that grow tax-deferred, and can be accessed tax-free before or after attaining age 59½ without tax penalty. And, like a Roth, no required minimum distributions at age 70½.

For younger members on the family tree, whole life insurance cash value works like a 529 plan; after-tax dollars, grow tax-deferred, and are accessible tax-free. Like a 529 plan, the cash value dollars can be used for qualified higher education expenses. However, cash value can be used for any expense. Grand-parents should consider insuring their children’s life with the cash value used to help fund their grand-children’s education, even pre-school.

Knowledge = Retention

Knowing your client is not only about fiduciary responsibility. Knowing the whole family tree is essential for you, as an advisor, to retain the client relationship as each person on the family tree dies.

There is a story about the old-time life insurance agent who approached a widow at his client’s funeral. “Sorry for your loss. I will call you in a week or so after I process the death claim,” he said. The widow responded, “Don’t bother. If it wasn’t important for you to meet with me for all the years that you met with my husband, I don’t want to meet with you now.”

The family tree also expands with marriages and births. Not only should you meet with the members of the family, but also meet with the people that they select to serve as their trustees and guardians. The trustees and guardians, and their families, can become clients, as well. And, meet with the attorneys and accountants for everyone on the family tree. They can become centers of influence as you network with them. But, don’t forget to engage them and their families as clients, too. Meeting one person is like throwing a rock into a pond. Look at all of the concentric circles that form from that one stone.

Having a relationship with everyone on the family tree is key to preserving the assets that you manage. It also creates many new business opportunities. But, more importantly, it helps you properly serve that family. ◊