I was watching the Indianapolis Colts play football last season (pre-Superbowl victory) with my husband and couldn't help but notice quarterback Peyton Manning — how well he passes the ball, that is. At times he even passed the ball before the receiver finished his route, making it nearly impossible for defense to stop the play. My husband explained to me that Manning is very well known for his pre-game preparation. He will spend countless hours with his receivers to discuss potential plays. During the game Manning is also in constant communication with the receivers, making certain they execute plays to perfection.
Throughout my career I've met and consulted with numerous financial planners and nearly all of them are keen on the concept of playing quarterback for their clients — being the point person for all of a client's financial decisions. One of the financial quarterback's key responsibilities is understanding when and how to pass the ball to a specialist, such as a CPA or attorney. When the ball is passed well, both the client and the financial planner come out on top. However, if the financial planner fumbles the snap, it can cause a substantial financial loss to the client.
Bad Advice
Case in point: A short time ago I had a close friend call me in a panic. She was very worried about her financial situation. She had recently divorced and needed some money from her IRA to help pay for certain ongoing expenses. Her financial planner had recommended that she start taking 72t distributions, also known as substantially equal periodic payments. This type of distribution allows an individual to avoid penalties on early IRA withdrawals. The financial planner told my friend to discuss this with her CPA. But he made a key mistake — assuming her CPA would take the reins and correctly execute the distribution. Instead, when my friend contacted her CPA about it, he simply said, “Go ahead and take the money out and I'll mark it on your taxes.”
So what went wrong? Basically, the planner assumed the CPA knew what he was doing, and the CPA assumed that the client was financially savvy enough to take care of the distribution in the proper way to qualify for better tax treatment. Neither assumption was accurate. Actually, the CPA did not even realize that certain calculations needed to be made to determine the amount that the client could withdraw from her IRA without getting hit by penalties and taxes. So my friend, the client, proceeded to take out an arbitrary amount of money each year. Now she is faced with the possibility of having to pay interest and penalties on the entire amount withdrawn over several years.
I'm a CPA myself, and I'm the first to admit that her CPA should have explained to her the specific rules by which to make the IRA withdrawals.
However, her financial planner is also culpable. He should have checked to make sure the CPA had come through. In the financial-planning game, if you want to be a big time quarterback for your client, you've got to know where your receivers and playmakers are to complete a winning play.
This disastrous turn of events could have been averted easily if the financial planner had taken a team approach and contacted the CPA to discuss the client's intentions, and to make certain that all three of them — planner, CPA and client — were on the same page. You may know what's right for the client, but you have to be sure that your receivers do too. In this case the financial planner fumbled the ball and the client lost a lot of money. Instead of turning into a star player, the financial planner lost a very lucrative client who, incidentally, is now searching for someone a little bit more like Peyton Manning.