By Alan Goldfarb, CFP®, AIF®
In the hectic world of business, a busy executive scarcely knows the time of day. It takes an organized staff to keep him moving from one appointment to another and to keep track of pressing problems that occur within the company.
Consider, then, how much more difficult his job is if he also has to be thinking about his personal financial plan: Yet this is exactly what happens. Surveys show that many executives devote a great deal of attention to their private affairs while working, simply because they don't have time to do so on their own time. Because of this, a number of organizations are turning to financial advisors to develop a program to provide for the executive's future, freeing him to devote his full attention to running his business. Making certain that the executive's future financial security is being taken care of makes good business sense for the executive and his company, as well.
The latest Tax Reform Act is now history but since it boosted the tax liability of many companys and executives, attention is centering on a fringe benefit that is gaining popularity all over the country and which has started to make in-roads into Texas, as well. That benefit is personal financial counseling - a confidential service offered by companys to their executives as an annual "fiscal check-up". The executive gets a valuable service at no cost, while the company deducts a large part of the fee as an ordinary business expense.
Financial planning benefits will continue to gain popularity because there is a need for these services: Employee benefit programs are getting increasingly complex, but companys are not legally equipped to advise their executives on whether, or when, to choose one type of retirement program over another.
Executives often have no single person to turn to for financial planning assistance. Of course, a typical executive draws on the resources of his banker, accountant, attorney, stockbroker, and insurance agent. But, often, special expertise is needed to pull the pieces together into a comprehensive strategy. The following cases illustrate some of the typical matters that are handled for executive clients:
Robert M., 42, Executive Director of an professional association in Dallas. Married, three children. Salary, $150,000. Except for a will drawn right after marriage, he had no estate planning experience. We were retained by the association and noted that Mr. M's assets - including his home, life insurance, and pension benefits - would be worth nearly $1,800,000 before he retired. We suggested that he consider a fringe-benefit trust that would take over his insurance proceeds and profit-sharing benefits, should he die prematurely. The trust would pay benefits to his family so that his wife wouldn't have to make major decisions at the time of his death. His assets would be professionally managed, and there would be long-range tax savings achieved through an estate plan for his wife, whose property will pass to their children, while its value escapes federal estate taxes.
Dr. Daniel R., 56, Senior Anesthesiologist of a medical corporation in Plano. Married, two children. Income, $700,000. Dr. R's financial picture was a patchwork affair until the business set up an advisory service. The program did two things for him. First, it helped put his plans into an understandable form. For the first time, he had an idea of what he could expect to have in retirement, and the size of the estate he would be passing to his family. Second, we showed him the need for tax-avoidance methods that cut the size of his tax bill. We directed him to investments and trusts with tax advantages that he wouldn't have found without guidance.
Diana S., 31, Sales Representitive for an Irving clothing manufacturer. Married, three children. Salary, $70,000. She was offered financial planning services through the company for the first time last year, and was the youngest employee to elect this benefit. Since she had never drafted a will, it was the first thing we suggested she do. Then we pointed out a way to save on income taxes: She and her husband had been buying U.S. Savings Bonds and shares in a mutual fund to build up reserves for their childrens' education. By putting future bond and mutual fund purchases in trusts for the children, interest and dividends build tax-deferred, instead.
An executive who is distracted by concerns for his own affairs cannot be completely effective in handling his business's responsibilities. Many executives use much of their time to get their personal finances in shape. Financial counseling helps increase executive productivity by reducing financial worries and time spent on personal affairs.
Financial counseling improves the executive's understanding of existing benefit programs, which encourages benefit selection that best meets his personal needs, objectives, and goals: This frequently results in increased effectiveness of future compensation programs.
Judging from present trends, this type of benefit will be even more widely adopted in days ahead as tax rules become more complicated, as employee compensation plans become more sophisticated, and as businesss seek additional ways of keeping their executives happy.