Let's say that you were fortunate enough to build some business, and at 50 years of age you have a balance sheet showing a net value of $20 million. You know that you have an estate tax problem, you are concerned that you might be sued someday, and you would like to (if legally possible) reduce your tax burden as much as possible.
So you tell all this to your financial advisor, CPA or business attorney, and they tell you that they have heard of somebody, a real stud planner, who does comprehensive planning that takes care of all of these things. So, you get their number and make a call.
"No problemo", the stud planner says. "I can take care of all of that for you." The stud planner then recommends that you buy from him or her a "wealth blueprint" (or some other fancy name) for $40,000 that will tell you how to take care of all these problems.
So, you cut a check, send in a bunch of information about your assets and income, and -- Voila! -- a couple of weeks later, a thick booklet arrives that if full of flowery discussion of your wealth, and all sorts of spreadsheets and discussion that shows how you can reduce your estate taxes to zero, give your assets silver-bullet protection against creditors, and also reduce your income taxes to a pittance. Wow!
You tell the stud planner that this all looks really great, and how quickly can the new planner get it done? "Well," the stud planner says, "I don't do any of this work myself, but I'll tell you the professionals to go see about getting it done."
The planner then gives you a letter recommending that you go see Attorney D about one part of the plan, and Attorney E about another. You are also to go see Insurance Salesman F, because no real estate plan is anything without lots of life insurance of course, and also Financial Planner G to invest your moneys.
It is about here that you first start getting that sinking feeling that tells you that something is amiss, and you're right -- you've just been scammed.
You've been scammed by an "Aggregator", which is somebody who doesn't make any money doing any actual planning themselves, but they make good money putting together pretty booklets containing your information. For your $40,000 they had their staff spend a few hours inputting your information into a database, and then took the whole of five minutes to spit out the fancy-looking book and all the spreadsheets. Another ten minutes to bind it and stick it in the mail, and that's what you ended up with.
Sometimes the Aggregators will spin a story about how they spend many hours burning the midnight oil to develop their state-of-the-art planning software that nobody else in the world has. That might be true, but probably isn't. Several firms develop and license this software to Aggregators, who do little more than change the names and addresses on the front cover. Like so much that the Aggregator will tell you, claims of their proprietary software that would put NASA to shame should be taken with an asteroid-sized grain of salt.
But for $40,000 these strategies should be thoroughly vetted by the Aggregator, right?
Wrong. The Aggregator has little or no idea whether these strategies work or fail. What happens is that the Aggregator casts a wide net looking for planners with "strategies" that the Aggregator can help to sell. Whether or not the strategy works or not is largely irrelevant, the most important thing being that the strategy can be illustrated to show huge savings for the client.
Oh, and the Aggregator didn't just make $40,000 -- the Aggregator made a lot more. In compensation for the Aggregator sending clients to these strategy peddlers, the Aggregator gets an agreed referral fee (a/k/a "kickback") for each client, depending on what they spend.
Most of their money comes from the life insurance referral, since the Aggregator will often tell the client that he or she "needs" several million dollars of life insurance to most effectively implement the plan, and Whole Life Insurance often pays a commission to agents of 80% of the first-year's premiums.
If you think the Aggregator will tell you about these referrals fees, then I've got some nice oceanfront property just outside Wichita to sell you. Most state laws and rules of professional ethics require all such professional referral fees to be disclosed because of the obvious conflicts-of-interest, but the Aggregators never seem to know much about that, either.
The planners to whom the Aggregator refers business usually is just a mill, meaning a planner who only does a couple of transactions but does a lot of them cookie-cutter style. No matter the client's particular circumstances or needs, the client is going to be slammed into that strategy. Almost always, the strategy is some kind of schlock -- something run-of-the-mill that other planners would do for a fraction of the cost charged to the client, if they even thought it was effective.
But don't the spreadsheets given by the Aggregator demonstrate the savings? Sort of, but mostly no. The spreadsheets can give the client an idea of how a strategy might work, assuming it works at all, under ideal conditions. But often the Aggregator will make unrealistic assumptions of investment returns or tax savings (usually given to the Aggregator by the strategy-seller, with no verification by the Aggregator), simply because this will look better to the client and make that $40,000 all the more palatable.
The spreadsheets are known by the rest of the estate and financial planning industry as "liar ledgers", and the client's actual results will almost never get close to what is prophesied.
Particularly on the tax side, Aggregators often unwittingly (because they don't know better) refer clients to be placed in some tax shelter that puts the client at serious risk of penalties. But the Aggregator really doesn't care, because the Aggregator's engagement letter, and the nice booklet itself, will specifically disclaim any liability for any other professional's negligence. In other words: "It's never my fault if this doesn't work."
It is quite true that client planning is best done by teams of diverse professionals working together to solve the client's issues. You would think that at least that is something the Aggregator would coordinate, but really the Aggregator is just parceling out bits and pieces of the client's work to the strategy sellers who do their little bit in isolation to whatever other planning is being done for the client, and without regard for whether the end result is tightly integrated.
The Aggregators take many names, and hiding under the vague title of "family office" is popular. But what they call themselves is not nearly as important as what you get, being the $40,000 book that they cranked out in a couple of hours.
If you really want integrated planning, your best course is to go to a professional that you have established trust with over a long period of time, and let that planner assemble the team to solve your issues, and act as the "quarterback" to make sure that it all fits together. Note that you don't need a $40,000 booklet to do that.
The best way to identify an Aggregator, other than that they are charging you $40,000 for a "comprehensive planning blueprint", is to ask them just how much of the work they will be personally implementing -- if they start to talk about how it is better that they send you to specialists, and they don't really do any work themselves except the "planning", then you know you're dealing with an Aggregator.
The most often-used term by the Aggregator is "blueprint". While it is true that very legitimate firms will sometimes use that term in developing a plan for their clients, which they themselves implement, the Aggregators seems to invariable use this term as a description for what they are selling. So the term "blueprint" should always put you on guard to start asking further questions before you cut the check.
I really can't get too down on Aggregators, since their proposals usually end up spinning off substantial litigation when one or some of the strategies end up imploding.
That's good for litigators; not so hot for clients.
This article at http://onforb.es/10YSoC4 and http://goo.gl/XzhhyA
