David R. Evanson

The Career Advisor, Fall, 2004

The wonderful secret in the “Wizard of Oz” was that Dorothy had the key to getting back to Kansas with her the whole time. It was the magic slippers. All she had to do was click her heels three times . . . . and she could have been back on the prairie in a flash.

As far as an opportunity that is capable of taking your practice to the next level, wealth managers are presented with a similar situation. You have exactly what you need right under your nose, but may not yet recognize it.

Your magic slippers, so to speak, just might be your client’s IRAs. Specifically, two inevitable dates are catching up with the individuals that began opening up IRAs when they first became available in 1974: death or mandatory distributions.

The opportunity is two-fold, according to CPA Ed Slott, who focuses on IRAs. First, mandatory distributions will provoke questions and the need for real expertise among your existing clients. “If you have this expertise,” says Slott, “you will retain clients and enjoy referrals,” says Slott. “If you do not know what you are doing, you will lose business.”

The far larger opportunity lies in working with the beneficiaries who inherit IRAs. It is these people who are: 1) most likely to recognize what you did right while their parents or benefactors were alive; 2) most likely to retain your services to maintain the continuity of the planning for and management of the underlying assets; and 3) most likely to refer you to their friends who will inevitably and rapidly face similar circumstances.

And let’s be clear here about the mathematics of the situation. Because were are talking about the possibility of enabling assets to grow tax deferred over two generations, there is the opportunity to cultivate millions of dollars of new assets.

According to Slott though, it’s not enough to say you are an expert. If you want to play in the IRA rollover market, you’ve actually got to be an expert. “IRA money is very sensitive money,” says Slott. “If that deferral cracks as an inherited IRA, it’s over.” Slott says that he has been an expert witness in cases where beneficiaries have brought suits against their advisers for improperly handling a rollover. “In one case the adviser could have been a hero, but instead delivered a $200,000 tax bill to the beneficiary and ended up in court.”

To protect yourself against such an unpleasant outcome, here is some of the protective armor you will need.

First, get Life and Death Planning For Retirement Benefits, written by IRA expert Natalie Choate, a Boston based estate planning attorney, with Bingham McCutchen. “Failure to get the minimum distribution rules right can result in a 50% penalty,” says Choate. “Historically, the IRS has been somewhat willing to waive the penalty, but you certainly don’t want to count on that.” Moreover, she says that with the most recent “simplifying” rule changes, there is speculation that the feds might toughen up.

But the minimum distribution rules are just one potential pitfall in a thicket of thorny issues facing the would-be rollover expert. Ergo, Choate’s tome, which might just represent the most thumbed-through and dog-eared resource in your library or IRA information.

Next, to keep a pulse on changes in regulation and legislation as it occurs, Slott says to subscribe to newsletters from Leimberg Information Services (www.leimbergservices.com) which cover proposed, pending, and recently enacted legislation. The point, says Slott, is not just to appear to be on top of regulatory and legislative changes, but to actually have knowledge and insight on these matters as they occur and the implications they may have for IRA account holders and beneficiaries.

Finally, you’ll need a software tool that will help you illustrate to IRA holders and beneficiaries just what can be achieved if the accounts are set up right and allowed to compound over not just one, but perhaps two generations. Sure, you can explain what the end result will be, and pull out your TI Business Calculator to say what the end result will be, but there is nothing like giving IRA holders and their beneficiaries a report that shows them the millions in wealth that can be accumulated. For this task, Slott recommends the Pension & Roth IRA analyzer by Brentmark Software (www.brentmark.com).

Once you’ve done the groundwork and “bathed” yourself in IRA rules, regulations and distribution strategies, your outreach need go no further than your existing client base. Start by setting a meeting with your clients and the beneficiaries for the express purpose of reviewing the IRA accounts and making sure they are established in ways to achieve what the clients wants. “If you’ve set the accounts up properly, or make the appropriate changes,” says Slott, “in a short period of time, the beneficiaries will do all of your marketing for you.”