Investment Advisors: Boost Your AUM with this Tool

Investment advisors have a lot on their shoulders in a volatile market. Besides the pressure to safeguard clients’ assets from losses, their own assets under management are also in danger.?But for advisors with certain attorney clients, there’s a strategy that can offer some peace of mind on both fronts during this crazy time.?

Fee deferral is exclusively available to attorneys earning contingency fees. It solves two financial issues they typically face: the unpredictable flow of fees, and the tax burden that comes with receiving large sums of income.?

Here’s how it works: Before a contingency fee is constructively received, an attorney can break it into a periodic payment schedule, choosing how much money to receive upfront and how and when to receive the rest down the road. Their investment advisor works with a settlement consultant to customize the arrangement and incorporate it into their existing portfolio. Thereafter, the advisor manages the investment account and adds it to their AUM.?

For the attorney, fee deferral protects against lower-earning years while reducing the risk of a higher tax bracket, as only payments received within the year are taxed. The rest of the fee is invested pre-tax and grows, tax deferred, in an investment account.?

The advisor also sees big benefits, such as:?

1. Success in a volatile market. Deferring a client’s income creates a longer time horizon, helping to protect the client, and the advisor’s AUM, in a volatile market.??
2. Stickier client relationships. Periodic payments are typically scheduled over decades. Clients can continue to add new fees to the arrangement or create new payment schedules in the future. There is more longevity within those accounts and stickier relationships with the clients, who will need continued management over many years.?
3. Increased AUM. Since the client’s fees are invested pre-tax, their starting point is higher. And deferring an attorney fee can yield more than three times the total growth as opposed to taking a fee in a lump sum. A higher starting point and better growth translates to better AUM for the advisor.?
4. A way to stand out from the competition. Many investment advisors still do not know that they can work with a settlement consultant to offer fee deferral to their attorney clients. Those who do know about it stand apart from competitors who still rely on traditional investment strategies for attorneys.?

It’s a win-win situation. If you’re an investment advisor with attorney clients, call or DM me to discuss how you can incorporate this strategy into your practice.?