"Are my assets protected?"
"Am I leveraging my business to maximize my future plans for me and my family?"
"Does my collection of financial products make sense and work together?"
"Am I saving and investing in the right place for the right goals?"
"I have a great CPA, but I am still wondering . . . are there other ways to minimize my income tax bill?"
Lawyers should have financial and investment plans focused on the unique parameters created by practicing law. In our experience working with attorneys, a few areas come to mind:
Income Planning and Management - a lawyer’s income can vary directly and substantially with his or her production and, in cases of contingency billing, can vary wildly, putting pressure on the lawyer’s cash-flow planning and his or her possible need to structure credit relationships.
Retirement planning - in addition to traditional defined contribution plans, many law firms and companies that employ lawyers offer defined benefit plans and even non-qualified deferred compensation plans for their lawyers. Participation in these myriad plans must be carefully coordinated, but the relevant calculus is often complicated by tax implications, cash-flow constraints and the potential need to make commensurately larger contributions on behalf of staff. And lawyers, like financial advisors, must consider the distinct matter of succession planning alongside retirement planning. Particularly in the context of a firm, a lawyer must ensure not only that appropriate agreements are in place to return his or her capital investments, but also that, upon retirement, his or her clients will be successfully transitioned to others, likely necessitating even further strategic planning.
Asset allocation and investment planning - since lawyers cannot accurately predict the amount of their earnings in any year, a planner may be required to place an added emphasis on the need for building and maintaining a current reserve of cash-based investments necessary to withstand periods of reduced income. These current reserves will require a responsible, short-term asset management strategy.
The need to build short-term reserve funds, however, may consequently limit a lawyer’s ability to save for retirement, thereby requiring a more aggressive asset allocation strategy for the lawyer’s retirement funds. These asset allocation decisions may be even more complicated by the fact that the lawyer may have little or no control over the asset allocation strategies used or offered in any supplemental retirement plans offered by the firm or employer.
Lawyers sometimes present another unique set of challenges and opportunities in the area of investing—they may be afforded the opportunity to invest alongside their clients in the clients’ businesses. While these opportunities may be quite attractive, they may also be quite risky, and a good planner will ensure the proper level of diligence, discipline and balance in approaching them.