Breach of “Standard of Care” (SOC) by a Financial Planner

Home Breach of “Standard of Care” (SOC) by a Financial Planner

Breach of “Standard of Care” (SOC) by a Financial Planner

First, let us reiterate the APS™ “Standard of Care:”


“Rated” advisors shall incorporate asset protection planning into the advice given to all clients.”


Instead of trying to write in paragraph form how an attorney can breach the SOC, we will simply list some examples which will make is self-evident.


The standard will vary depending on the “Rating” of the advisor.  The better an advisor’s “rating,” the higher standard they shall have to live up to.


Example 1: A typical small business client.


Mr. Green, age 45, had his estate plan done by a local law firm.  Mr. Green disclosed that he is married, has two minor children, and has the following assets:

– a $150,000 brokerage account
– an office building he works out of with a value of $300,000 with little debt
– $75,000 in a variable life policy
– Personal residence worth $400,000 with $200,000 of debt


He earns $250,000 a year and lives in a state with no homestead exemption.


His business is a sole proprietorship.  He has seven (7) employees and provides to them with a fully insured health plan with BCBS and a Simplified Employee Pension (SEP). The cost of health insurance is $500 per employee and $850 for a family plan.


The typical local financial planner will not get too involved in the client’s estate plan. The typical financial planner will make sure the client has an attorney who will provide the client and spouse with wills, durable powers of attorney, living trusts (or pour-over trusts), and if needed an irrevocable life insurance trust (ILIT).   To the extent the client has none of the aforementioned tools; a typical financial planner will make sure the client seeks out an attorney to draft such documents.


The typical financial planner is interested in what financial planners are interested in, the client’s money and/or insurance products.


Therefore, the typical financial planner will make sure the client has the appropriate amount and type of life insurance.  The financial planner will take a look at the client’s brokerage account and try to pick that up as money under management or move it into an annuity or cash-building life insurance policy.  The financial planner hopefully will give the client good advice and tell him to get rid of his SEP-IRA.


Frankly, even the typical financial planner will be good at only certain items. Many have a forte in money management, life insurance/annuities/ or qualified plans.  Not too many have a good working knowledge of all the various financial tools needed to give complete advice, but for this example, we are giving the financial planner the benefit of the doubt and therefore we are assuming proper advice will be given on the above-mentioned financial topics.


Will such advice meet the SOC of the APS™? No.


What advice should have been given in addition to the standard advice?


1) Mr. Green must be told to immediately change from a sole proprietorship (SP) to some kind of entity.  An LLC is usually preferable.   A SP provides NO protection from the work done by the SP.  Additionally, there are several tax reasons to have an entity treated as an S-Corporation or even a C-Corporation in some instances.


2) The building used by the business is exposed to lawsuits and creates liability which exposes the rest of Mr. Green’s estate to creditors.  The property should be protected from other creditors and insulated so it doesn’t cause liability to the rest of Mr. Green’s estate.


3) The business should get rid of the SEP-IRA and use a 401(k)/profit-sharing plan. A SEP-IRA immediately vests employees and Eligible employees include anyone who earns more than $450 and has had any service in three of the past five years.  This is the least discriminatory plan available for Mr. Green and therefore what he saves in minor administrative fees he spends many times over with contributions which immediately vest for the employees.  Additionally, there is no discrimination in a SEP-IRA when it comes to the amount of contributions. If Mr. Green contributes 10% of the pay for himself, he must contribute 10% of the pay for all the employees.


4) The business should get rid of the fully insured BCBS health insurance plan and instead implement a high deductible health insurance plan coupled with a Health Savings Account.  This will save Mr. Green significant money on an annual basis and the plan will provide for the first dollar health care cost of his employees.


5) Mr. Green’s brokerage account is subject to creditors. It needs to immediately be asset-protected.


6) The home’s equity is not protected. The client should be made aware of the various ways to protect the home from creditors (debt shield, IDGT, etc).




Providing quality advice to clients on asset protection is not difficult.  If you surf this website, you will find out for yourself that there is nothing inherently difficult about asset protection planning.


The problem is that besides the Wealth Preservation Institute through the CAPP™ courses and several of the Founders and Advisors Board Members of the APS™ through their books, no one educates on the topic of “asset protection.”


“Rated” advisors have proved to the APS™ before becoming “Rated” that they have the requisite knowledge and under the “Standard of Care” put forth by the Society, “Rated” advisors have a duty to use this knowledge to help their clients.


This again, is the reason the APS™ was created. To protect the public and to point out those advisors who truly can help them implement a comprehensive and complete asset protection plan.

Buy The Book Today

Read On Asset Protection Topics