AUM Increased 8% Via Proactive Beneficiary Review Program

AUM Increased 8% Via Proactive Beneficiary Review Program

Executive Summary

Rossi Family Office Services faced a critical challenge: outdated beneficiary designations were creating delays in asset transfers and, more importantly, causing a significant leakage of Assets Under Management (AUM). Recognizing this vulnerability, they implemented a proactive annual beneficiary review program. This systematic approach streamlined asset transfers, ensured assets remained within the firm's management, and ultimately increased AUM by 8%, translating to a substantial $62.4 million.

The Challenge

For Rossi Family Office Services, the issue of outdated beneficiary designations was a silent threat eroding AUM. While performance and new client acquisition remained strong, assets were quietly slipping away. Consider this scenario: a long-time client, Mr. Johnson, passed away. His IRA, worth $750,000, was supposed to pass to his children according to his estate plan. However, the beneficiary designation on file at the custodian still listed his deceased former spouse. This created a legal quagmire and significant delays.

Even worse, the eventual outcome wasn't ideal. Because Mr. Johnson's estate plan specifically named his children as heirs to his entire estate, the IRA assets eventually passed to his children as part of the estate, not directly as inherited IRAs. This had significant tax implications. His children lost the ability to stretch out distributions over their lifetimes, a strategy that would have saved them tens of thousands of dollars in taxes over the long term. This situation, although eventually resolved, left the family dissatisfied and highlighted the firm's lapse in proactive management.

This wasn't an isolated incident. The firm estimated that 2-3% of their AUM was potentially vulnerable due to outdated or missing beneficiary information. This potential loss represented millions of dollars and jeopardized the firm's long-term growth strategy. Furthermore, delayed asset transfers created administrative burdens and frustrated surviving family members, damaging client relationships at a time when they needed the firm’s support the most. The team at Rossi Family Office Services realized that reactive problem-solving was no longer sufficient; a proactive, systemic solution was essential to protect and grow AUM. The average account size vulnerable to this issue was $300,000, and with approximately 1,000 clients, the potential AUM at risk was close to $300M. They knew they needed to act quickly.

The Approach

Diana Rossi, a lead advisor at Rossi Family Office Services, championed a proactive beneficiary review program. Her strategy focused on prevention rather than reaction, ensuring assets remained within the firm's management and avoiding potential tax inefficiencies for clients. The approach was built upon three core pillars:

1. Identification: Leveraging their Customer Relationship Management (CRM) system, the team developed a report to identify clients with potentially outdated or missing beneficiary information. This report prioritized clients who hadn't reviewed their designations in the past year, had experienced significant life events (marriage, divorce, birth of a child), or had complex estate planning needs. The criteria included accounts held for longer than 5 years without a beneficiary review, changes in marital status, and clients over the age of 70.

2. Communication & Review: A standardized communication workflow was established to contact each identified client. This involved a personalized email outlining the importance of beneficiary designations, followed by a phone call from the client's advisor. The advisor then guided the client through a comprehensive review of their existing designations, ensuring they aligned with their current estate plan and financial goals. Crucially, the firm offered to facilitate the necessary paperwork with the custodians to update beneficiary forms, removing a key friction point for clients.

3. Ongoing Maintenance: The program was designed to be an ongoing process, not a one-time fix. Every client was scheduled for an annual beneficiary review, integrated into the firm’s overall client service calendar. This ensured that beneficiary designations remained up-to-date, reflecting any changes in the client's life or financial situation. The firm also integrated beneficiary designation reviews into its onboarding process for new clients, ensuring that all new accounts had properly designated beneficiaries from the outset.

Rossi understood the importance of educating clients on the significance of beneficiary designations. They created a short video explaining the tax implications of improper designations and the importance of keeping them updated. This video was shared with all clients during the initial communication, helping them understand the value of the review program.

Technical Implementation

The technical foundation of the beneficiary review program relied heavily on Rossi Family Office Services' CRM system, which was specifically configured to track beneficiary designation information.

1. CRM Customization: The CRM was customized to include fields for tracking the date of the last beneficiary review, the names of the beneficiaries on file, and any specific notes related to the client's beneficiary preferences. Custom fields were also added to flag clients requiring immediate attention based on life events such as marriage, divorce, or death in the family.

2. Reporting & Data Extraction: A custom report was created to identify clients who met specific criteria:

   • Clients who had not reviewed their beneficiary designations within the past 12 months.
   • Clients with missing beneficiary information.
   • Clients who had reported a significant life event since their last review.

   The report pulled data from various sources within the CRM, including client profiles, account information, and communication logs. This report was automatically generated on a monthly basis, providing a continuous stream of leads for the review program.

3. Workflow Automation: A workflow was created within the CRM to automate the communication process. When a client was identified as needing a beneficiary review, the workflow automatically triggered a sequence of actions:

   • An email was sent to the client explaining the importance of beneficiary designations and requesting a meeting to review their information.
   • A task was assigned to the client's advisor to follow up with the client by phone within one week.
   • If the client did not respond to the email or phone call, a second email and phone call were scheduled for the following week.

   This automated workflow ensured that all clients were contacted in a timely and consistent manner, maximizing the efficiency of the review program.

4. Custodian Integration: To streamline the process of updating beneficiary designations, Rossi Family Office Services established relationships with the custodians holding their clients' assets. They worked with these custodians to develop a standardized process for submitting beneficiary forms electronically, reducing paperwork and processing time. They also utilized APIs where available to automatically update beneficiary information directly within the CRM, minimizing manual data entry.

5. Performance Tracking: The CRM was used to track the progress of the beneficiary review program and measure its impact on AUM. Key metrics tracked included the number of beneficiary reviews completed, the number of beneficiary designations updated, and the total AUM impacted by the program. This data was used to refine the program over time and ensure that it was delivering the desired results.

The program also factored in required minimum distributions (RMDs). During each review, advisors would also double-check the client's RMD election to ensure proper beneficiary designations and prevent potential tax complications.

Results & ROI

The implementation of the proactive beneficiary review program yielded significant positive results for Rossi Family Office Services.

• AUM Increase: Within the first year of implementation, the firm experienced an 8% increase in AUM, directly attributable to the program. This translated to $62.4 million in new assets, based on their starting AUM of $780 million.

• Asset Retention: The program prevented an estimated $15 million in assets from leaving the firm's management due to outdated beneficiary designations. This was based on analysis of estates that would have had assets pass outside of management due to improper beneficiary designations versus the actual outcomes after implementing the program.

• Client Satisfaction: Client satisfaction scores related to estate planning services increased by 15%, as measured by post-review surveys. Clients appreciated the firm's proactive approach and the peace of mind that came with knowing their beneficiary designations were up-to-date. Negative feedback related to delays in asset transfers after a client’s passing decreased by 80%.

• Administrative Efficiency: The standardized process and automated workflows reduced the administrative time required to manage beneficiary designations by 50%. This freed up advisors and support staff to focus on other value-added activities. The manual processing time for updates to beneficiary forms was reduced from an average of 45 minutes per client to approximately 15 minutes.

• Tax Savings for Clients: By ensuring proper beneficiary designations, the program helped clients avoid potential tax inefficiencies and maximize the transfer of wealth to their heirs. The firm estimated that clients saved an average of $5,000 in taxes per estate as a result of the program.

In summary, the proactive beneficiary review program not only protected and grew AUM but also enhanced client satisfaction and improved operational efficiency. The program's ROI was substantial, demonstrating the value of proactive estate planning services.

Key Takeaways

Here are key actionable insights for other Registered Investment Advisors (RIAs):

1. Proactive is better than reactive: Don't wait for beneficiary designation issues to arise. Implement a proactive system to review and update designations annually.

2. Leverage your CRM: Use your CRM to identify clients with outdated or missing beneficiary information. Customize your CRM to track relevant data points.

3. Automate workflows: Automate the communication and follow-up process to ensure consistent and efficient execution.

4. Educate your clients: Clearly communicate the importance of beneficiary designations and the value of the review program.

5. Track your results: Monitor key metrics such as AUM increase, asset retention, and client satisfaction to measure the program's impact.

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