By: John P. Napolitano, CFP®, CPA, PFS, MST

Sports fans have heard the adage “The best offense is a good defense”.

I feel the same way about the financial planning process. Fast receding are the days where advisors can bluff the client with lip service financial planning. To be competitive in the ever changing landscape of professional services, financial planners need to be as holistic as possible. It isn’t good enough to draw a green line showing your client a path to and through retirement and an occasional conversation about their investment performance.

Your defense against competitors is going to be your thoroughness and attention to detail. This level of service should be present for every single element within your clients’ financial lives that one may reasonably consider in a financial planning engagement. The standards for what a financial planning relationship should look like are well published. You can get that from the AICPA PFP division or the CFP board of standards.

This great defense is important for many reasons. It can mitigate professional liability, identify other service providers who are not doing a good job, and find many gaps that need attention. It also helps to strengthen a client relationship. It becomes clear that you really care about the family and everything in their lives. It highlights that you are unique compared to their past relationships who may be stuck in a sales environment or an insurance and investment environment. Do you realize that some of the largest firms in the USA don’t allow their advisors to talk to clients about certain matters? Taxes are one of them. You’ve seen the disclosures…. “This is not tax advice, seek qualified tax advice from…”.This alone is a slam dunk for CPA Financial Planners.

This defense turns to offense when you realize how tight your client relationships are. This offense gets a boost once the word gets around that your service is distinct, and truly holistic. People will find you. Now, let me share some of the more common gaps that I’ve seen in my 40 years of practice.

Property and casualty insurance and risk management in general is an area where most financial planners look the other way.

The standards for risk management in a financial planning engagement are pretty broad. Risk management can mean everything from buying your teen a safe car to owning a boat where you allow friends and family to use it when you are not. There are only three ways known to mankind to manage risk. Avoidance, mitigation or transfer.

The risk management engagement should start with a full assessment of the protections and policies that a client currently has in place. We request copies of the entire policy, even though much of the information needed is on the declaration page of the policy. In these days of P&C insurers promoting premium savings by giving 15 minutes to save 15%, gaps have become more common. Some are unaware that in their quest to save 15% of the premium that their coverage has changed to the detriment of the protection that they once had.

A common gap we see in homeowners policies are homes being under or over insured. Have a realistic assessment of just how much coverage is appropriate and necessary to prevent a total loss. To that end, a replacement cost policy is better than the actual cash value types.

Business use of a home is another area often left untended in many cases. Depending on your policy and just how much of a home office you have, you may or may not be covered. Find out what you need before you may need to use it.

Looking at your auto policies also needs to be a part of your risk management plan. In addition to having the right coverage, ensure that you have each driver insured for the cars they are driving. Where the car is garaged, and therefore where it’s insured is also important. Letting children have use of a car that is not kept at the address of record could be a problem in the event of a big claim. It’s not uncommon for recent college grads to live in an expensive urban area while the car still is registered and insured at the parents’ home in the lower insurance costing burbs. This is not recommended.   

Both home and auto coverages need coordination in order to have proper umbrella liability protection.  In this case, we frequently see gaps where the underlying limits for both homeowners and auto aren’t maximized therefore leaving a gap to be paid by you until you reach the umbrella policy. This could be expensive. Ensure that your clients have adequate catastrophic umbrella liability coverage. It’s not expensive, and it could save your bacon if a catastrophic claim arises.

Another area of overlooked liability is in the form of asset ownership. As accountants we’re trained to understand the risks of a sole proprietorship, yet I see businesses all the time that would benefit from an LLC or corporate form of ownership for asset protection where the incumbent accountant had no opinion. The situation is even worse when there is more than one owner to that schedule C business because of cross liability.

Ownership of real estate poses its own risks. I’ve seen rental properties insured as personal residences, business real estate owned by the company instead of a separate entity and real estate titles in in a basic nominee realty trusts with zero asset protection. The sad part about the realty trust is that the owners of the property typically think that there is some sort of asset protection with that nominee trust– whereas you and I know that there isn’t.

The real estate problem also exists in vacation homes where there is an occasional rental.  Ask the question of your client and make sure that the occasional rental is covered.

A very common issue with real estate is joint ownership between non spouses. This is a liability and an estate planning issue, especially for business or rental property. Have your client place their jointly owned business real estate into an LLC for liability protection and to be sure that each owners share goes as they wish. They don’t realize that joint ownership overrides the terms of their estate plans and that the joint owner becomes the entire owner when one passes, regardless of what your will says.

Moving on to estate planning, we see the most gaps in this area. Starting with outdated durable powers of attorney and health care powers of attorney. These should be updated every 3-5 years, or sooner if facts and circumstances dictate.

All too often we see a client with wills and trusts that will be funded upon death. Why go through probate to get assets into trust when you can own your assets in trust while you’re living and avoid the hassles and expense of probate? Clearly the clients’ attorney should have helped to fund the trusts, but they often don’t. That leaves the financial planner to recommend putting them into action now.

The terms of many existing client trusts are also inadequate, and frankly often boiler plate. There are issues with distributions. First is the ages your client chooses to allow children full access to the assets. In this age of litigation and divorce, these ages are getting older and older. For larger estates or families with irresponsible children, spendthrift provisions with an independent trustee may make sense.

Another common gap in trust planning is addressing the issue of remarriage. We all hear stories of how the new trophy spouse is getting everything to the detriment of the marital children. When asked while both are alive, the gap is easily seen with both spouses interested in resolving this potential issue. I like to see language in the trust that specifically requires action such as a pre-nuptial agreement for a second marriage so that a second spouse does not get access to family assets and disinherit the children.

Some trusts may have older unified credit language in them. This is especially significant if your state exemption is different from the federal exemption.

Under the Secure Act, trusts that are the beneficiaries of qualified accounts may also need revising. The old language refers to the old lifetime spread rules versus the 10 years now in effect under the secure act. For families with young children, it may be wise to amend the trusts to allow for distributed qualified assets to remain protected in trust along with the remainder of the estate.

A good look at all beneficiary elections should be a part of your financial planning process. Benefits from work, such as a 401K rarely get another look after the first day of employment. If your client has the spouse and then the kids equally for any insurance or retirement benefits, that could be an issue. How would it have worked out for you if you had full access to a $1million IRA at age 21?

Life insurance and annuity beneficiaries also need a closer look for the same reasons as an IRA or 401K. For life insurance, take it a step further and decide if that insurance would be better off in an irrevocable trust to stay out of the estate.

Two issues regarding your children that should be addressed. The first is any child over age 18 having their own estate documents. A will, health care power and durable power of attorney at a minimum.  Make sure their health documents are valid for the state(s) where your children reside, even if it is only temporary for college.

Address UTMA and UGMA accounts. Most clients don’t realize that their children have full access to these funds by age 18 or 21. Some choose to use these funds for the kid’s expenses such as school, autos or health care and others ask their child to close the accounts when they reach the age of majority and then place the assets in trust or some other type of investment account to prevent them from blowing that money.

The gaps found in many financial plans is one of my favorite topics. I can write for days on this subject alone. But I’ll stop here, and let you go fix the issues we have already addressed for your clients.


John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/ SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.       1-05021453 (July 2020)