The Asset Sheet Questionnaire

Bringing Clarity to Your Client’s Prosperity

Published in Blog |

Helping clients gain clarity to their financial health is what gets most financial advisors out of bed in the morning. The more you teach your clients to understand their finances, the more likely it is that they will come to you to continue growing their portfolio – which also means more “prosperity” for you. People will pay for clarity.

As financial advisors, we generally encounter one of three personas at that critical first appointment:

  1. The meticulously organized prospect: Every statement is organized and up to date, a net worth statement is compiled, and sticky notes and tabs identify what everything is. These prospects are often do-it-yourselfers and make up a small portion of the population.
  2. The semi-organized prospect: All their statements are pulled together in a big envelope, but there are also outdated statements, closed accounts, duplicate statements, and plenty of missing information. The client knows they have “stuff”, but don’t quite know what kind of “stuff” they have!
  3. The plastic bag prospect: There is a plastic grocery bag full of unopened envelopes and statements dumped on your desk.

No matter what the persona, a holistic advisor has a unique opportunity to bring clarity and education to that household.

A simple way to bring clarity in a scalable and time-efficient manner is by using an asset sheet questionnaire and creating an asset sheet. Your competition is providing clients with a consolidated statement of all the accounts that they manage as the advisor, but rarely are they tying together everything the client has into one holistic document. By completing an asset sheet questionnaire and producing a final asset sheet, you will:

  1. Help the client understand how much they have, what they have, and where and why they have it.
  2. Provide a level of thoroughness that no other advisor has ever given them, included checking beneficiary designations, asset titling, and fees/expenses.
  3. Uncover a multitude of planning opportunities for you by educating the prospect.

Taking the time to gather and categorize this information and educate the prospect on what they have will substantially increase your chances of earning their business (not to mention potential referrals).

What is an asset sheet and why is it important?

An asset sheet is essentially a client’s net worth – their assets minus their debt and liabilities – and a window into the many facets of their financial life, providing a snapshot of their overall financial condition at any given moment. Some of the compelling reasons to calculate a client’s net worth include:

  • It tracks financial progress from year to year. This shifts the client from measuring you based on quarterly rate of return to the annual growth of their account balances, a more meaningful measurement of financial success.
  • Net worth shows more than just income by including assets, real estate, insurance, debt, tax liability, etc.
  • Knowing one’s net worth is a necessity when applying for loans, mortgages, some credit cards, etc.

The easiest way to gather all the necessary information is to use a valuable tool like an asset sheet questionnaire, which will give you and your client a visual understanding of their financial situation.

The asset sheet questionnaire can be an extension of your fact-finding process but goes into a deeper level of understanding and education based on their accounts and personal financial decisions they have made. It helps identify accounts based on asset categories, so you can educate them on pre-tax, post-tax, and tax-favored monies that they can use in either a savings or distribution plan.

It also summarizes your client’s debt so they can focus on eliminating it; but, more importantly, it also helps track liabilities, which are often overlooked. For example, a client has a $500k IRA and believes they are in a 20% tax rate. However, while they may have no “debt”, they certainly have a tax liability – and based on their tax figure, it would be $100,000 ($500k IRA value and 20% tax rate). By listing this as a liability on their net worth or asset sheet, it highlights the fact that they don’t own 100% of that IRA and paves the way for discussions about planning opportunities such as Roth conversions and life insurance.

The asset sheet questionnaire also captures your client’s beneficiary information, notes proper asset titling so their family won’t have to deal with probate upon their passing, and helps them avoid accidentally disinheriting their heirs. It also leaves a single document with all their assets, debts, and liabilities for their heirs to reference when settling the estate.

How do you start an asset sheet questionnaire with your client?

Ask your client to bring in all their financial documents. A checklist can be helpful here, but make sure to note that it’s okay if they don’t have everything right away. You don’t want the prospect to cancel because they can’t find something that has minimal importance. You never want a prospect to cancel an appointment, since time kills deals and momentum.

As you review their different statements and accounts, make sure to categorize them into the different types of money based on taxation. This is a great point at which to educate them on the different types of accounts they can use for their money. We use a visual of three funnels, called Tax-Efficient Funnels, to help them understand the order of money, as well as the four basic types of money:

1. Free money – 401(k) match, monetary gifts, inheritance

    • The best form of money, and, if the client is still working, they always want to take advantage of the company match.

2. Tax-advantaged money – Roths, HSAs, 529 plans, cash value life insurance

    • The funds go in post-tax (except HSA), then grow tax deferred and are distributed tax-free.

3. Post-tax money – Brokerage accounts, trust accounts, real estate, etc.

    • Post-tax money is taxed more favorably than ordinary income, generally at rates of 0%, 15%, or 20% depending on all your other income. With no other income, a married couple over 65 could receive almost $105,000 of long-term capital gains or qualified dividends and be in the 0% tax bracket. In addition, there is also a step-up in basis for heirs when the account holder passes away.

4. Pre-tax money – 401(k)s, 403(b)s, IRAs, etc.

    • With this money, you get a tax deduction when you put money in, the money grows tax deferred, but is taxable as ordinary income when distributed. Ordinary income rates are currently as high as 37% today, and you will need to consider future tax rates as well. With pre-tax money, you are effectively in a partnership with the government, and the only way to get out of the partnership is to buy them out – in other words, pay the tax.

Each of these categories provides sales strategy opportunities for the advisor to make appropriate recommendations that are in the client’s best interest. Analyzing all the different scenarios will help determine where today’s savings should be allocated and where money should be distributed from when income is needed.

You will also need to list out the estimated tax liabilities, which can open up Roth conversion and life insurance opportunities. Obviously, the taxes will have to be paid at some point, so you will need to find ways to space them out. Roth conversions are an option, and they can also be used for legacy planning strategies, protecting heirs from paying tax on any pre-tax money. There may also be a life insurance opportunity here, as the death benefit of a life insurance policy is paid out tax-free – potentially offsetting any tax liabilities that the heirs inherited.

Be sure to check on beneficiary titling as you are organizing and categorizing your client’s assets. This creates an opportunity to educate your clients on per stirpes vs per capital beneficiary designation. This takes on even more significance for your clients who are grandparents.

Per stirpes states that the beneficiary’s share of the inheritance will go to his or her heirs if the beneficiary predeceases the account owner. If a child dies before the parent, that child’s portion of the inheritance would go to his or her children.

Per capita states that all living beneficiaries will receive an equal share of the asset in question. If one beneficiary is deceased, then the shares of the surviving beneficiaries will increase proportionally. This basically disinherits the grandchildren in a typical situation.

Most clients will not know which designation is in place for their assets, so asking about and monitoring them is another opportunity for the advisor to shine. You’ll also be helping your client avoid probate and pass an inheritance to the beneficiaries on whom they wish to bestow it. Depending on the state, per capita is the default for many accounts, which is not what many clients with grandchildren want.

As you can see, utilizing the Asset Sheet Questionnaire is a process that is valuable to the client, but also an excellent way to flush out sales ideas and opportunities for you, the advisor. Providing proactive strategies to the client regarding their retirement income will put you ahead of the competition and elevate your chances of increasing your business.

Listen to our podcast today for more insight and our experts here at Clarity 2 Prosperity can help you get started on delivering the Asset Sheet Questionnaire to your clients. Click here and contact us today to learn about the different ways our proven processes help good advisors become great!