Choosing Professional All-Stars: How to Assemble an Effective Team for Yourself, Your Company, or Your Client

To a surprising degree, many successful companies and wealthy families, with excellent professional advisors, are missing opportunities to reduce their taxes and exposures to other risks, such as lawsuits and internal disputes. That’s because it’s no longer possible for any individual or firm to master the increasingly complex financial, tax and legal environment.

It is, therefore, more important than ever to know how to effectively assemble an excellent team of professionals. But, how do you sort through the complex tangle of tax, business and wealth advisors, many of whom offer advice as a means of selling other products and services? Here are some suggestions:

Distinguish Yourself by Understanding the Process. Whether your situation is simple or complex, there are three distinct elements in the process of creating successful project outcomes: (i) design; (ii) implementation; and (iii) maintenance.

All three are critical, but clients and professionals often focus primarily on implementation activities, such as drafting legal documents and setting up accounts. Consequently, the elements of design and maintenance are frequently neglected, or completely overlooked, with serious consequences.

In several well publicized cases, for example, the IRS has successfully challenged the efficacy of family limited partnerships, based in part on errors in maintaining the legal structure and faulty accounting procedures. Common failures include the payment of personal expenses from partnership funds and the distribution of partnership funds in an informal manner.

The element of design is also frequently neglected or overlooked. This can easily happen when clients simply instruct their attorney or CPA to take some action, such as drafting an agreement to purchase real estate. The costly error, however, may only be apparent years later, when the client desires to sell the business and retain the real estate, both of which are held in an S corporation (generally, you can’t extract appreciated property from an S corporation without triggering tax on the gain).

Know What You Don’t Know. Whether you are coordinating a project for yourself, your company, or a client, it’s critical to be fully aware of what you are doing and to engage additional expertise as needed. You’re not expected to know everything, and there’s no shame in seeking expert help when it’s warranted by the complexity of your circumstances or magnitude of your project. In fact, recognizing the need for additional expertise is an excellent way to create additional value and enhance client relationships.

So, how do you know what you don’t know? You can start by asking the following two questions regularly:

(i) “What third parties might, now or in the future, be interested in or affected by this event [transaction, plan, structure, etc.]?”

(ii) “What can be done to reduce the associated cost or risk?”

If you can answer the first question, but can’t answer or resolve all issues raised by the second question, you’ll need to find a specialist. If you can’t answer the first question, you’ll need to get someone with broader knowledge. Remember, there are times when the most valuable answer you can give is: “I don’t know.”

Identify Your Needs. For simple matters, one person may be able to design, implement and maintain (or conclude) a project, without multiple experts or the need to coordinate them. More complex circumstances, however, may require several experts and multiple levels of coordination.

Regardless of the level of complexity, make sure that someone is clearly responsible for coordinating the project and for each of the three critical elements—design, implementation, and maintenance. You don’t necessarily need to engage a separate professional for each position—you may, for example, remain responsible for overall coordination of the project, or your lawyer may be responsible for implementing and maintaining a legal structure—but someone must be responsible for each role.

Carefully Select Your Team. For each key position you will not handle personally, choose an excellent professional who is well-suited for the need (i.e., design, implementation, maintenance, or coordination) and for the overall team. Keep in mind that skills and technical competence are necessary, but alone are not sufficient.

In order to increase the probability of a successful outcome, select professionals who will work well with the team and who will be highly motivated to think independently, take responsibility, and be responsive. All other things being equal, my general suggestion is to hire an individual or the smallest firm which has, or can effectively assemble, the required skills.

A large law firm, for example, may be the best choice to draft documents requiring very specialized expertise or to negotiate and quickly draft the blizzard of interrelated legal documents required to implement a major transaction, such as selling a large ongoing business. On the other hand, an individual or smaller firm may be more responsive on regular legal matters and may have less pressure to direct work to other lawyers in the same firm. Generalizations are difficult, but you get the idea.

Seek Objective Advice. Financial and legal professionals typically offer a combination of advice, services, and/or financial products, and it’s sometimes difficult to know what you’re buying. “You get what you pay for” is hardly original, but generally sums it up.

Some of the largest investment and insurance companies offer “free” planning services of a general nature, in an effort to generate investment management fees or sales commissions on financial products. Similarly, some partners at the largest professional firms are compensated handsomely for generating hourly work performed by other professionals in the firm.

There is nothing wrong with making a profit by providing services or selling a financial product. With that said, if you’re seeking objective advice, you have a right to know how your advisor is compensated and whether the arrangement is fully aligned with achieving your objectives as quickly and simply as possible.