When a Planner Has to Start From Zero

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Nothing tests how much your clients appreciate you quite as much as a noncompete clause that bars soliciting former  customers — or even setting up shop in the same town as your former employer.

Fortunately for James Winslow and the rest of the Ann Arbor, Mich.-based four-partner team that formed Arbor Trust Wealth Advisors in 2014, clients found them.

The group — Winslow, Charles Waterhouse, Carol Sewell and Gary Haapala — had worked together at United Bank & Trust for the better part of a decade.

They had complementary skills, Winslow explains. He is a CFP who also has a master’s degree in financial planning. Sewell is an estate planning attorney. Waterhouse is the firm’s investment wizard. And Haapala is a manager, capable of handling the day-to-day business operations and strategic direction.


When the bank merged with a larger rival in 2014, the group decided it was time to move forward. Members tapped their own savings to finance the startup, with each owning equal shares in the business, and crossed their fingers. Starting a new business is always a nail biter, but theirs had the additional wrinkle of getting underway without a single client.

“We know that, if we treat our clients well and build those relationships, they’re going to want to stay with us,” Winslow says. “But it was a leap of faith, where you say, think and hope that it’s going to work out.”

As part of their parting agreement with United Bank & Trust, the group was barred for a year from soliciting their old clients or even remaining in Ann Arbor. If a former client wanted to go with Arbor Trust, he or she would have to affirmatively petition to move, without any prodding from Arbor’s partners.

The new firm initially set up shop in Canton, Mich., about 30 miles away from the partners’ old stomping grounds. Then, after the noncompete agreement expired last fall, the firm moved back into the shadow of the University of Michigan at Ann Arbor.

The advisors now collectively manage $175 million in assets. About 80% of those assets came from former clients who decided to find them when they left United Bank. (The team managed about $350 million in assets at United.) But they are hopeful that the AUM will grow quickly now that the noncompete agreement is history.

The firm’s location is also important to the wealth management operation, because about one-fifth of their clients are employees of the University of Michigan or its health system, Winslow says. The rest of their clients are made up of widows, divorcees, professionals and business owners, many of whom found Arbor through local accountants and attorneys who had worked with Arbor’s partners when they were still with the bank.


Working with university professors is an unusual and rewarding experience, Winslow says. By and large, the professors who come to him are not particularly interested in their own finances, and tend to put their retirement accounts on “set it and forget it” mode. That strategy can result in 60-year-olds coming into Winslow with retirement plans that are still 80% in stocks, he says. “They set it up when they were young and just never changed the allocations.”

Then, too, unlike many other near retirees who wonder whether they’ll have enough saved to retire comfortably, Arbor’s university-employed clients have plump retirement savings plans, he says.

That’s partly because they earn decent salaries. But, more important, the system provides them with a huge incentive to contribute heavily to their retirement accounts. Specifically, the University of Michigan provides a matching program that contributes $2 for every $1 the employee puts into retirement savings.

Start saving in your 20s or 30s, and you don’t have to be an investing genius to end up with an impressive nest egg with that sort of matching program, Winslow says. Many of Arbor’s educator clients find themselves with $2 million to $3 million in qualified plans when they’re in their 60s.

Better yet, many of them like their jobs too much to retire. “There are a significant number of professors who are over the age of 70 or even 75, and are happy and want to continue working,” he says. “Some do retire, of course, but some just want to cut back a little.”


That results in a looming tax challenge. Where most retirees expect to drop into lower tax brackets when they leave the working world, these educators can find themselves in the opposite position.

If they’re not careful, the government’s schedule for required minimum distributions can land these otherwise middle-income taxpayers into much higher tax brackets after they leave the working world, Winslow says.

Those who have enough time before retirement, however, can reduce that tax hit by strategically converting a portion of the retirement plan assets into Roth IRAs. The benefit of the Roth is that it’s exempt from required distributions, so you can leave the money saved for eventual use by your heirs, if you want to. Money taken from these accounts is also generally exempt from income tax.

The downside, of course, is that you must pay tax at your ordinary income tax rate on whatever amount you take out of a traditional plan to convert into a Roth. Thus, Arbor’s planners work with the clients’ accountants to figure out just how much they can convert in any given year to avoid bumping the client into a higher tax bracket before and after retirement.


Naturally, when your clients have enviable problems including having too much money saved, estate planning can also be pivotal.

While Arbor doesn’t write wills or trusts, Sewell reviews each client’s estate planning documents to determine if they need updating. Clients typically write these documents when they’re in their 40s or 50s and have young children, then forget about them for decades, Winslow says. By the time they have grandchildren, they may have different goals and need more-sophisticated documents.

“That comprehensive planning is very important,” Winslow says. “We want to make sure we hit every issue along the way.”

Not all the firm’s clients are well-heeled, however. Arbor has no minimum investment requirements. It simply charges those with less than $100,000 in assets a fairly hefty 1.75% of assets under management.

The policy of the firm is to never turn a client away if Arbor’s partners believe they can add value, he adds.

“A $50,000 client is not going to drive our economic engine, so we’re not out looking for that client,” Winslow says. “But we live in this community, we work in this community and we want to help the people around us. Sometimes, taking a small client is just the right thing to do.”                                                    

Kathy Kristof, a Financial Planning contributing writer in Los Angeles, also contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at @kathykristof.

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