You don’t need us to tell you that you work a lot. On average, attorneys in the US work anywhere between 60 and 80 hours a week… double that of the typical professional!
In your role, providing legal solutions based on a thorough analysis of each client’s specific needs, it is only reasonable you put in those extra hours. Do to your commitment, the value you provide is comprehensive, dedicated, and objective; which while crucial, often limits the amount of time you can spend creating the same for yourself in your financial life.
The majority of lawyers lack the time and extensive financial background needed to make critical decisions that could affect their long-term financial security. That’s where financial planning for lawyers provided by a qualified financial advisor can help.
High Income, Complex Responsibilities
Most lawyers in private practices are high earners. This can be both a boon and a burden. While they can often afford to own homes in affluent areas with good schools and don’t have to worry excessively about paying the monthly bills, they often have unique financial challenges not faced by other professionals.
That’s why financial advisors who offer financial planning for lawyers can help legal professionals make sense of their complicated financial lives.
Many attorneys start their careers with a huge pile of educational debt. According to some studies, many start their careers with more than $130,000 or more in combined undergraduate and law school student loans. Added to other obligations such as mortgage payments, lawyers may find themselves with ten or more years of aggregated monthly payments of thousands of dollars. And unless they’re working for a private firm, they may have a difficult time figuring out how to make ends meet.
A financial planner can conduct a cash flow analysis that can help lawyers forecast how to best allocate their income to expenses, debt payments, and long-term savings. A planner can, for instance, recommend prioritization of debt payments by accelerating payments for loans with higher interest rates.
Evaluating and Choosing Insurance
Attorneys in high-risk specialty areas often buy malpractice insurance to protect themselves against claims from clients. These premiums can range from $300 to more than $10,000 per year.
Premium costs often vary by insurance carriers and location and it’s not always easy for attorneys to evaluate their options on their own. A fee-only financial planner may help attorneys evaluate their malpractice coverage needs without having misaligned incentives, such as getting compensated from any specific insurance carriers for making recommendations.
Financial planners can also help attorneys’ evaluate their current life insurance policies or recommend alternative insurance options that may offer better protection for their families at lower costs.
Saving and Investing
Financial planners can recommend an investment plan that aligns with an attorney’s risk tolerance and specific financial goals, such as saving for retirement, a child’s higher education, or the purchase of a new home. From this information, they can recommend an asset allocation strategy to create a diversified portfolio of stocks, bonds, and cash that aligns with the lawyer’s investment objectives.
Many financial planners are also investment professionals who can execute a comprehensive plan. They would do so by recommending specific Exchange Traded Funds or mutual funds that can deliver your required returns with the minimal amount of risk and then managing all or part of a portfolio. The planner would monitor and report performance over time and rebalance in a systematic way with an eye on tax-efficiency.
As attorneys reach their peak earning years, they often find themselves in higher tax brackets. If they work for corporations, they may also receive company stock or stock options. Or if they become partners, they may receive an ownership stake in their firm in the form of partnership shares.
When it comes time to liquidate these positions, a financial planner, working closely with the attorney’s CPA, can develop a plan to sell these shares in a tax-efficient manner. They can also find ways to reduce the attorney’s taxable income by maximizing annual contributions to 401(k) plans and IRAs and identifying strategies for making the most of available tax deductions.
Protecting Personal Assets
Malpractice insurance alone might not provide enough protection in the case of a multi-million dollar legal judgment against an attorney. Litigants may also try to go after an attorney’s savings or investment assets. A financial planner can recommend strategies for shielding these assets from both plaintiffs and creditors, such as placing investment assets into a trust.
The financial planner will generally work with a trust attorney to establish the trust and facilitate the transfer. This team can also help attorneys develop estate plans that can ensure that their assets are passed on their heirs in an efficient manner.
The Critical Importance of Financial Planning for Young Lawyers
Lawyers who are starting their careers are often overwhelmed by the requirements of the job, the time commitment, and the financial responsibilities that come after law school ends.
They may not have a high starting salary, especially if they begin their career working for a state or local government. Even if they join a private firm, it might be years before they’re making “partner level” salaries.
And unless their firm offers to pay for some of their law school debt, they may face ten years or more of monthly payments that could amount to thousands of dollars per month.
With so many young attorneys putting in 80-hour weeks, they often don’t have the time or energy to deal with their financial challenges. That’s where the value of a financial planner comes in. This advisor can help these young “legal lions” develop a plan for managing inflows and outflows, putting money aside to save for retirement or their children’s higher education, and choosing appropriate options for protecting their assets and providing financial security for their loved ones.
Finding Qualified Professionals to Deliver Financial Advice for Lawyers
Quality financial planning for attorneys can help reduce the financial uncertainties that often prevent these professionals from focusing on delivering the highest level of legal advice and assistance to their clients.
But just as most clients choose attorneys who specialize in providing the specific legal services they’re looking for, lawyers who are seeking financial solutions should also carefully evaluate the credentials of any financial advisor they’re considering.
For this reason, most attorneys should consider limiting their searches to financial planners who have been certified as a CFP® professional by the Certified Financial Planner Board of Standards (CFP Board). These financial planners earn their certifications by being experienced financial professionals who have passed a rigorous financial planning examination and agree to uphold the highest standards of integrity, accountability, and client service.