$250K AUM Lift via Beneficiary Designation Audit

$250K AUM Lift via Beneficiary Designation Audit

Executive Summary

Richardson & Associates, a leading RIA firm, faced a common challenge: clients with outdated or incomplete beneficiary designations, leading to potential compliance issues and lost AUM. By implementing a systematic beneficiary designation audit as a core component of their client onboarding process, using secure document sharing and custodian system integration, they uncovered over $250,000 in previously misdirected assets. This proactive approach not only increased AUM but also enhanced client satisfaction and reduced compliance risk.

The Challenge

Richardson & Associates, managing over $500 million in AUM, recognized a significant vulnerability in their client portfolios: incomplete or outdated beneficiary designations. While often overlooked, these designations are crucial for ensuring assets are distributed according to a client's wishes after their passing. The firm's initial internal audit revealed a concerning trend.

Specifically, a sample of 100 client files showed that approximately 25% had outdated beneficiary designations. This included scenarios such as:

• Divorced clients: Several clients who had divorced failed to update their beneficiary designations, leaving their ex-spouses as the primary beneficiaries of retirement accounts and life insurance policies. For instance, one client, John S., had a 401(k) worth $150,000 still designating his ex-wife as the beneficiary, despite being remarried for over a decade. This would have resulted in his ex-wife receiving the entire amount, contrary to his current estate plan.
• Deceased beneficiaries: Another common issue was designating deceased individuals as beneficiaries. In one case, a client, Mary L., had listed her mother, who had passed away five years prior, as the beneficiary of a $50,000 IRA. This would have resulted in the asset going through probate, incurring unnecessary legal fees and delays.
• Missing contingent beneficiaries: Many clients failed to designate contingent beneficiaries. This meant that if the primary beneficiary predeceased the client, the asset would go through probate, potentially resulting in unintended distribution based on state law. One client, Robert K., had a $30,000 life insurance policy with no contingent beneficiary, leaving his family uncertain about the policy's fate.
• Incorrect allocations: Some clients had incorrectly allocated percentages among multiple beneficiaries, leading to potential disputes. For example, a client, Susan B., intended to split her $20,000 annuity equally between her two children but had accidentally designated 60% to one child and 40% to the other.

These discrepancies not only posed a significant compliance risk for Richardson & Associates but also highlighted the potential for unintended financial consequences for their clients' families. The potential loss of AUM due to assets passing outside of managed accounts was also a major concern. The firm estimated that, based on their existing client base, correcting these issues could potentially unlock hundreds of thousands of dollars in assets that would otherwise be misdirected.

The Approach

Richardson & Associates adopted a proactive and systematic approach to address the challenge of outdated beneficiary designations, making it a core component of their client onboarding process. The approach consisted of the following key steps:

1. Awareness and Education: The firm initiated a communication campaign to educate clients about the importance of beneficiary designations and the potential consequences of failing to keep them up-to-date. This included sending out informational brochures, hosting webinars, and featuring articles on their website.
2. Systematic Audit: As part of the onboarding process, a dedicated team member would conduct a thorough beneficiary designation audit for each new client. This involved requesting copies of all relevant beneficiary designation forms, including those for retirement accounts, life insurance policies, and annuities. A standardized checklist ensured consistency across all audits.
3. Secure Document Sharing: Recognizing the sensitivity of the information involved, Richardson & Associates implemented a secure document sharing platform (Citrix ShareFile) to facilitate the collection of beneficiary designation forms. This ensured that client data was protected and compliant with privacy regulations.
4. Custodian System Integration: The firm integrated with their custodian systems to verify the information provided by clients. This allowed them to identify discrepancies between the client's records and the custodian's records. This step was crucial for uncovering hidden assets and ensuring the accuracy of beneficiary designations.
5. Client Consultation: Once the audit was complete, a financial advisor would meet with the client to discuss the findings and provide recommendations. This included explaining the potential consequences of outdated or missing beneficiary designations and guiding clients through the process of updating their forms.
6. Ongoing Monitoring: The firm implemented a system for ongoing monitoring of beneficiary designations. This involved periodically reviewing client files to ensure that designations remained up-to-date, especially in light of significant life events such as marriage, divorce, or the birth of a child. A reminder system was implemented to prompt clients to review their designations annually.
7. Compliance Oversight: The firm's compliance officer oversaw the entire process to ensure that it was conducted in accordance with all applicable regulations. This included reviewing the audit process, monitoring client communication, and tracking the resolution of any identified discrepancies.

This multi-faceted approach allowed Richardson & Associates to proactively identify and rectify outdated beneficiary designations, ensuring that their clients' assets were distributed according to their wishes.

Technical Implementation

The technical implementation of the beneficiary designation audit involved several key tools and processes:

1. Citrix ShareFile: Used as the primary secure document sharing platform. Clients were provided with a unique, encrypted folder to upload copies of their beneficiary designation forms. The platform’s audit logging features allowed for tracking document access and modifications, ensuring compliance.
2. Custodian System APIs: Richardson & Associates utilized APIs provided by their primary custodians (Schwab, Fidelity, TD Ameritrade) to programmatically verify beneficiary designation information. This allowed for automated comparison of client-provided data with custodian records, flagging discrepancies for review. The integration involved:
   • Data Extraction: Extracting beneficiary designation data (names, relationships, percentage allocations) from custodian systems using API calls.
   • Data Comparison: Comparing the extracted data with client-provided information.
   • Exception Reporting: Generating reports highlighting any discrepancies, such as missing designations, outdated information, or conflicting allocations.
3. CRM Integration (Salesforce): The beneficiary designation audit process was integrated into Richardson & Associates' Salesforce CRM. This allowed advisors to track the status of each client's audit and document all communication related to beneficiary designations. Custom fields were created to capture key data points, such as the date of the last review, the status of the audit, and any identified discrepancies.
4. Automated Reminders: A system was implemented to automatically remind clients to review their beneficiary designations on an annual basis. This involved sending out email reminders with links to the secure document sharing platform. The reminders were personalized based on the client's individual circumstances.
5. Data Encryption: All data related to beneficiary designations was encrypted both in transit and at rest. This ensured that client data was protected from unauthorized access.
6. Reporting and Analytics: The firm developed custom reports to track the overall effectiveness of the beneficiary designation audit process. This included tracking the number of audits completed, the number of discrepancies identified, and the amount of AUM unlocked as a result of the audit.

The integration with custodian systems used OAuth 2.0 for secure authentication and authorization. Data was transmitted using HTTPS with TLS 1.2 encryption. Custom scripts were written in Python to automate the data extraction and comparison processes. The firm utilized a dedicated database server (PostgreSQL) to store the audit data.

Results & ROI

The implementation of the beneficiary designation audit process yielded significant positive results for Richardson & Associates:

• AUM Increase: The audit uncovered over $250,000 in previously unclaimed or misdirected assets, which were subsequently brought under management. This resulted in a direct increase in AUM and associated revenue.
• Client Satisfaction: Clients expressed increased satisfaction with the firm's proactive approach to financial planning. Many clients were unaware of the potential consequences of outdated beneficiary designations and appreciated the firm's guidance in updating their forms. Client satisfaction scores (measured via quarterly surveys) increased by 15% following the implementation of the audit process.
• Compliance Risk Reduction: The audit significantly reduced the firm's compliance risk by ensuring that beneficiary designations were up-to-date and accurate. The firm experienced a 50% decrease in compliance-related incidents related to beneficiary designations.
• Time Savings: While the initial audit process required an investment of time, the integration with custodian systems and the automation of reminders resulted in long-term time savings for advisors. The firm estimates that advisors saved an average of 2 hours per week on administrative tasks related to beneficiary designations.
• Revenue Growth: The increased AUM and improved client retention led to a 7% increase in overall revenue for the firm within the first year of implementing the audit process.
• Client Retention: Actively engaging with clients on a crucial, often-overlooked aspect of their financial plan improved client loyalty. Client retention rates improved by 3%.

These results demonstrate the significant value of implementing a systematic beneficiary designation audit as part of the client onboarding process.

Key Takeaways

Here are five key takeaways for other advisors considering implementing a similar process:

1. Prioritize Beneficiary Designations: Don't underestimate the importance of beneficiary designations. They are a critical component of financial planning and can have significant consequences for your clients and their families.
2. Make it Systematic: Implement a standardized process for reviewing beneficiary designations as part of your client onboarding and ongoing client service.
3. Leverage Technology: Utilize secure document sharing platforms and custodian system integrations to streamline the audit process and improve accuracy.
4. Educate Your Clients: Inform your clients about the importance of beneficiary designations and the potential consequences of failing to keep them up-to-date.
5. Monitor Regularly: Establish a system for ongoing monitoring of beneficiary designations, especially in light of significant life events.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors identify hidden opportunities in client portfolios and automate compliance tasks. Visit our tools to see how we can help your practice.