This issue’s lead story about the future – or lack thereof – of the U.S. gift and estate tax illustrates our firm’s philosophy of financial planning: We do it today, but we live it tomorrow. Planning works best when we see our own goals in the larger context of the future.
Our drive to confront tomorrow’s challenges is what led us to launch three major new service lines this year. First, I have completed a program in business valuation, and we now offer valuation and appraisal services for closely held businesses. Second, we have geared up to help clients establish and operate charitable trusts, private foundations and other philanthropic vehicles. And third, through Palisades Hudson Asset Management, Inc. (a registered investment adviser of which I am president), we offer comprehensive fee-only investment planning and management.
We certainly did not take these steps because business was otherwise slow. Our revenues in 1997 were up 80% over 1996, and our dollar-weighted client retention rate remained far above 99%. The firm’s progress in its first five years has tracked almost eerily close to the plans I first made when I left my Big Six job.
We have come this far with a traditional mix of tax and estate planning services, along with some basic investment planning and my own specialty in insurance consulting. I do not expect demand for these services to dry up anytime soon. Nevertheless, to keep our current clients and attract new ones we have to be ready to provide the services they will need a few years from now, not just the services they need today.
The decision to launch Palisades Hudson was easy. Our tried-and-true, if unsexy, path to investment success is to set the right asset allocation, diversify carefully, implement effectively and then leave well enough alone. Some clients just need a little information to get started and they can take over from there. Others, however, have always relied on us just as much as we would let them, which for regulatory and scope of practice reasons was not very much. We set up Palisades Hudson to serve those clients who want or need us to implement and monitor their investment strategies. In our first quarter, with virtually no marketing effort, Palisades Hudson has attracted $36 million into management. Through June 30, 1999 our firm had over $61 million under management.
While asset management is about creating wealth, valuation is about measuring it. The immediate push to get into this work comes from our estate planning practice. Disputes with the IRS about the measurement of wealth are commonplace and growing, and we need to have valuation skills to fully support our estate planning clients. Still, I am not worried that this work will go away if the estate tax is repealed as I believe is more likely than not. We will still need to be able to value small businesses to help clients plan for their continuation through successive generations.
Finally, philanthropy may really be the future of financial planning, at least for the very affluent families that are the vast majority of our client base. Many of our clients simply have more money than they believe is necessary or particularly helpful to leave to their children and more remote heirs. As these clients mature, I expect large numbers of them to seek ways to use their wealth to accomplish broader social purposes. It is ultimately the duty of the financial planner to help the client articulate and accomplish his or her goals. If those goals increasingly turn toward charities, we are ready to respond.