Working with Your CPA, Attorney, and Investment Manager Together
If the previous pieces in this series addressed the work of building and operating a post-exit portfolio, this one widens the lens. Most of the consequential decisions in a meaningfully-resourced household are not actually portfolio decisions in isolation. They are decisions that sit at the intersection of three domains, tax, estate, and investment, and they are made well when the three professionals in those domains are working together, and made poorly when they are not.
The most common operating failure I see in post-exit households is not a portfolio that is wrong. It is a portfolio that is right in isolation and slightly out of sync with what the CPA and the estate attorney are doing. The portfolio sells a position to rebalance in November; the CPA is two weeks from harvesting a different loss for tax purposes that would have absorbed the gain. The estate attorney funds a new trust with cash from the operating account; the portfolio manager learns about it from the December statement and wishes they had known three months earlier when the funding question came up. None of these are anyone's fault, exactly. They are the predictable consequence of three excellent professionals each doing their job well, in parallel, without a coordination structure.
This piece is about what that coordination looks like when it works.
The honest scope of each professional.
Some clarity on what each role does, because the conflation is at the root of most of the friction.
The CPA owns the tax position of the household. They prepare the returns, advise on estimated payments, evaluate the tax consequences of contemplated transactions, identify tax-saving opportunities specific to the household's situation, and represent the household in any examination or dispute. They are the professional whose work product determines, every April, what the household actually owes, and whose judgment, over a long enough arc, materially affects what the household keeps.
The estate attorney owns the legal architecture of the household, wills, trusts, beneficiary designations, the entity structure through which various assets are held, and the legal mechanics by which wealth moves from one generation to the next. They draft and update the documents that determine, on the worst day, what happens to the household's affairs without further input from the household. Their work is intermittent, document-heavy, and dependent on the household giving them current information about the rest of the picture.
The investment manager owns the portfolio, the construction, the ongoing management within the agreed Investment Policy Statement, the rebalancing, the reporting, and the coordination of any private-investment commitments. They are the professional whose work product is the household's deployed capital and the cadence by which it is reviewed.
Three professionals. Three distinct work products. One household.
What goes wrong without coordination.
The list of operating failures from a lack of coordination is long, predictable, and largely avoidable. A representative selection:
- The portfolio harvests gains at year-end while the CPA had been planning to use a different set of losses to offset a transaction earlier in the year. The household pays tax it would not otherwise have owed.
- The estate attorney funds a new irrevocable trust, and no one tells the portfolio manager what the trust's investment policy should be. The cash sits in a money market for nine months while the household waits for someone to ask whether it should be invested.
- The household makes a charitable gift of appreciated securities in November. The portfolio manager learns about it after the fact and discovers that the selected lots produced suboptimal tax efficiency. The intended generosity remains intact; a portion of its tax benefit is lost.
- A large pre-planned distribution date approaches. No one has reduced the equity allocation in the portfolio in anticipation. The household must sell into whatever market exists on the distribution date.
- A new private-investment commitment is made through one entity; the capital-call schedule conflicts with cash flow planning the CPA had built around a different assumption.
- The annual quarterback question, who is responsible for ensuring nothing falls between the three professionals, has no answer. By default the household becomes its own quarterback, which is the role they hired three professionals to relieve them of.
None of these failures are catastrophic on their own. The aggregate, over a five-year arc, is a non-trivial drag on the household's financial outcomes and a meaningful drain on the household's mental load.
The coordination model that works.
Coordination is not a soft skill. It is a discipline with specific practices, all of which can be specified, written down, and executed.
The Investment Policy Statement is the coordination document. Not because it is the most important document among the three professionals, the CPA and the attorney each have their own foundational documents, but because the IPS is the document that explicitly references the others. A well-written IPS articulates the household's objectives, time horizon, liquidity needs (which the CPA's tax planning shapes), drawdown tolerance, allocation policy, review cadence (which the CPA and attorney are invited to attend), and the household's coordinated approach to charitable giving, distributions, and major life events. It is the document a new CPA or new attorney should read on day one to understand how the household has decided to operate.
The annual coordinated review is the operating cadence. Once a year, the three professionals are in the same conversation, by phone, by video, or in person, to walk through the household's situation, surface what is changing in each domain, and adjust the joint plan accordingly. The agenda is short and consistent. What changed in the household this year. What is changing in each professional's domain. What decisions are coming up in the next twelve months that touch more than one domain. What the joint plan is for each. The meeting takes an hour or two; the absence of it costs orders of magnitude more.
Real-time coordination on triggered events. Some decisions cannot wait for the annual review. A large gift, an unexpected liquidity event, a meaningful change in income, a contemplated entity restructure, a market drawdown that triggers tax-loss harvesting, each of these benefits from a quick three-way conversation in the moment, not a sequential round of single-professional inputs that arrive over six weeks.
One designated quarterback. In most households the natural quarterback is the investment manager, because the portfolio sits at the receiving end of decisions made elsewhere, but the quarterback role can sit with any of the three depending on the household's preference. What matters is that one professional is responsible for ensuring the others have the information they need, when they need it, to do their work well. Without a designated quarterback, the role defaults to the household; with a designated quarterback, it does not.
What this is not.
Coordination is not the investment manager doing tax work, or estate work, or any other work that belongs with the licensed professional in that domain. The investment manager who tells you what to put in your trust without involving the attorney, or what your tax position should be without involving the CPA, is doing the household a disservice. The point of the team is that each professional does their domain's work with the others' input, not that one professional accumulates all the work.
Coordination is also not the multi-family-office model, in which one firm offers tax, estate, investment, and household-administration services under one roof. That model has real strengths for some households. It also has real trade-offs: the coordination is internal and easier, but the household is locked into the firm's chosen specialists in each domain, and the firm's economic incentive is to keep all of the work in-house. Other adviser models, including focused investment-management practices that coordinate with the household's chosen tax and legal professionals, solve the coordination problem differently. References to other types of advisers in this piece are general descriptions of business models and not statements about any specific firm.
How to introduce the model into an existing household.
For households that have been operating with three professionals in parallel, which is the typical pattern, the transition to a coordinated model is not difficult.
- Decide who the quarterback is. Tell each of the three professionals, including the quarterback themselves, what the role is and what it isn't.
- Schedule the first annual coordinated review. Hold it.
- Write the IPS, if it does not exist yet, with the CPA and attorney's input on the sections that touch their domains.
- Establish the channel for real-time coordination on triggered events, typically the quarterback initiates a three-way email or short call when one of the trigger conditions arrives.
The work is administrative. The benefit accrues over years, in the absence of avoidable friction and in the presence of decisions that benefit from joint input rather than sequential single-professional review.
The principle.
One household, three professionals, one set of decisions. The quality of those decisions over a decade is determined less by the individual quality of each professional, though that matters, than by the quality of the coordination between them. The household that gets coordination right captures the joint benefit of each professional's domain expertise. The household that does not captures most of it most of the time, and pays for the gap in ways that are real but rarely visible until the aggregate is examined.
The piece after this one returns to the portfolio specifically and addresses one of the most common sources of poor coordinated outcomes: a portfolio's drift into ill-considered alternative investments.
The workbook companion to this series includes a sample Investment Policy Statement structured to serve as the coordination document described above. Download here.
Alphyn Capital Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. This post is for informational and educational purposes only and does not constitute personalized investment, tax, or legal advice or a recommendation to buy or sell any security. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal. No portion of this article is to be interpreted as a testimonial or endorsement of the firm's investment advisory services. Please consult qualified professionals before making any investment decisions. References to other types of advisers are general descriptions of business models and not statements about any specific firm. Other advisers may offer services and structures that ACML does not, including services that some clients reasonably prefer. This post may contain forward-looking statements and represents the author's opinions as of the date of publication. Such statements are inherently uncertain, and actual outcomes may differ materially. ACML does not undertake to update any forward-looking statement.