by Emily Enger
Of all the complicated and uncomfortable topics that arise in the farming industry, discussing finances often makes the top of the list. It is an issue that affects farms of all types and sizes and as the legal waters get more and more complicated, seeking professional financial assistance has become more common. Recently, Wine & Craft Beverage News spoke with Tom Rockis, a financial representative with Northwestern Mutual, for a Q&A on the broader points of what financial planning can do for farmers.
Question: Define the job and/or role of a financial planner.
A: The role of a financial planning professional is ultimately to help their clients reach their financial goals in the most efficient way. Through the process, the financial planning professional should lead the client through a thorough financial analysis and discovery in order to determine if your current financial plan is being utilized in the most efficient way. More often than not, there is room for improvement, and this is where the financial planning professional has a tremendous opportunity to add value to the conversation.
Q: Why should a grower consider hiring a financial planner?
A: A financial planning professional has the opportunity to make a significant impact on any client’s financial future. Growers should absolutely be working with a financial planning professional. Think of it this way. I have a car, but I’m not a mechanic. I know how to change my oil, most of my fluids, and my tires; but beyond that, I’m lost. That’s where I have to trust my mechanic because he/she is a trained professional. It’s the same with financial planning. There are many laws, rules, and regulations that are difficult to keep up with unless you are a professional in the field. At the end of the day, a financial planning professional adds value to your financial future, and that’s a worthy reason to have a conversation with a financial planning professional.
Q: What is the biggest financial concern and/or crisis facing growers today?
A: There are many different financial issues and considerations facing growers today, but a couple of those issues can be potentially significant. One is the weather. Weather is tricky because it is a risk that is variable and fairly unpredictable – and if weather holds a farm back from producing at capacity, how does that affect their financial situation? The impact of weather is a risk for which farmers need to prepare. Another concern is the depth of their contingency plan. If a farm is family-owned, odds are that the farmland will be passed down to the next generation. A discussion with a financial planning professional can help prepare for surprise taxes and other penalties/fees that may pop up when the owner either passes away or sells the farm to the next generation.
Q: In what ways do a grower’s financial plans differ from those of another business?
A: Typically farms are a family owned business. With all family owned businesses, it’s important to have the business’ intentions clearly stated in a legal document. Situations between spouses or partners can become complicated quickly if a major change event, like divorce or death, occurs. With any family-owned business, there are multiple questions that need consideration, such as: If person A dies, what happens to person B? If person A divorces person B and remarries, what are the implications? How does ownership transfer in a partnership in the case of an owner dying? What are the implications of transferring ownership? What happens if we can’t put plants in the ground until one month after our anticipated date? These questions and many more need to be discussed and planned for in this type of business.
Q: What are the top few issues growers should look at when putting a financial plan together?
A: Issues will vary depending on the size of the farm and the amount of assets available. However, in general these three questions should be answered: What will happen to the farm if the primary owner dies? What will happen to the farm if the primary owner becomes sick or injured and can’t perform their duties? How will ownership be transferred if everything goes according to plan?
Q: How often should growers review and change their financial plan?
A: Changes to a financial plan can – and should – be made as needed throughout the year. At minimum, growers should conduct a thorough review of their financial plan annually.
Q: Does a financial planner serve as an insurance agent or are these roles different?
A financial planner can absolutely serve as an insurance agent. When you think about a financial plan, protecting yourself, your family, and/or your business in the event of death, illness or injury is vital to achieving financial security. There are companies and organizations that focus solely on insurance just as there are those that focus solely on asset accumulation, allocation, and financial planning. The ideal situation would be to find someone who works with both risk management and wealth accumulation. If this is not possible, you would want the financial planner and insurance agent working closely together so that everyone is working toward one common purpose.
Q: What type of paperwork should a farmer gather before meeting with a prospective financial planner?
A: The initial meeting with a financial representative is meant to help the rep get to know a prospective client by asking questions to better understand his or her personal, professional, and financial situation. For the first meeting we typically recommend bringing copies or print-outs of account statements from any investment or retirement accounts. More paperwork may be needed in a second or third meeting, depending on what types of issues arise. Beyond paperwork, a farmer should have a good idea of what cash flow looks like, how farm ownership is structured and where the financial liabilities stand.
Q: What are the top qualities for farmers to look for when choosing someone to be their financial planner?
A: The most important quality is trust. Financial planning is a big deal, and you have to trust that the person you’re working with is looking out for your best interest. Everyone is different, but I think it’s wise to shop around. It’s a great idea to meet with two or more professionals from different companies to see which one you like working with the most. It’s also good because it gives you the opportunity to double or triple check your financial situation. You should ask yourself these three questions: Can I trust this person? Can I trust his or her company? How accessible is this person to review my plan with me? If the answers to any of these questions are not what you want, you should keep looking.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Thomas J Rockis is an Insurance Agent of NM and is primarily licensed in Minnesota and may be licensed in other states.