Trial Lawyers

Hassle-Free Fee-Only Financial Advising From Costello Financial Planning

You are Different

For over 10 years, we built our practice by helping trial lawyers plan and navigate the complexity of cash flow management, taxes, and investments. With these intricacies, there come opportunities to strategize what is best for you.

As lawyers have a fiduciary responsibility to their clients, we do too. Our fee-only approach limits conflicts of interest, which runs rampant in the financial service industry.

The financial planners at Costello Financial Planning are ready to assist trial lawyers with wealth management and financial planning at every stage of life. Serving clients in Bend, Ann Arbor, Chicago, and beyond, we are poised to help you make financially sound decisions that make sense.

Rob Costello, CFP®

is a partner and financial advisor of Costello Financial Planning, Inc. in Bend, OR.

Paul Costello, CPA

is a partner and financial advisor of Costello Financial Planning, Inc. in Chicago, IL.

You are Different

Unlike most jobs, your compensation can swing dramatically from one year to the other. Your next big case may make or break your financial future just as it does to your clients. There is a lot at stake, and the only thing on your mind is helping position your clients to win.

This mindset makes for a successful trial lawyer, but your personal financial planning may be a fleeting thought. The next case usually trumps your need to have a well thought out financial plan.

Most trial lawyers we know do not think of their career as a job but a calling. Given the demands put on trial lawyers, it is hard to prioritize your financial goals — it is sometimes easier to bury yourself in work than look at the big picture.

Costello Financial Planning believes that financial planning can help you as a trial lawyer, outside of work life. We look at the financial planning process as a series of trade-offs and choices. As you understand those trade-offs, you can make well-informed choices on your terms.

Chances are in your favor that you will be able to hit your financial goals. Not to boost your ego even more, but you have already proven that you have the analytical capacity to succeed financially. However, overconfidence, market timing, lack of time, and other behavioral biases can lead to investor and business pitfalls.

Developing a financial plan helps buffer yourself from those pitfalls. Our thought is to help you think about financial planning differently.

How to Think of Financial Planning as Trial Lawyer

Discovery

We tend to look at financial planning through two different lenses: quantitatively and qualitatively.

From a quantitative perspective, you need to know your numbers:

  • Personal Balance Sheet
  • Cash Flow
  • Insurance Summary
  • Tax Liabilities
  • Estate Plan
  • Charitable Giving (Optional)

You should be able to access these numbers to know where you stand. You can think of this as your financial scale or key performance indicators.

From a qualitative perspective, you need to understand your own biases and how past behavior may have clouded your judgment. Just like selecting a jury, you want to uncover any potential jurors who may hold a bias that will positively or negatively affect your case.
You should apply this same reasoning when it comes to an understanding of yourself. Understanding your own bias will prevent you from that big investment mistake. Below are some common biases that I have observed in successful trial lawyers.

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Confirmation Bias:
Look for and confirm your belief, but ignore and undervalue what contradicts one's belief.

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Representative Bias:
Classify new information based on past experience.

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Mental Accounting Bias:
Treat one sum of money different from another equal sized-sum (i.e. Salary, bonus, inheritance, referral fee, case settlement).

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Recency Bias:
More prominently recall and emphasize recent events and observations than those accrued in the past.

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Loss-Aversion Bias:
Prefer avoiding losses as opposed to achieving gains or did double-digit losses have a more significant emotional impact than double-digit gains?

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Self-Control Bias:
Fail to act in pursuit of long-term, overarching goals because of a lack of self-discipline or time.

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Status Quo Bias:
Do nothing (maintain the status quo) instead of making a change.

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Regret-Aversion Bias:
Tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly. In addition, you may be making decisions as a family. Do not forget to include all decision-makers.

The Rainmaker

Bringing in business is the lifeblood of your firm. It is relatively simple to understand but much harder to implement. Bringing in business is not done through tactics. It is a mindset. There are many ways to bring in business.

The problem is most give up after a year or two. You put in all this work of networking, building strategic alliances, or client referral processes, and after a year you do not see results. Doubt sets in and you abandon bringing in business.

Developing relationships or seeing traction in different strategies may take three years. It would be best if you were still strategic and smart about it, but keep up the hustle. Do not give up. Think of fun ways to build relationships. If you like going out to eat, take people out for lunch. If you like to golf, take people out to golf. You get the idea.

How Do You Fund Your Cases?

Assuming you are bringing in business, how are you funding your cases? Your firm may be funding your case costs. Great, they are keeping tabs, and you should be doing the same. Understand where you stand and the cost associated with your cases. You can understand the firm's inner workings, and management will notice you are looking out for the firm.

Since it is hard to get a conventional business loan for cases, you will be incurring a hefty interest rate to alternative financial institutions. This may be the only funding you can get when you are starting off. After your first big verdict, become your own bank and invest in your firm.

The Verdict is In

You have put in years of work into a case and now the verdict is in. Success!
How will you mitigate tax liability and manage cash flow?

Here is a list of considerations:

  1. Reinvest the proceeds into the firm
  2. Structure - Deferring payments (market or annuity)
  3. Max out retirement contributions
  4. Build up cash reserves
  5. If the verdict is appealed, do you want to consider late-state appeal financing?

Each consideration has a list of trade-offs that may be more suitable for your plan. Take the time to evaluate multiple strategies that align with your goals.

What Type Of Investor Are You?

A successful investor understands their goals.

  • What is your time horizon?
  • Whom are you investing for?
  • How much risk is in the portfolio?
  • How far would the portfolio go down to make you feel uncomfortable?
  • How much are you willing to deviate from the market?
  • What is your definition of the market?
  • Do you have any strong beliefs that you would like to align with your portfolio?

After you answer these questions, draft an Investment Policy Statement. The Investment Policy Statement states how you are investing and the parameters that will guide you during uncertain investment periods. It prevents you from making a big mistake, selling low and buying high. Sometimes it makes sense to have different Investment Policy Statements for qualified retirement accounts versus taxable accounts because you have different time horizons for these accounts. Review the Investment Policy Statement every year to remind yourself why and how you are investing your portfolio.

When Can I Retire Or Make Work Optional?

The answer to this common question is a mix of being confident in your quantitative numbers and qualitative assumptions. Crunch the numbers to project out to the future. These calculations give you direction. The further you are away from your target, the more variability in the analysis. Life also tends to change your assumptions and goals. Be flexible in updating your plan, but do not flinch and change everything just because you encountered an obstacle.

Statute of Limitations: Should You Work with a Financial Advisor?

When filing cases, we always knew the Statute of Limitations date was a big deal. When it comes to working with a financial advisor, it may not seem as devastating as missing an SOL date. Still, the ramifications of not working with a professional over time may be similar. We tend to categorize investors into three categories, do-it-yourself, do-it-with-me, or do-it-for-me. If you are a DIY, we hope this paper has given more insight into your current plan. We think people can do it themselves with the right amount of knowledge, accountability, and time. If you are in the other categories, we recommend working with a financial advisor who is a fiduciary that operates from fee-based financial planning. A fiduciary is someone who works in your best interest by law. Not all fiduciaries are created equal, but it is a great start.

A good place to search to find a fiduciary is on NAPFA's advisor search tool. We would love the opportunity to help you as well.