Providing bill payment and other personal bookkeeping services to high net worth and ultra-HNW individuals is more difficult than it might appear, the author of this article explains.

For family offices, paying bills efficiently might seem like a standard task but, as perhaps is not surprising, it can be a great deal more complex than it sounds. Cash management and payment of bills can all too easily go wrong. Families that have a large number of members present obvious challenges; then there are the issues of families whose members live in different states or, indeed, countries.

A person well placed to walk through this terrain is William F Farren, president of My Accountant®, Inc. (Full biography below). The editors of this news service are pleased to share these insights with readers and invite responses. As always, the editors might not agree with all views of guest writers. To comment, email tom.burroughes@wealthbriefing.com
 
The financial lives of high net worth and ultra-NHW clients are quite complicated. Providing bill payment and other personal bookkeeping services to these individuals is more difficult than it might appear. Some of the issues which present themselves are discussed in this paper with the hope that firms providing, or thinking about providing bill payment and bookkeeping services to wealthy individuals can learn from the experiences we have acquired over the years as specialists in this area.

Thirty-one years of experience of paying bills for high net-worth families and family offices has provided our firm, My Accountant® Inc., with many learning experiences. We began this business in 1987 with the intention of filling a gap in the financial services arena, by providing bill payment and what we call personal bookkeeping services with no overlap into more traditional financial services such as tax compliance, investment management, financial planning, etc. At present we serve nearly 150 clients throughout the US and overseas, issuing thousands of payments per month. This has provided us with more experience in the bill payment and personal bookkeeping arena than any other firm.

In establishing a new client relationship, one of the first issues that has to be dealt with is the scope of work to be provided. We provide two general levels of services: bill payment only, and personal bookkeeping. We have observed that there is often much confusion regarding the two, usually leading to what is known as scope creep – when a client agrees on a specific level of services, and these begin to increase over the years. Eventually the firm will start to lose money on clients who request greater than agreed-upon services. The issues noted below affect each service level differently.

The bill payment services we provide are just that: paying the bills for clients, with none of the additional, more time-consuming services relating to recording their personal checking accounts, credit card transactions, etc. The bill payment service is all that many families need, and they don’t require or want the expanded cash flow reporting that results from the full personal bookkeeping level of service.

Personal bookkeeping services go beyond just paying the bills, to include recording all the client’s personal bank accounts, and categorizing, in detail, all their credit card transactions, etc. These are the services generally sought by financial advisors for their clients because they want the consolidated cash-flow reporting that comes from having the full picture of a client’s finances.

We have learned that it is very important, from the outset, to distinguish between these two levels of services. As mentioned above, this arena is fraught with scope creep and clients will tend to want to pay for a lower level of service but demand much more thorough coverage. For this reason, we have long felt that “bill payment is much more than paying the bills.”

Below are some of the more important factors to take into account:

Bank account issues
Over the years we have learned that sharing bank accounts with clients is a bad idea. It is essential that the firm providing bill payment and bookkeeping services has an accurate picture of the account balance in the account they are using for payments. If a client shares the account, it is very likely that they are writing checks and making other payments as well, which makes it impossible to have an accurate balance. While the type of client we deal with is high income and high net-worth, meaning that their banks will generally not bounce a check, it creates constant problems.

Our solution has been to adopt what we call disbursement accounts, which are new checking accounts based at the client’s preferred bank, on which we have a limited power of attorney. We are the only ones using this account, which is funded by the client, their banker, or other trusted advisor. We have our own check printers, so all checks and online payment are made from that account and we are always aware of the account balance. 

Check preparation
Even though online bill payment is becoming much more prevalent and efficient, it is still necessary to print and mail checks from time to time. Doing so efficiently is important, especially in an office where multiple bank accounts are in use. We know of firms that have cabinets full of preprinted blank checks for multiple entities such as trusts. This is not only inefficient but dangerous.

The risks are not just limited to paying an invoice from the wrong account because incorrect check stock was put into the printer. Keeping track of every check, making sure none are “accidently” used by an employee for personal expenses is difficult at best. If each bank account is not reconciled regularly, it could be months before any misuse of funds would be detected.

The answer is using blank check stock and check printing software. Blank check stock is readily available from office supply stores and many online suppliers. But it is important that the check stock be designed to incorporate numerous fraud protection elements to prevent “check washing” and other fraudulent alterations to the check itself. Our firm uses high security check paper which incorporates over ten security features – controlled paper stock, individually numbered sheets, multi-chemical reactive papers, artificial watermarks, micro-printing, etc. – with no issues of fraud after hundreds of thousands of checks issued.

The second part of the process is using check printing software which interfaces directly with the accounting software and G/L. There are multiple vendors of this software with varying capabilities. Most will allow for automatic signature printing (with parameters set by the staff), multiple checking accounts, and have other security features incorporated. Some will automatically print a copy of the check (PDF) to a separate file which can be used to confirm the contents of the check and as an audit feature.

By bringing to bear both high security check stock and good quality check printing software family offices can greatly increase both efficiency and security of payments by check.
 

Recurring payments – no bill
Very often there are recurring payments that have to be made, for which there is no bill. A good example would be sending a monthly check or wire to a son or daughter in college for rent, living expenses, etc.

These payments have to be sent regularly and they have to be scheduled accurately. Since there is no bill (usually a one-time email or phone request from the client) there will be nothing in the client “in box” to trigger the payment.

Calendars and schedules drive this business, and we have spent years fine-tuning the process to deal with issues like this. Our software provides reminders and task lists to the bookkeepers to assist them in scheduling payments for which there is no current bill or invoice.

Email invoices
Another issue related to receiving bills and invoices has to do with the fact that more and more vendors are sending their invoices via email rather than regular mail. Typically they would go to a client’s email address, in the hopes that the client would forward them for payment. Our solution to this has been to establish a client email address at our office and provide that to the vendors so they can send a copy to our office and cc the client. We are sure that sending invoices and bills by email rather than regular mail is going to become much more prevalent in the future, so it must be dealt with. 

One bill – multiple payments
This is a similar issue to the previous one. Quite often bills arrive that require multiple payments – quarterly, semi-annual, etc. These are often real estate and personal property tax bills, which are time sensitive. Keeping track of payment due dates is important and future payments (and cash requirements) must be scheduled accurately, and payment reminders available to bookkeepers and supervisors. Again, scheduling and calendaring payments is key to managing these issues.

Multiple names
Bills and invoices will come in many different names. If manual data entry is being used this is not much of a problem as the bookkeepers will (or should) know that they all belong to the same client. But if OCR or other automated data entry is in place this becomes more of a problem. Somehow that system has to know that Mr John Smith, Mary and John Smith, Mr and Mrs John Smith, Lindsay Smith (daughter) etc. are all for the same client and must be paid from the same account. We have clients for which invoices arrive in ten or more different names. Getting vendors to change names is very difficult (for instance, a mortgage is a legal document and nearly impossible to change). Cross reference sheets are needed in this case to assure that the mail room personnel have the mail sorted properly. In the case of OCR there must be a cross-reference database to make the connections. 

Credit cards
Credit cards can create a number of problems. Because of the “wiggle room” on credit card statements (whether a client wants to make the minimum payment vs. the full balance, or something in between, approving transactions, etc.) these statements usually have to be approved by the client. (Many other bills are fixed or with very little change month-on-month, so they are simply paid as they arrive.) There are several ways to deal with the approval process; the one used most is to have the paper statement go directly to the client, who in turn authorizes our firm to access the card online. If necessary, the client approves payment and notifies us, so we can make the payment through the online site and at the same time we can download and categorize all the transactions on each statement.

In cases where the statement comes directly to us, we can email it to the client for approval. We use a secure messaging system so the document is sent in encrypted form, but this is a more cumbersome process.

Another issue related to credit cards is that often clients have recurring charges automatically paid by the credit card to earn points or miles. While this seems convenient, it creates a problem in cases where the card is lost, stolen, or damaged and must be replaced. Some card issuers are good about transferring those recurring charges to the new card, but others are not. This means that at some point vendors will be left unpaid until the client (or a service such as ours) connects them to the new card.

Wire transfers
Many wealthy individuals are invested in private equity funds, etc. These normally require wire transfers for capital calls. Other client purchases and commitments also require wire transfers. Issuing these wire transfers for clients creates a whole new set of issues, mostly relating to security and fraud prevention. It is imperative that steps be taken to assure the originator of wire requests is actually the client and that the request is legitimate.

As part of our engagement process we lay out the steps under which wire transfers can be processed, and these focus on a rigorous call-back process similar to what banks use. We inform clients that if we cannot reach them by phone at a predetermined phone number the wire will not be issued. We in turn will normally receive a call from the client’s bank to also confirm the wire. Whatever the solution, it is important that adequate approval processes be in place for the protection of the client and the service firm. International wires add an increased level of complexity and risk, given the high rate of email hacking and regulatory issues.

Other issues
High net worth clients have complicated financial lives. Quite often they own assets through entities such as single member LLCs and similar related entities. These create problems insofar as they may require separate bank accounts, have more strict reporting requirements, separate tax IDs, etc. At the end of the day, however, these related entities are part of the client’s personal financial picture, and they should be incorporated into reports in order to complete the picture.

Posting and tracking debit card transactions can be problematic. This comes into play if a client is using a full bookkeeping service rather than simply bill payment. Debit card transactions show up on the bank statements, and quite often they have very limited descriptions, making accurate categorization difficult.

In many cases there are large numbers of debit transactions so posting (or downloading) them becomes an issue. As indicated above, the ideal situation for bill payment is the use of a segregated bank account which only the payment service is using. This eliminates the need to constantly monitor the account balance as it is always available to the service. In certain occasions clients want everything to be paid from the same account and this creates problems. If the client and the service are both writing checks and making other payments from the same account it creates the very likely possibility of overdrafts, etc. These can be minimized by having online access to the account and constantly monitoring the balance, but this is time consuming for the service and more costly. Alternatively, a friendly banker will monitor the account and give notice to the client or the service when things get tight.

We request that clients allow us to change the mailing address on as many bills as possible to avoid the “round trip” whereby they go to a client’s home first and then get forwarded to our office. This greatly speeds up processing time and eliminates late payments, but it also inflates the volume of daily mail. In our office we may receive 20 – 30 pounds of mail daily. Much of this has to be discarded because it is made up of catalogs and other junk mail which tends to follow the change of address on bills.

Conclusion
When a financial services firm either offers bill payment services or is considering adding such services to their offerings, the above issues need to be taken into account. This may become a “build or buy” issue, and evaluating all the factors such as those outlined herein is critical to a final decision. As indicated above, bill payment is more than paying the bills.

About the author
William Farren is the co-founder of My Accountant®, Inc. He founded the firm in 1987 with a friend who had taken early retirement from Deloitte with the purpose of filling a vacuum in the financial services arena. This took place following seven years as the marketing director for an international non-profit firm based in Norwalk, Connecticut. Prior to that he lived and worked in South and Central America advising on the development of agri-business cooperatives and credit unions for low-income farmers. Bill lives in Monroe, Connecticut with his wife. Four children are spread out from Budapest, Hungary to Mendham, New Jersey, and Southbury and Trumbull Connecticut. Two of his sons work with him at My Accountant.