At first glance, financial advisers seem to be about as suited for farm life as Lisa Douglas, the overdressed socialite who was dragged from her Manhattan penthouse to a farm in the hit TV show “Green Acres.”
But advisers have more in common with farmers than they may realize. While they spend their days watching the markets and crafting portfolio strategies, farmers are busy monitoring grain markets and tweaking spreadsheets.
It's not surprising, then, that some advisers have discovered that farmers make great clients. Just ask David Workman, a Logansport, Ind.-based adviser with LPL Financial, who provides advice to some 200 farmers, each with a net worth ranging from $1 million to $20 million.
“They run really impressive businesses,” said Mr. Workman, who oversees $250 million in assets.
He began building his niche of farming clients 22 years ago when he moved to Central Indiana. Mr. Workman spent his summer evenings at local 4-H fairs and came to know many of the local farmers well.
“It's a shame that people look down on farmers,” he said. “They're brilliant people.”
Outsiders might not think farmers require the services of a financial adviser, but farming is big business — and requires as much planning as planting. The average farmer is a unique combination of business owner, property manager and commodities trader.
Many are also quite wealthy — at least on paper. Last year, the average farmer had a net worth of a little less than $1 million, according to the latest figures available from the Agriculture Department.
Not surprisingly, three-quarters of farmers' wealth is locked up in land or farm equipment. But that figure is trending downward because advisers are investing in financial assets such as retirement accounts.
Last year, 24% of the average farmer's net worth was in non-farm assets, up from 15% in 2004, according to the Agriculture Department.
“The advisers who have brains understand there's an opportunity in farming,” said Yuval D. Bar-Or, an adjunct professor at the Johns Hopkins Carey Business School, where he teaches finance. “You can customize your services, and there are very specific issues that come up.”
Much like their clients, advisers who cater to farmers should possess some rather unique skill sets.
First, they should have a basic understanding of how the agricultural business works. For example, they must have general knowledge about the prices of popular crops such as soybeans and corn.
They should also be well-versed in tax strategies aimed at taking advantage of the ebb and flow of income, which is a hallmark of the farming industry.
For example, farmers often generate a lot of income around the time that crops are harvested, but they also have the unique ability to go an entire year purposefully not generating any taxable income by holding back a crop from market to reduce taxes. Timing is important in using this strategy, and an adviser can help farmers determine when they should use this tool.
Another crucial factor for farming clients is helping them determine appropriate times to use tax write-offs for farm equipment — which can sometimes run $250,000 or more.
Not surprisingly, estate planning also ranks high among the list of services in demand by farmers. Many farmers own hundreds of acres of land worth several million dollars, but their heirs may need access to cash to pay taxes. Consequently, advisers may play a big role in incorporating insurance policies and family limited partnerships into farmers' estate plans.
“Farmers have a lot of complicated situations,” said adviser Pete Dorn of independent broker-dealer Berthel Fisher. “They're all independent and high-net-worth, and they need just as much planning or more than other people do.”
Among other advantages to working with farmers is that they can be a feeding trough of referrals, said Richard Weylman, president of an eponymous consulting firm for advisers.
“In farming, advisers can build a long-term sustainable practice with clients who have significant net worth and incredible loyalty,” he said.
Convincing tobacco farmers in North Carolina to trust him was easy for adviser Terry Bass because he grew up in a tobacco farm in Wilson County in that state. One of the most important services he provides to local farmers is estate planning.
“There are too many sad stories of farms that had to be sold because heirs couldn't afford to pay the taxes,” said Mr. Bass, a sole proprietor who manages $100 million in assets.
Indeed, building an estate plan around a family farm can be an emotional minefield, said Brigitte Franzen, a Springfield, Ill.-based adviser with Axa Advisors LLC. Parents, for example, may be reluctant to sign over a family farm to their children — especially if it means that the parents are expected to move off the farm, she said.
Ms. Franzen is well aware of the planning issues that farmers face. She was a hog farmer up until the late 1990s when the bottom fell out of the hog market — taking with it a good chunk of her assets.
Her retirement accounts were the only thing that remained unscathed during that period. She shares her personal experience to persuade farming clients to sock away money in portfolios to be used for a rainy day or for retirement income.
Another common strategy for farmers to earn income during retirement is to rent their land, said Dennis Taylor, an accountant with Taylor Rees Beckey & Co. PC.
When it comes to creating income strategies with assets outside the farm, farmers want conservative options, said Greg Tarr, and adviser with LPL in Romeo, Mich., who manages $35 million in assets. They tell him that they aren't risk takers, but he points out that their very livelihood is a constant risk.
“How many of us would buy $300,000 worth of something and bury it in the ground and hope it turns into $600,000?” Mr. Tarr said. “If that's not risky, I don't know what is.”
E-mail Lisa Shidler at [email protected].
