Tax-Savvy Wealth Management Surges in Importance for Financial Advisors and Clients

Ellen Sheng, Contributing Writer, Wealth Solutions Report

Wealth Management Firms Are Moving to Capture Intensifying Growth Opportunities at the Intersection of Tax and Financial Advice, as Client Tax Needs Increase

Taxes have always been an integral part of financial planning. But in recent years, it’s become even more critical amid widely anticipated tax hikes. 

While it’s anyone’s guess how tax laws might change, most expect higher tax bills and more complex tax planning for wealthy and high net worth households in the near future. The Biden administration took over during a time of historically large federal deficits that have gotten even larger during the pandemic. Meanwhile, Democrats have a majority in the House and in  the Senate, making it more likely that Democratic proposals for tax increases could pass. 

For wealth management, that’s putting renewed interest in finding ways to meld tax advice with financial advice. IBDs, RIAs and independent advisor businesses are all seeing growth opportunities in this space. 

“We have definitely seen an increased focus on taxes and an increase of advisors who want to provide tax-savvy financial advice,” said Scott Rawlins, chief executive of Farpointe Wealth Partners, a Southlake, Texas-based independent financial advisor group affiliated with Cetera Financial Specialists.

Scott Rawlins, Co-Founder & CEO, Farpointe Wealth Partners

The problem? Most don’t have the know-how or resources. While financial planning software and specialty tax planning software have come a long way, there’s no replacement for trained professionals who understand the tax landscape and can conduct a holistic review of investments and the tax return, he said.  

Hoping to fill that gap, firms are taking on different approaches, whether hiring more tax-savvy advisors, bringing on CPAs, or partnering with an accounting firm. Each approach brings various pros and cons. 

Cultural gap 

Los Angeles-based Gerber Kawasaki Wealth & Investment Management, an independent RIA with over $2.1 billion in client assets, partnered with a CPA at the end of last year to launch GK Tax and Accounting. The program, which provides tax advice and prepares tax returns, quickly maxed out at 275 clients. Now, they’re looking to hire more CPAs. 

Ross Gerber, Founder & CEO,
Gerber Kawasaki Wealth & Investment Management

Ross Gerber, co-founder and chief executive of Gerber Kawasaki , said it was a natural next step for the firm to launch a tax service. “Clients are constantly asking us for referrals and each of the advisors had an accountant they would refer but we just didn’t get any consistency in the quality of the accounting profession. Many people are unhappy with their accountant, so we figured, let’s bring it in house,” he said.  

But, they’ve also discovered that there’s more of a cultural gap than they had initially anticipated, Gerber said.  Financial advisors are in the business of making money for clients while accountants are, more often than not, delivering “bad news.” He worries that in-house CPAs, if not well trained in customer service, could create difficult situations with good clients.

“There’s this sort of a confrontational thing that happens with taxes. If the accountant isn’t really good at smoothing things over, it creates client issues,” he said. That’s why Gerber Kawasaki is looking to hire CPAs who the firm can train on customer service. 

“We’re going to start training them on how to like actually deal with clients; most of the training in the CPA world is about how to do taxes,” he said. 

Bridging the divide

Advisors did the taxes – clients get refund!

Taking a different approach, Farpointe Wealth Partners, which also works with CPAs and enrolled agents, saw an opportunity to recruit tax-savvy financial advisors. Currently, the firm, which has been growing rapidly through its recruiting efforts, has ten offices with 15 financial advisors and $850 million in assets.

“Our advisors either are the tax professional or are working hand-in-hand with the tax preparer to maximize the client’s after-tax return,” said Scott Rawlins, co-founder and chief executive of Farpointe. 

Recruiting tax-savvy advisors sidesteps the difficulty of getting CPAs to work more like advisors. CPAs and tax professionals compete on technical expertise and client experience but are generally not natural salespeople, Rawlins said. That makes it hard to get CPAs to work within the advisor model. 

“We have seen that hiring a CPA into a firm can increase scale in the tax and accounting practice but can tend not to necessarily increase the “tax-savvy” capacity of the firm,” he said.  

CPAs, who are trained to focus on tax and accounting, tend to be “overly cautious” with referrals and introductions to other professionals because it means they could lose control of the relationship. It is essential that the CPA experiences the power of the integrated and seamless experience first-hand. This means, only after they become a client of the experience themselves, can they begin to see the virtue of the approach,” he said. 

Unlike bread and butter, tax and financial advice are not always a perfect match.

Beware liabilities 

While tax and financial advice go hand and hand, there is a divide — not just in knowledge but in culture. Many firms prohibit their financial professionals from giving tax advice. Advisors broach the subject, then advise them discuss it with a CPA.  

Harry Grand, senior managing director of Angeles Wealth Management – an independent wealth management firm focused on serving high net worth and ultra-high net worth clients across the country – sees that divide as something to protect. Financial advice and tax planning both deal with complex issues and should be dealt with by separate individuals or teams. 

Harry Grand,
Senior Managing Director, Angeles Wealth Management

Angeles Wealth Management is part of Angeles Investments, which has 40 employees based in offices in Los Angeles and New York City, and has over $35 billion in both private client and institutional assets.

Financial advisors, according to Grand, should be tax-savvy and be able to help match clients with a CPA who can meet or exceed their needs.  But as he sees it, the ideal model for tax advice is for advisors to work with an independent CPA or an accounting firm that has the resources to solve for your unique client’s tax needs.

“If tax solutions are in-house, clients are limited to the knowledge and experience of those CPAs. How are you sure that your clients will be the right fit from an experience or knowledge perspective?” he asked. 

Grand, who launched the New York City office of Angeles Wealth Management, sees tax planning as akin to investing. Just as a single wealth manager can’t offer all the best in-house investment strategies for all asset classes, neither should a CPA be expected to be all things to all people. 

The demand for more breadth and specialized expertise has increased with open architecture.

“If you take an open architecture approach to finding the right CPA for your client, interviewing firms, asking other clients, thinking about current CPAs with whom you work, and so forth, you will undoubtedly be able to find the right CPA partner,” Grand added. 

Not only that, but there’s also the additional risk of tax advisors committing errors – they are human, after all – and then firms risk losing both the wealth and tax advisory businesses.  

Whatever happens with tax regulations, the attention to tax-savvy financial planning isn’t going away, and firms will be trying different strategies and tactics to meet the rising demand. 

Ellen Sheng, Contributing Writer, can be reached at ContributingEd@wealthsolutionsreport.com

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