Addressing Taxes In Holistic Wealth Planning

Grant Van Horn, Executive Director, Wealth Solutions, Hightower Advisors
Grant Van Horn, Executive Director, Wealth Solutions, Hightower Advisors

Here’s What Advisors Should Consider When Deciding How To Incorporate Tax Advice Into A Holistic Investment, Estate And Financial Planning Process For Their Clients

As the adage goes, there are two things guaranteed in life: death and taxes, and clients frequently turn to their wealth advisor for guidance on both.

While some advisors may prefer to refer clients to outside estate attorneys and CPAs, many are finding that those referrals are becoming more challenging to make. That is particularly true when it comes to CPAs, where a shortage of talent has left many advisors in search of qualified tax advice for their clients.

Incorporating tax advice into a holistic investment, estate and financial planning process can bring both intangible and tangible value to a client. Intangibly, clients prefer to simplify their professional guidance to fewer relationships, placing the advisor at the center of their financial universe. Tangibly, by providing timely, accurate and effective tax guidance, advisors can help clients avoid costly mistakes and take advantage of strategies that may reduce tax obligations.

This combination of a streamlined client experience with real tax savings can be a powerful differentiator for advisors looking to deepen relationships and accelerate organic growth, especially when it comes to attracting next-generation clients. Over 50% of respondents in Campden Wealth’s Next Generation of Wealth survey indicated that tax planning and mitigation is one of the most important factors when selecting an advisor.

Tax Service Engagement Models

Wealth management firms are approaching their clients’ tax needs with a wide range of engagement models. Some choose to avoid the area completely by sticking to cold disclaimers informing clients that they should consult with a tax expert. Other advisors develop referral relationships with local CPAs to outsource client tax needs, while hoping to receive referrals in return.

A wide range of models for tax services

This outsourcing model has become strained over the past decade, as advisors find some CPAs are unwilling to take on anything but the most profitable new households. Still other advisors look to technology platforms to review a clients’ previous tax returns and identify strategies to optimize future returns. Finally, some firms choose to control all aspects of the client experience by fully integrating tax services into their core client offering.

This emerging trend of bringing tax services in-house creates a more expansive and differentiated service model that positions advisors to successfully win and retain relationships. While an in-house option offers advisors the most control over the client experience, they need to carefully consider how to develop, structure, deliver and monetize tax services.

Considerations For Integrating Tax Services

To develop tax capabilities, advisors and their firms should consider whether to buy an existing CPA practice or hire qualified CPA staff. It’s also worth considering factors such as access to capital, the ability to find and perform proper due diligence on a CPA firm, and whether the CPA will continue to serve its existing clients.

Structurally, advisors need to determine what type of entity they will use to deliver tax services. Delivering tax services from an RIA or broker-dealer can create a streamlined agreement and billing process, but may introduce operational and reputational risks for the investment side of the business. Alternatively, advisors may consider creating a separate entity to deliver tax services.

Monetizing tax services

To deliver services, advisors and their firms should consider whether this will be incorporated into the standard relationship for all clients or delivered as a separate ad hoc service available upon client request. This consideration is highly dependent on the capacity and breadth of knowledge to support tax services across an advisor’s or a firm’s entire client base.

Finally, the concept of monetizing tax services receives a mixed response from advisors. Some see the offering as a value-added service included in the client’s total fee paid to the firm. In these cases, advisors will typically allocate a portion of the client’s annual fees to support tax resources. Conversely, other advisors prefer to be fully compensated for direct tax services.

In any regard, it’s important to consider the revenue opportunities and risks to achieving growth targets, prior to jumping into the CPA space.

Time For A Fresh Look

As clients continue to look to their advisors to support their holistic wealth needs, advisors and their firms can take a fresh look at their tax offerings and decide how best to support these clients. Given looming tax code expirations and changes, now is the time for advisors to make sure they have a plan to build, buy or partner to deliver tax services to their clients.

This type of value-add service addresses a real need from clients and a relatively straightforward path for advisors of all sizes to expand their service set. After all, if taxes are one of life’s guarantees, then helping a client solve them can leave a highly valuable and long-lasting impression.

Grant Van Horn is Executive Director, Wealth Solutions at Hightower Advisors.

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