After a down year for financial markets, investors’ priorities have naturally shifted from growing their assets to preserving their wealth. While risk management may be the key component of wealth preservation, what often gets overlooked is how much smart tax planning can do to help clients retain more of their wealth.
Clients stay loyal to their financial advisers when they recognize that they bring much more value than simply identifying top-performing investments. Talking to clients about the full range of services you provide, including sophisticated tax-planning strategies, will strengthen existing relationships and appeal to more prospects.
Below are some suggestions on how to upgrade your tax-planning game. You may already be doing all or most of these, so consider these ideas a checklist to determine if you’re applying all the best practices or whether there are areas where you need to improve.
Regardless of what happens in 2023 — whether the markets rebound or a recession brings more challenges — expanding and demonstrating the value you can deliver to clients will be a huge asset. When the markets are serving up nothing but lemons, it’ll help you make lemonade.
1. Strengthen Your Relationships with Top-Notch Accountants
Your contact list may already be full of tax professionals who can assist clients in filing their forms and reduce their annual tax bill. But how close are those working relationships? If your partnership with each accountant doesn’t regularly produce two-way referrals, it might not be as strong as it could be. Make sure you’re working with the most capable and talented tax pros. Do they deliver innovative and sophisticated client solutions? How much experience with high-net-worth clients do they have? Depending on the answers to these questions, you may need to build more relationships to ensure your clients are getting the best service out there.
2. Upgrade Your Tax-Planning Technology Capabilities
Are you currently looking for tax-loss harvesting opportunities only in the final quarter of the year? Do you depend on spreadsheets or manual processes to identify them? If so, work with technology partners to automate tax-loss harvesting for you and your clients. You’ll be able to identify tax-saving opportunities throughout the year and implement them in a way that isn’t burdensome and time-consuming for you and your staff.
3. Update Clients about Tax-Planning Opportunities
Tax laws constantly change, but the past few years have seen more changes than usual. So provide regular, jargon-free communications to clients that explain what’s different. For example, send an e-mail, newsletter, short video, or blog post about the Secure Act 2.0 legislation passed late last year. The law raises age limits for required minimum distributions (RMDs) from IRAs and retirement plans and offers opportunities to convert unused funds in a 529 college savings plan to a Roth IRA for the account’s beneficiary.
Such messages will ensure that clients take full advantage of these new rules and emphasize that you’re watching legislative and regulatory changes with an eye towards how clients can leverage them. Do your high-net-worth clients know that the higher threshold for federal estate taxes will sunset in 2025 if Congress doesn’t extend them? Or that estate-planning tools like Spousal Lifetime Access Trusts (SLATs), for example, can preserve their higher estate tax threshold? Keeping clients in the know about these things will demonstrate that you are being proactive on their behalf.
4. Expand Your Tax-Planning Approach
Tax-favored retirement and college saving plans and municipal bonds are among the best investment vehicles for lowering clients’ taxes. But clients need to know that your tax-planning recommendations can go beyond such mainstays. For example, if clients have high-deductible health insurance plans, talk to them about the benefits of health saving accounts (HSAs) to save for future medical needs, especially in retirement.
Good Tax Management Reinforces Wealth Preservation
Even if the financial markets fully recover in 2023, many investors will be holding onto one of 2022’s key lessons: that wealth preservation is important in any environment. By showing clients and prospects all that you can do to minimize the impact of taxes on their savings and investments will underline how committed you are to preserving their wealth.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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April J. Rudin
