After a year of declining financial markets, investors’ priorities naturally shifted from growing their assets to preserving their wealth. While risk management can be the key to wealth preservation, what is often overlooked is all smart tax planning can do to help clients retain more of their wealth. .
Clients remain loyal to their financial advisors when they recognize that they provide much more value than simply identifying the best performing investments. Telling clients about the full range of services you provide, including sophisticated tax planning strategies, will strengthen existing relationships and attract more leads.
Below are some suggestions on how to up your tax planning game. You may already be doing all or most of them, so consider these ideas as a checklist to determine if you’re applying all of the best practices or if there are areas where you need to improve.
Regardless of what happens in 2023 – whether markets rebound or a recession brings more challenges – expanding and demonstrating the value you can deliver to customers will be a huge asset. When the markets only serve lemons, it will help you to make lemonade.
1. Strengthen your relationships with top accountants
Your contact list may already be full of tax professionals who can help clients complete their forms and reduce their annual tax bill. But how close are these working relationships? If your partnership with each accountant does not consistently produce two-way referrals, it may not be as strong as it could be. Make sure you are working with the most knowledgeable and talented tax professionals. Do they offer innovative and sophisticated customer solutions? What experience do they have with wealthy clients? Depending on the answers to these questions, you may need to build more relationships to ensure your customers get the best service.
2. Improve your tax planning technology capabilities
Are you currently looking for opportunities to harvest tax losses only in the last quarter of the year? Do you rely on spreadsheets or manual processes to identify them? If so, work with technology partners to automate tax loss collection for you and your clients. You’ll be able to identify opportunities for tax savings throughout the year and implement them in a way that’s not cumbersome and time-consuming for you and your staff.
3. Inform clients of tax planning opportunities
Tax laws are constantly changing, but recent years have seen more changes than usual. So provide regular, jargon-free communications to customers that explain what’s different. For example, send an email, newsletter, short video or blog post about the Secure Act 2.0 legislation passed late last year. The law increases age limits for required minimum distributions (RMDs) from IRAs and retirement plans and provides the ability to convert unused funds from a 529 college savings plan into a Roth IRA for the account beneficiary .
Such messages will ensure that customers take full advantage of these new rules and emphasize that you are monitoring legislative and regulatory changes with an eye on how customers can take advantage of them. Do your wealthy clients know that the higher federal estate tax threshold will expire in 2025 if Congress does not extend them? Or that estate planning tools like Spousal Lifetime Access Trusts (SLATs), for example, can retain their higher estate tax threshold? Keeping customers informed about these things will demonstrate that you are being proactive on their behalf.
4. Develop your tax planning approach
Tax-advantaged retirement and education savings plans and municipal bonds are among the best investment vehicles for reducing client taxes. But clients should be aware that your tax planning recommendations may go beyond these pillars. For example, if clients have high-deductible health insurance plans, talk to them about the benefits of Health Savings Accounts (HSAs) to save for future medical needs, especially in retirement.
Good tax management strengthens the preservation of wealth
Even if financial markets fully recover in 2023, many investors will retain one of the key lessons of 2022: wealth preservation is important in any environment. Showing your clients and prospects everything you can do to minimize the impact of taxes on their savings and investments will underscore your commitment 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, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.
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