After a year of financial market weakness, investors’ priorities naturally shifted from growing wealth to preserving wealth. Risk management may be a key component of wealth preservation, but what is often overlooked is how smart tax planning can be done by clients to preserve more wealth.
Clients stay loyal to their financial advisors when they realize they deliver much more value than simply identifying the best performing investments. Talking to clients about all the services we offer, including sophisticated tax planning strategies, can strengthen existing relationships and attract 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 as a checklist to determine if you’re applying all best practices or if there are areas that need improvement. please.
Regardless of what happens in 2023, whether the market recovers or the recession brings more challenges, scaling and demonstrating the value we can offer our clients will be a great asset. Useful for making lemonade when the market only offers lemons.
1. Strengthen relationships with leading accountants
Your contact list may already be filled with tax professionals who can help clients file forms and reduce their annual tax bill. How close are our relationships? If your partnership with each accountant does not generate two-way referrals on a regular basis, it may not be as strong as it could be. Make sure you are cooperating. Are you delivering innovative and sophisticated client solutions? How much experience do you have with high net worth clients? Depending on your answers to these questions, you may need to develop more relationships to ensure your clients receive the best possible service.
2. Upgrade the capabilities of your tax planning technology
Are you currently looking for tax loss harvesting opportunities only in the last quarter of the year? Do you rely on spreadsheets or manual processes to identify them? If so, work with your technology partners to Automate tax loss collection for you and your clients. You can identify tax savings opportunities throughout the year and implement them in a way that is less burdensome and time-consuming for you and your staff.
3. Update clients on tax planning opportunities
Tax laws are always changing, but the past few years have seen more changes than usual. So provide your clients with regular non-jargon communication explaining what’s different. For example, send an email, newsletter, short video, or blog post about the Secure Act 2.0 law passed late last year. The law raises the minimum distribution (RMD) age limit required from IRAs and retirement plans and provides an opportunity for account beneficiaries to convert unused funds from 529 college savings plans into Roth IRAs.
Such messages ensure that clients are making the most of these new rules and that they are monitoring legislative and regulatory changes with an eye on how they can take advantage of them. Emphasize. Do your high net worth clients know that the high federal estate tax threshold will be abolished in 2025 if Congress does not extend it? Can estate planning tools help maintain higher estate tax thresholds? Keeping your clients informed about these things shows that you are proactive on their behalf.
4. Expand your tax planning approach
Tax-advantaged retirement plans, college savings plans, and municipal bonds are some of the best investment vehicles to lower taxes for your clients. However, clients should be aware that tax planning recommendations go beyond such mainstays. Discuss the benefits of a Health Savings Account (HSA) to prepare for your future medical needs.
Good tax administration enhances wealth preservation
Even with a full recovery in financial markets in 2023, many investors will retain one of their key lessons for 2022. By showing clients and prospects what they can do to minimize the impact of taxes on their savings and investments, we highlight how much we care about 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 those of CFA Institute or the author’s employer.
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