In a conversation late in August that formed the basis for an interview in this issue, I asked Jerry Miccolis, a CFA, CFP, and an actuary, to boot, to describe his Morristown, New Jersey planning firm, Brinton Eaton. The 12 members of the firm, nine of whom are professionals, take a comprehensive approach to client services, he explained, that includes investment management, financial planning, and tax management. “We feel strongly,” he said, “and we’re organized that way, that you can’t do an adequate job in any one of those three areas without your arms around the other two.” Not all our readers, I pointed out, take that approach. “If you’re purely an investment manager,” Miccolis responded, “why bother? I’m not speaking from my clients’ point of view,” he hastened to add. “Obviously, we come from all different philosophies,” he mentioned diplomatically, referring to the broad universe of financial planners and investment advisors, before concluding with passion and authority, “but you need to bother.”
A fair argument can be made that the financial planning profession only exists at all because of taxes. Kate McBride, in her intriguing article this month (here) on the history of the investment counsel business, aka the investment advisory business, mentions the return of the income tax following ratification of the 16th Amendment to the Constitution in 1913 as a major initiator for the profession’s genesis. It’s gospel, too, that the big shifts in tax policy during the Reagan era gave a big boost to the profession.
I’ll concede, as Clint Eastwood famously pointed out as Dirty Harry, that “A man’s got to know his limitations,” but it seems that tax awareness at least–if not active tax management–should be within an advisor’s core competency. What does it matter if an investment performs outstandingly but the client is hit with short-term capital gains that wipe out the increase? It seems tantamount to disregarding the costs of an investment. In fact, taxes are a cost of any investment.