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Financial Planning > Tax Planning

Get Your Arms Around It

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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.

We highlight tax planning this month with a three-part special report. In part one, our monthly Wealth Advisor columnist and JPMorgan strategist, Susan Hirshman, explores the wealth management opportunities that are just waiting to emanate from nearly every line of your clients’ Form 1040 (here). Susan Hartman of Raymond James follows with an analysis of how the new Pension Protection Act of 2006 affects tax planning, especially as it relates to retirement (here). Finally, Miccolis walks us through his firm’s approach to efficient tax loss harvesting using ETFs (here). Hirshman suggests in her cover story that the wise advisor should even pay attention to the lines on the tax return asking for the taxpayer’s address. “Has that neighborhood gone through significant appreciation?” she wonders, “When was the client’s property and casualty insurance last reviewed?”

Of course, that kind of approach assumes that an advisor is not only looking at how to save the client money on her taxes, but keeps an eye on risk management, and in fact is taking a big picture approach to solving the client’s overall financial puzzle. Can you get your arms around that?


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