I was recently referred a couple hoping to retire this year. Their current financial advisor recommended investing $265,000 into an annuity, and the couple wanted a second opinion.
When I talked to them on the telephone, I asked them to bring certain items to the meeting, including a copy of their tax return and a list of questions. The very first question they asked me was whether I felt this annuity was a good investment. I replied that I wouldn’t be able to answer that question until I had a better understanding of their goals, objectives, and risk tolerance.
During our meeting, the couple provided me with a 25-page financial planning report from their financial advisor, along with a five-page sheet that the advisor had them fill out. The couple didn’t understand anything in the report and, quite frankly, the color graphs were the only interesting items in this printout.
While some advisors prepare reports and charts and have the client fill out forms, I instead read the tax return, which tells me about 95 percent of what I need to know about my clients.
So how can you use tax returns to generate sales prospects and learn more about your potential clients? Here’s a case study based on that same couple who called me for advice.
In this case, I looked at exhibit 1 on the 1040 tax form — wages, line 7 — and saw the number was $230,000.
Me: I see your wages for the year were $230,000. Do you currently have a retirement plan at work? If so, do you still contribute to the plan?
Clients: Yes; we have a retirement plan, and we each contribute 6 percent of our salary.
Me: Before you retire from the company, we should talk with your human resources department. I want to make sure all your benefits are coordinated correctly, such as 401(k) plan (rollover), and life insurance benefits.
Next, I look at Form 1040, line 8a. Taxable interest is $319 – and according to Schedule B, part I, ABC bank nets $174 and XYZ bank $145.
Me: How much interest do you earn in ABC and XYZ bank?
Clients: Both are six-month CDs, earning about 3 percent interest.