With the presidential election and fiscal cliff negotiations behind us, the reality of increased taxes is sinking in for many investors. Unfortunately, many are sitting on the sidelines, passively watching their portfolio absorb the brunt of new tax laws.
According to a recent survey of 751 mass affluent investors commissioned by Nationwide Financial, six in 10 (60 percent) survey respondents say they either won’t or are unsure if they will meet with a financial advisor to discuss how new taxes may impact their portfolio.
It’s human nature to freeze in moments of change and uncertainty. That’s where financial advisors come in. There’s a huge opportunity for advisors to proactively engage clients to have this important conversation. It’s also important to recognize that some clients may be more receptive than others.
Our survey reveals that, among various demographic groups, there are notable differences in the understanding of tax-advantaged products and varying degrees of receptiveness to their use. This data helps us see the ripest sales opportunities and identify segments that may be more resistant to change.
Regardless of their current point of view, all segments of affluent investors need to understand the implications of new taxes. Advisors who come to the table understanding their client’s current perspective can tailor counsel for a more efficient and effective conversation that will enhance trust and credibility.
Here are few key insights from our survey:
Women are more upbeat but less confident in knowledge
Female survey respondents were less likely than men to expect a significant decrease in household income or asset value as a result of tax code changes (16 percent vs. 31 percent). They also were less likely than men to have met with a financial advisor to talk about this topic. In fact, just one in 20 women survey respondents had done so at the time of the survey (5 percent women vs. 13 percent men).
I hope female respondents are justified in their comparative optimism, but in the meantime advisors should make a point to reach out to female clients. Remind married clients that the wife is more likely to outlive her income, so it is critical for both spouses to be active in managing the portfolio.
Despite more optimism about their portfolio, women respondents expressed less confidence than men that they completely understand the tax advantages of annuities (17 percent vs. 27 percent), life insurance (23 percent vs. 34 percent) or 401(k) plans (38 percent vs. 52 percent). This may be attributed to what appears to be an underutilization of the financial advisor relationship. However, our survey data suggests that women may be more receptive than men to learning more about tax-advantaged products – so advisors can build trust by helping them address this perceived knowledge gap.
Middle-aged respondents are more receptive