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May 04, 2013 at 10:43 AM
Now that I’ve finally come up for air after a daunting 2012 tax season, which kept me away from writing my monthly column in April, I want to discuss whether you’ve ever explained or shown your clients their non-market-related return on investment.
The simplified method of looking at a monthly statement to assess whether their money has increased or decreased is basically what all our clients use to determine the value that we as advisors provide. While I do agree that simplicity is an important point, it is usually the unnoticed returns over the years which really allow clients to live off their money and maintain or increase their wealth. Do you relay to your clients the non-market related returns you generate for them?
Here are seven examples of how a good advisor creates non-market returns for clients:
Example 1: Advising your client to withdraw money from their IRA/401(k) when they were in a lower tax bracket than the bracket they were in when contributing to their 401(k) or IRA.
These non-market returns are huge in the overall lifetime big picture, but sometimes very hard for your client to notice or remember in the short-term. Remind clients that helping them plan to only pull money out of their IRA/401(k) when they’re in the 15% or 25% tax bracket rather than the 28% or 33% tax bracket during retirement is a non-market return that saves them money.
Example 2: Helping clients finance a home addition or beach house with a tax deduction.
Having clients withdraw the money over a five-, 10- or 15-year period will have fewer tax consequences than if they withdrew the lump sum needed all in one year as taxable income. This sometimes can save 10% to 20% in income tax savings, which are, again, non-market related returns.
Example 3: Developing a retirement income planning structure to help clients meet their monthly income needs, by advising them on a specific planned withdrawal, coordinated in the most tax-efficient manner.
Usually this allows your clients to pay the lowest possible income taxes for their specific situation, while saving them lots of money over a 20- to 30-year period. This is a continuous flow of non-market benefit to your client which they may sometimes forget.
