What You Need to Know
- Tax law changes may cause panic among clients, but they also can be an opportunity for advisors.
- Today there is record levels of client engagement as they seek assurance around tax laws, the economic impacts of COVID-19, inflation and the large numbers of Americans retiring.
- Providing all clients with a service that combines tax planning and advice along with wealth management unlocks the value that has historically been reserved for high-net-worth individuals.
Potentially sweeping tax-law changes in 2022 have caused deep uncertainty and even panic among clients and financial professionals alike. But as with any potential changes like this, there’s tremendous opportunity here.
Now is the time for financial professionals to better position their clients to continue to pursue their goals by ensuring that their financial planning and tax planning are working for them in lock step, because there’s no doubt that tax laws will change over time, as we’ve seen with each new presidency in modern history.
Our firm views it as unthinkable that someone’s financial planning wouldn’t be rooted in an assessment and understanding of the impact of taxes every step of the way. One of our leaders even coined the phrase: “Financial planning without incorporating tax planning will someday be considered malpractice.”
The current tax-law uncertainty spotlights the need for tax-advantaged financial planning. Advisors who can give both tax and financial planning advice can optimize the value of investing for their clients and differentiate themselves in their service to clients.
By considering tax implications every step of the way, advisors can add tremendous value to clients through tax efficient asset gathering, qualified vs. non-qualified asset location, tax-loss harvesting, tax-deferral strategies, tax-efficient distribution, and finally, optimized strategies for wealth transfer to the next generation. In doing so, a client’s financial plan has much greater likelihood for success.
Headwinds and Technology Commoditization
Our advisors are seeing record levels of client engagement as they seek assurance around tax laws, the economic impacts of COVID-19, inflation and the large numbers of Americans retiring — whether planned or not. These realities create headwinds for financial professionals who only counsel clients on taxes or financial planning discretely without blending them into what we call tax-advantaged wealth management.
Another headwind for financial professionals is the ongoing commoditization of financial planning through technology; in short, investors can get automated financial planning pretty much from anywhere. Software solutions like eMoney Advisor and MoneyGuide Pro are widely used, but don’t offer the differentiation and added alpha that can be created when adding tax advantaged strategies to a plan.