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Todd Mackay

Financial Planning > Tax Planning

When Advisors Have Tax Blind Spots, Clients Leave Billions in Returns on the Table

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During a recent interview with ThinkAdvisor, Todd Mackay, president of Avantax Wealth Management, took a moment to reflect on the impending 40th anniversary of the founding of the firm, which will be recognized in 2023.

Back in 1983, one forward-thinking certified public accountant noticed a growing need for clients to receive investment advice that aligned with their tax situations. As Mackay tells the story, in referring tax clients to someone else for financial planning, this often meant the CPA’s clients were placed in inappropriate investments or accounts, resulting in adverse tax implications.

Ultimately, teaming up with other like-minded tax and investment advisory professionals allowed for a much more integrated and tax-efficient client service process — one that the firm continues to champion today.

“We like to say that our tax-smart roots reinvented how financial services could be delivered to clients,” Mackay says.

Since the 1980s, Avantax has grown to support a network of independent tax and other professionals who provide comprehensive financial services to families, individuals and small businesses. Today, the firm works with more than 3,000 independent and employee financial professionals who together manage over $76 billion in assets across all 50 states.

Recounted in the Q&A below are some of Mackay’s top tax insights and lessons he has learned by leading a nationally representative advisory shop through a period of meaningful growth and industry evolution.

THINKADVISOR: In your position as president of Avantax Wealth Management, what do tax-aware advisory services look like and why are they important?

Mackay: Our operational philosophy is that all comprehensive financial planning should be designed with tax management strategies in mind, from the very beginning. That central thesis has really propelled our firm’s growth over the decades, both with our clients and with the advisory professionals who choose to join us as employees or as independent partners.

This is important because of the sheer scale of tax-inefficient investing that is happening today. Our estimate is that as much as $650 billion in tax savings alpha could be realized by advisors and their clients — each and every year. It is a staggering amount of money that could be put back into the pockets of households across the U.S.

We believe we are the only firm with our scale and resources that brings this exclusive focus to bear for our clients. All our advisors, whether they’re independent or are our employee-based advisors, work hand in hand with tax professionals or CPAs, and every financial plan that we deliver has those tax strategies and tax focus inherent in all of the planning that they do.

As such, every strategy we deliver has a tax focus inherent in the plan, and we feel this is a major differentiator in the marketplace.

THINKADVISOR: Do you find CPAs and advisors have an easy time collaborating? What are the biggest challenges that come along with this tax-first focus?   

Mackay: Absolutely. All too often, financial advisors focus on the initial return on investments, without giving any concern to potential tax liabilities down the road. With ongoing dialogue between the tax professional and the financial professional, the focus immediately shifts to strategies that yield the best after-tax results.

The old adage is true, in this sense: It’s not about what you make – it’s about what you keep. When these professionals work together to identify problems and find better solutions, clients gain the confidence of knowing they have a more comprehensive approach to planning.

In the end, pretty much every financial decision is a tax decision, and each advisor plays a unique role in defining their clients’ strategies.

The financial professional can provide in-depth knowledge of the market, investment products, financial planning approaches and other considerations when it comes to building and protecting your wealth. The tax expert can identify opportunities and tax-planning strategies to help keep more of the income the client has earned or inherited.

Working together, the advisor-tax duo gets a more holistic view of the client’s financial situation, and the team can together plan for a better end result.

THINKADVISOR: How do your tax planning capabilities figure into the effort of prospecting and securing new clients? Is communicating about tax issues a big part of the outreach effort?

Mackay: Of course. Ultimately, clients come to any advisor because of a desire to get support that is tailored to their personal situation, and at the same time, they go to advisors they feel they can trust and rely on.

In our experience, nothing creates more trust and collaboration than to be able to understand the tax situation of a client and to create a financial plan that is tax-aware. The advisor has to go so far beyond just talking about investments and must learn about the client’s lifestyle and expectations for the future.

We are somewhat unique in that, given our base of advisors and CPA affiliates, many of our clients come to us on referrals from the tax side of the business. Naturally, this puts us in a great situation to be able to quickly and accurately understand their tax situation, regardless of their life stage.

Some clients may be looking to sell a business and move into the next phase of their life, while others are just starting out with basic retirement investing. Tax-efficient planning is key for all of these groups, and so we look at things like asset location, holding periods, tax loss harvesting, Roth IRA conversions and other investment solutions like annuities.

Our advisers have the expertise and knowledge to be able to craft plans for each and every client that comes to us, and we ensure they are supported by the right team, technology and tools.

THINKADVISOR: How does your tax-first focus impact advisor recruiting efforts?

Mackay: Given my role, I have the privilege of talking with independent advisors and some folks at other firms that are looking for a new home, each and every week.

Almost universally, what they are looking for is a way to differentiate themselves and their practice and to deliver unique value to their clients in a more competitive landscape. Our story about tax planning capabilities is very appealing in this context, such that we have had record growth rates in terms of our both our number of affiliated advisors and our assets under advisement.

In terms of recruiting new advisors this year and in the future, we are always looking to grow in our independent channel and in our employee-based channel. Those firms and individual advisors who come on board do so for the services, technology and general support we provide.

They also come to us, most importantly, to be part of a community of like-minded advisors. They all believe in the approach of tax-centric financial planning and that this is a true differentiator in a competitive landscape.


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