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James Hargrave

Financial Planning > Tax Planning > Tax Deductions

How One Small Firm Uses Tech to Tackle Tax Planning

By John Manganaro

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What You Need to Know

  • To maximize client wealth, it is key to consider taxes on both the accumulation and spending sides of the financial planning process.
  • Investors can be confident that tax rates will continue to ebb and flow over time, meaning tax mitigation plans must be constantly reviewed and updated.
  • Technology solutions can help smaller firms punch above their weight when it comes to tax planning.

James Hargrave, director of financial planning at My Financial Coach, has a background in the brokerage and advisory industry that probably sounds familiar to many industry peers.

At the age of 36, Hargrave tells ThinkAdvisor that he has landed a fulfilling and rewarding gig. As a director of financial planning at a small but growing firm with around 10 professionals, Hargrave is tasked with building out a planning process that brings together clients’ hopes and expectations for the future with responsive investment and wealth management capabilities.

As Hargrave notes, however, it took a few career steps to get to this point. Like many mid-career advisory industry professionals, Hargrave started out working in the banking channel, focused on selling loan products. He then moved on to a three-year stint working on the brokerage side of Vanguard, during which time he was promoted to serve as a flagship high-net-worth client relationship manager.

While he has a great degree of respect for his former firm and colleagues, Hargrave says, the banking channel simply wasn’t for him. The focus on sales, though engaging and demanding, left him feeling unfulfilled. Working on the high-net-worth team at Vanguard, Hargrave says, gave him a taste for the advisory side of the business. While at Vanguard, Hargrave reviewed and analyzed portfolios, addressed complaints, linked clients to available resources and kept the clients abreast with current market trends.

Success at Vanguard led to Hargrave’s hiring at LearnVest, where he worked as a financial advisor for two years prior to the firm’s acquisition and subsequent decommissioning by Northwestern Mutual. That saga, he explains, led to the decision to join My Financial Coach when the firm was founded in 2018.

Fast forward to today and, Hargrave says, the advisory industry remains an exciting and dynamic place to work. He says the team at My Financial Coach strives every day to elevate its service offerings, especially in the realms of tax-efficient investing and holistic planning. To this end, Hargrave says, the firm is leveraging the eMoney Advisor platform in some unique and powerful ways, allowing the small firm to punch above its weight and win wealthy clients who want and expect a premier planning experience.

Tax Issues are Financial Planning Issues

According to Hargrave, MFC’s typical client is anywhere from 40 to 60 years old, and many of them see a timely and secure retirement as the main goal of their financial plan.

One distinguishing factor about the client base is that it is concentrated on higher-net-worth individuals living and working in California. Many of the clients, in fact, are physicians and dentists with highly successful practices, meaning they pay a lot of taxes to both the state and the federal government.

“Right now, thanks in large part to our location, many of our clients are really focused on and concerned about taxes, both today and in retirement,” Hargrave says. “What I like to tell our clients is that, if you have a taxation concern, that’s actually a good problem to have, because it shows you are generating substantial wealth. A positive framing always helps in the planning process.”

In Hargrave’s experience, there is an emotional element involved in tax planning that is somewhat unique when it comes to the financial advisory process. Simply put, people care a lot about taxes, and they feel the sting of tax mistakes more sharply than they feel other issues, such as marginal investment underperformance or excess brokerage fees.

Taxes are also intimidating, both for advisors and clients, because they are constantly evolving. At the current moment, from a historical perspective, it is safe to assume that tax rates are likelier to go up in the future than down.

That said, it is anyone’s guess as to how much and when. As Hargrave points out, investors can also be confident that rates will continue to ebb and flow over time, meaning tax mitigation plans must be constantly reviewed and updated.

“I don’t know exactly why this is the case, but we all know it is an important part of our culture here in the United States to think and talk a lot about taxes,” Hargrave says. “As the financial planner, we work hard to keep the emotions out of tax planning and to be objective. One thing we do not do is use fear about tax issues as a communication tactic. That would not be productive, in our view.”

How MFC Integrates Tax Planning Tech

Hargrave describes himself and his colleagues as tax nerds, but he says that is not a prerequisite for a financial planning firm that wants to bring tax issues into its client service process.

“Personally, I love studying tax issues, and I read the IRS codes carefully and with interest, but that’s not something everyone shares,” Hargrave says. “Fortunately, there is a lot of support out there that advisors and firms can lean on, and that’s what we do as well, especially in the way we use eMoney Advisor.”

As Hargrave explains, the financial planners at MFC lean on the eMoney platform to analyze and study the potential impact of both federal and state-level taxes. The solution allows for detailed scenario planning, he explains, which helps the firm understand all the ways different investment strategies and outcomes could be affected by current tax laws and potential future changes in tax levels.

Hargrave says the platform helps MFC’s planners consider taxes on both the accumulation and spending sides of the financial plan.

“For example, we can work through the platform to show our clients the impact that can be achieved through even modest changes in terms of asset location,” he says. “The solution helps us to be highly efficient in terms of the use of Roth-style accounts and health savings accounts, as well. Our clients really appreciate seeing the different projections and the outcomes modeled by the system.”

Hargrave says the estate planning features in eMoney are critical to his firm’s process, as are its capabilities around required minimum distribution planning and Roth conversions. As Hargrave points out, effective planning in these areas can save clients significant money in a given tax year while also boosting long-term outcomes.

“I believe our process shows how good tax planning really helps any given client, but especially those who have that higher net worth,” he says. “Clients who are business owners, as well, really benefit from this type of support.”

The Personal Touch

Hargrave says effective tax planning requires more than just powerful technology.

“One thing we have to really press hard on is to make sure our clients are uploading and sharing their tax documents so that we can take advantage of the tech,” he points out. “We have to be able to see if they are doing any special deductions, and with the tax documents, we can see more clearly what they might be saving and investing outside of our firm. Getting that overall insight via the tax returns helps us so much.”

In Hargrave’s experience, it often takes a year or two to get a new client fully integrated into the planning process. There is just so much to do at the beginning of a new advisory relationship that, at least in clients’ eyes, the uploading of tax documents might take a back seat.

“To combat this, we make discussions of tax planning a part of our quarterly meetings from the very beginning of the relationship, and we constantly remind our clients that we can do a lot with the tax information they share with us,” Hargrave explains.

After several years working under this approach, Hargrave says, the firm is getting very good at inspiring clients to link their tax information, as well as their bank accounts and retirement accounts.

The holistic view, Hargraves says, is critical for an optimal planning process, as is collaboration with a client’s accountant, estate attorney and any other planning professionals they work with.

John Manganaro

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