An old saying that many of my early mentors and coaches engrained in their pupils,
"In the absence of value, it comes down to price.” The definition they used for value is the importance, worth or usefulness of something.
In 2017, DOL fiduciary rules, the popularity of Robo-advisors, U.S. equity markets at new highs, and bit-coin mania, have created a natural consumer skepticism about the value of paying for wealth advice.
But it’s not when things are going great that people seek value, it’s when crisis hits that people need leadership and advice to make it through. I was an investment-only advisor before 1999, then an unexpected family crisis occurred that made me aware of how I needed to add other dimensions of advice to my practice.
The 2017 Value of an Advisory Study conducted by Russell Investments stated that by “looking at the full value equation of an advisor’s services— annual rebalancing, behavior mistakes investors make, the cost of investment-only management, planning and ancillary services, and tax-aware investing— it is clear that the value an advisor delivers to clients materially exceeds the 1% fee they typically charge for their services. In 2017, the value of an advisor in the U.S. is calculated at 4.08%.”
I have conducted my own survey throughout the years of financial and tax advisors nationwide. I simply would ask them several questions:
Do you review the prior year tax return before you suggest changes to portfolios?
• Are you making your clients aware of their tax situation before the tax year ends?
• How many Roth conversions did you recommend in the past year?
I am really taken back at the responses.
oAdvisors seldom ask for prior years’ taxes, much less use them as a guide in portfolio suggestions.
o Most accountants are not proactive with clients; in fact, most only meet the clients once a year after the year has ended to prepare the forms: an annual transaction.
o The common answer to the Roth conversion question is zero or “a few.”
The tax advisor ranks highest among trusted financial advisors, so they need to do a bit more to truly mitigate taxes for their clients.
I saw the opportunity to help improve client outcome by simply becoming a planner who is proactive, not reactive. It all came down to dropping some new rocks that created some new ripples for my practice. I needed to ask more questions and collect more data in order to deliver a complete wealth management experience.
Tax mitigation and cash-flow planning are core disciplines of wealth enhancement which is my most common, advanced-wealth planning value – all in addition to personalizedinvestment consulting.
Obtaining a client’s tax return and including it in my wealth practice is like a doctor drawing blood during a medical physical. The doctor is being proactive. He’s gathering data that will help identify current issues or prevent future ones. Tax awareness throughout the year is key in managing portfolio efficiency. For example, clients acting without tax advice will pay higher IRS and state penalties because they sold investments without factoring tax consequence in the prior year. These kinds of errors are completely avoidable with proactive tax planning.
The Roth IRA tax planning is a huge differentiator. Many years ago, Ed Slott, CPA told our group of Elite IRA advisors that the two gifts of the tax code were life insurance and the Roth IRA. The recent tax plan has changed the tax landscape for many individuals. Many of my clients will end up in lower tax brackets. This may be a good time to take advantage of being in a lower tax bracket, and convert pre-tax accounts to Roth accounts. This may be especially true if those predicting deficits as a result of the tax cuts turn out to be right. At some point, taxes will have to be raised to pay the bills, and having a Roth account that has already been taxed at lower rates will be a smart move.
I will end by sharing a great saying, one that I use as a guiding light for my practice: to pay taxes once is your obligation, but paying taxes twice is your fault.
✓ Be Pro-active not Re-active with your wealth.
✓ Ask for Help from a comprehensive wealth advisor (that you can understand.)
✓ Become tax literate and prepare for taxes before the year ends
✓ Add Roth IRA planning strategies to convert your money from forever tax to NEVER tax.
Walter Pardo is an active member of Ed Slott's Master Elite IRA Advisor Group, and CEO of Wealth Financial Partners & WFP Tax Partners 22 Church Street in the Liberty Corner section of Bernards Township, New Jersey
Securities and advisory services through Independent Financial Group, a registered broker-dealer and investment advisory firm. Member FINRA/SIPC. WFP & IFG are unaffiliated entities. OSJ: 12671 High Bluff Drive, Suite 200, San Diego, CA 92130
call 877-714-2362 or email: email@example.com
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