For tax season, we’re reprising a collection of articles on the subject of tax management. The following is the first in a series of five articles.

In the financial planning industry, tax planning stands out as a value add that advisors can use to cement and deepen their relationship with clients. Advisors can potentially expand their value beyond short-term investment returns when they collaborate with tax professionals to create a long-term tax strategy for clients. Advisors can help their clients proactively plan for higher tax rates, employ asset location strategies, and retain more of their investment returns.

Adding a tax planning component can serve to open the door to a larger, ongoing conversation about a client’s overall goals and plans and complete tax situation, leading to a deeper understanding of what is going on in the client’s life. Once an advisor possesses that enlarged understanding of the client, there’s an increased potential to refer a broader range of services to clients.

Tax issues and asset allocation
A discussion of taxes and asset location would involve an assessment of a client’s entire portfolio, which may include assets that aren’t held by the advisor. Most clients have assets in a variety of accounts, including tax-exempt or tax-deferred accounts, such as 401(k) accounts, IRAs, 529 plans as well as taxable accounts. If the advisor offers enough additional value, there is always the possibility that grateful clients may bring more assets to the advisor.

Frequently, the after-tax return of the whole portfolio can be improved just by putting the right assets in the right types of accounts, which is the premise involved in asset location. This might involve placing less tax efficient strategies in tax-deferred accounts where the tax treatment may be more favorable and more tax efficient strategies, in taxable accounts, since much of the returns are likely to be realized through capital gains, which for some investors could be taxed at a lower rate.

Considering other-tax pertinent issues
Beyond asset location, a client may own  a business so so their tax professional could be in a position to discuss business succession planing from a tax perspective, not only how such a sale might happen, but ways to manage the transaction to limit the tax impact. This could lead to a discussion about what to do with the proceeds from the sale of the business. Often high net worth clients want to leave a legacy to both their families and the community, and there are vehicles that can help accomplish those goals while limiting tax liabilities. Those discussions can open the door to deeper conversations around estate planning and portfolio management on a long-term basis, aspects of financial planning that provide a great deal of value beyond yearly investment management and that serve to further cement the advisor-client relationship, perhaps even into the next generation.

New horizons: Expanding engagement with clients
There is much to be gained from from collaborating with a tax professional in your financial advisory practice. Besides the benefits of deepening the advisor–client relationship, such a relationship can have a positive, spillover effect on your relationships with a client’s other trusted advisors.

Those advisors, especially CPAs and attorneys, may provide positive reinforcement about the advisor back to the client. In addition, any activities that result in ongoing engagement with centers of influence have the potential to result in referrals from those professionals, or at least, a larger ongoing dialogue.

More information on portfolio construction and advisory practice management is available at durableportfolios.com.


Traditional IRA - An IRA or Individual Retirement Account allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed).

401K Plan is a type of qualified retirement plan in which employees make salary reduced, pre-tax contributions.

529 Plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary.

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