Do you currently do any tax planning for your clients (not tax prep, tax planning)? Why or why not?

Full disclosure, I work with a software company that has built a product that uses AI for advisors to do scalable tax planning, and I am trying to understand more of the broader market that hasn't seen the product yet. Thanks in advance for any insight into how you do/do not use tax planning currently in your business and especially why.

Timely. My financial advisor's firm is one-stop shop which included tax planning and preparation. They have their own in-house CPA's.

However, starting this year they are testing an outsourced model for tax preparation. They are handing off tax prep to EY and we are doing it all through an online portal.

gigemhilo said:

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As a CPA, A LOT (so most) of advisors say "ask your CPA".

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I'm looking for a CPA for this exact reason

We do in depth tax planning but no tax prep. Will sound silly, but my favored solution is dinkytown.com. Their calculators are fantastic and the 1040 calculators are great for planning purposes, once you get accustomed to it. Will mock up thoughts and use directly with clients and/or their CPA to spur conversation.

Clear gap on this is complicated business/trust dynamics. We simply don't have software solutions or the desire to tackle a good estimate on those. Planning work is more conceptual when those fact patterns exist, or just have CPA do heavy lifting with our involvement on strategy.

FA's at most major firms are prohibited from giving tax advice per se. They can talk about taxes, tell your the tax ramifications of a trade or investment but cannot give professional tax advice. So they'll tel you something then say Ask your CPA. Now a CPA also doing investments can do both. It's been my experience that CPA's have limited choices they can sell you and FA's have limited knowledge about tax planning, which is a good reason to have both.

Thanks all, this is really helpful. FWIW, and I didn't want to lead with this, but the software has been quite successful with nearly 10,000 advisors using it in less than three years since launch. But I continue to try and understand the thoughts, ideas, and mentality of those who aren't doing tax planning at all so I can better understand the market. Thanks again, truly helpful.

YouBet said:

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Timely. My financial advisor's firm is one-stop shop which included tax planning and preparation. They have their own in-house CPA's.

However, starting this year they are testing an outsourced model for tax preparation. They are handing off tax prep to EY and we are doing it all through an online portal.

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Guessing that EY is also outsourcing it to an extent as well.

Tax prep to me is more transactional / commodity and if a CPA is doing it they better do it right.

Tax planning, as the OP focused in on, is a different service though many times handled by same firm.

The tax firm we use may recommend certain solutions and we then coordinate with the advisor. One example, tax guys recommended a change in revenue recognition to defer income to future years. The result is having decent cash inflow and little to no tax liability but unlike Wesley Snipes we know the tax must be paid at the end of deferral.

So the financial adviser is made aware of the future tax liability so the investment portfolio risk can manage around this and be less aggressive with monies to be paid to the IRS.

Personally, I prefer having these be separate people and firms. I want my tax planning to be singularly focused on that aspect. Then I want the financial advisor to be singularly focused on their part - with of course the coordination i mentioned above.

Not a FA, but what I have been told by FAs is the risk isn't worth the reward. If you have a bunch of money with a FA and they mess your taxes up you will likely be moving to a different person. The upside of doing taxes isn't worth the downside. Many FAs seem hesitant to even recommend a tax preparer for that same reason.

Ag CPA said:

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YouBet said:

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Timely. My financial advisor's firm is one-stop shop which included tax planning and preparation. They have their own in-house CPA's.

However, starting this year they are testing an outsourced model for tax preparation. They are handing off tax prep to EY and we are doing it all through an online portal.

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Guessing that EY is also outsourcing it to an extent as well.

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Probably but I don't know for sure. My FA and I are learning together since it's a new process so he's basically doing the legwork for me which means uploading documents and answering questions that he can.

It's a little more work for me on the front end but, again, he's doing most of the legwork. I will say the quote from EY to do it is half of what I paid last year to have the FA firm do it, so that's good.

We shall see if that quote holds; it was based on an initial questionnaire I completed online.

chrisfield said:

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Thanks all, this is really helpful. FWIW, and I didn't want to lead with this, but the software has been quite successful with nearly 10,000 advisors using it in less than three years since launch. But I continue to try and understand the thoughts, ideas, and mentality of those who aren't doing tax planning at all so I can better understand the market. Thanks again, truly helpful.

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I've used Holistiplan since it was launched - based in Colege Station actually or at least one of the co-founders is there. Game changing software for advisors. We have a CPA on staff but don't do returns

Very coolthanks for being a subscriber!

Yes, we're based here in CS but with a team across the country now.

I would say a large part of my value proposition is tax planning. It's significantly more of my value proposition than rate of return.

fka ftc said:

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Personally, I prefer having these be separate people and firms. I want my tax planning to be singularly focused on that aspect. Then I want the financial advisor to be singularly focused on their part - with of course the coordination i mentioned above.

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I agree with this from the CPA side. There is security in accountability. In fact, we were having issues today with a FA of a client of ours thats giving bad advice for one of our clients. One could argue that he needs software like this, but he is a bull in a china shop when it comes to the tax consequences of his investment advice.

If he would work with us instead of against us, our mutual client would be much better off. Instead he takes the give advice and deal with the consequences later approach.

That being said, there are many advisors that do take careful consideration of the tax consequences of the advice they give, and and even though the are knowledgable and do the due diligence, they will often call us directly with questions on mutual clients. Software like this would be help for those kind of advisors because they have an understanding of the variables involved.

I agree completely that it is best to work in partnership with the clients accountant. For a lot of reasons. If nothing else it's in my own self interest even.

We have been encouraging joint meetings in the fall with our top clients that also work with an accountant. To review tax strategies around harvesting gains and losses and Roth conversions etc. otherwise you end up with a client that has a big loss on their farm for example and we didn't know it and could have or should have offset that with a Roth conversion but missed the chance.

Not a financial advisor. I'm a Mays grad and am a capable tax and finance brain. I've been lucky in life and I've dealt with a lot of wealth planning questions.

My two cents:
- I believe you need a financial person who is also a CPA for any true financial planning. I do not know anyone in my net worth arena who hires financial advisors who cannot (will not) offer expert tax advice.

- I believe you should never enter into an AUM (assets under mgmt) agreement with any firm unless they show both fee based finance and tax advice and you truly understand AUM fees. Even then, think about what an AUM agreement means to your long term wealth generation.

- I work with a combo CFA (Chartered Financial Analyst) and a CPA (Certified Public Accountant) and only pay them for their advice once or twice a year.

galesnoats said:

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Not a financial advisor. I'm a Mays grad and am a capable tax and finance brain. I've been lucky in life and I've dealt with a lot of wealth planning questions.

My two cents:
- I believe you need a financial person who is also a CPA for any true financial planning. I do not know anyone in my net worth arena who hires financial advisors who cannot (will not) offer expert tax advice.

- I believe you should never enter into an AUM (assets under mgmt) agreement with any firm unless they show both fee based finance and tax advice and you truly understand AUM fees. Even then, think about what an AUM agreement means to your long term wealth generation.

- I work with a combo CFA (Chartered Financial Analyst) and a CPA (Certified Public Accountant) and only pay them for their advice once or twice a year.

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It is definitely a different strokes for different folks. I could not imagine not talking to my financial adviser at least once a quarter, more in volatile times. Same for the tax guys.

I received my CPA license 22 years ago. No part of my training nor experience would make me a good financial planner. It also does not make me a good tax guy.

A good tax planner can help me plan to make most efficient use of my water and advise me on ways to keep more of my water according to water rules.

I good financial planner helps me to go out and deploy my limited investments in water resources that offer the best opportunities to expand my reservoirs.

Point being, the guy good at finding water may not be the best at making the most use of that water. Conversely, the guy good at making most use could not find water in a lake.

For tax planning I pay by the hour / effort. For "AUM" that is fee based, I ensure the individual is highly incented to grow my assets, keep my assets with them, and place more assets with them.

Final thought. If you refer to the folks working with you in these areas as a firm and not a person, you may not require their assistance. Reminds me of a "personal training" at a gym. Its not personal when your relationship is with the corporate gym owners and not an individual.

That's just my opinion and what works for me.

fka ftc said:

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galesnoats said:

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Not a financial advisor. I'm a Mays grad and am a capable tax and finance brain. I've been lucky in life and I've dealt with a lot of wealth planning questions.

My two cents:
- I believe you need a financial person who is also a CPA for any true financial planning. I do not know anyone in my net worth arena who hires financial advisors who cannot (will not) offer expert tax advice.

- I believe you should never enter into an AUM (assets under mgmt) agreement with any firm unless they show both fee based finance and tax advice and you truly understand AUM fees. Even then, think about what an AUM agreement means to your long term wealth generation.

- I work with a combo CFA (Chartered Financial Analyst) and a CPA (Certified Public Accountant) and only pay them for their advice once or twice a year.

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It is definitely a different strokes for different folks. I could not imagine not talking to my financial adviser at least once a quarter, more in volatile times. Same for the tax guys.

I received my CPA license 22 years ago. No part of my training nor experience would make me a good financial planner. It also does not make me a good tax guy.

A good tax planner can help me plan to make most efficient use of my water and advise me on ways to keep more of my water according to water rules.

I good financial planner helps me to go out and deploy my limited investments in water resources that offer the best opportunities to expand my reservoirs.

Point being, the guy good at finding water may not be the best at making the most use of that water. Conversely, the guy good at making most use could not find water in a lake.

For tax planning I pay by the hour / effort. For "AUM" that is fee based, I ensure the individual is highly incented to grow my assets, keep my assets with them, and place more assets with them.

Final thought. If you refer to the folks working with you in these areas as a firm and not a person, you may not require their assistance. Reminds me of a "personal training" at a gym. Its not personal when your relationship is with the corporate gym owners and not an individual.

That's just my opinion and what works for me.

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This summed it all up, assuming anyone took the time to read it. Tax advice can come from anyone, and FA's should be good at explaining the taxes associated with any trading or investing. But even if licensed as a CPA most firms will not allow their FA's to give legal tax advice. But FA's should know investments and should have access to way more AUM choices than any CPA operating a tax and investment shop. I met a person once who was awarded $15mm after an accident with a commercial vehicle that killed his wife. His attorney told him to visit the CPA down the street and that CPA put the bulk of his money into an annuity, giving the client $175,000 a year and a cash "bonus" every 2 years. Most of that $175,000 was taxable. I guess he had never heard of municipal bonds.

OldArmyCT said:

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fka ftc said:

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galesnoats said:

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Not a financial advisor. I'm a Mays grad and am a capable tax and finance brain. I've been lucky in life and I've dealt with a lot of wealth planning questions.

My two cents:
- I believe you need a financial person who is also a CPA for any true financial planning. I do not know anyone in my net worth arena who hires financial advisors who cannot (will not) offer expert tax advice.

- I believe you should never enter into an AUM (assets under mgmt) agreement with any firm unless they show both fee based finance and tax advice and you truly understand AUM fees. Even then, think about what an AUM agreement means to your long term wealth generation.

- I work with a combo CFA (Chartered Financial Analyst) and a CPA (Certified Public Accountant) and only pay them for their advice once or twice a year.

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It is definitely a different strokes for different folks. I could not imagine not talking to my financial adviser at least once a quarter, more in volatile times. Same for the tax guys.

I received my CPA license 22 years ago. No part of my training nor experience would make me a good financial planner. It also does not make me a good tax guy.

A good tax planner can help me plan to make most efficient use of my water and advise me on ways to keep more of my water according to water rules.

I good financial planner helps me to go out and deploy my limited investments in water resources that offer the best opportunities to expand my reservoirs.

Point being, the guy good at finding water may not be the best at making the most use of that water. Conversely, the guy good at making most use could not find water in a lake.

For tax planning I pay by the hour / effort. For "AUM" that is fee based, I ensure the individual is highly incented to grow my assets, keep my assets with them, and place more assets with them.

Final thought. If you refer to the folks working with you in these areas as a firm and not a person, you may not require their assistance. Reminds me of a "personal training" at a gym. Its not personal when your relationship is with the corporate gym owners and not an individual.

That's just my opinion and what works for me.

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This summed it all up, assuming anyone took the time to read it. Tax advice can come from anyone, and FA's should be good at explaining the taxes associated with any trading or investing. But even if licensed as a CPA most firms will not allow their FA's to give legal tax advice. But FA's should know investments and should have access to way more AUM choices than any CPA operating a tax and investment shop. I met a person once who was awarded $15mm after an accident with a commercial vehicle that killed his wife. His attorney told him to visit the CPA down the street and that CPA put the bulk of his money into an annuity, giving the client $175,000 a year and a cash "bonus" every 2 years. Most of that $175,000 was taxable. I guess he had never heard of municipal bonds.

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Good discussion here.

Back in the day I had a CFP who didn't know anything about an early stock option clause in the tax code that saved me an enormous tax payment in a liquidity event. My CPA could explain it off the top of his head with great detail. To be clear, I have a different CPA firm prepare and file my taxes. My financial advisor just knows tax code cold and technically he doesn't advise me on tax issues but he tells me exactly what to talk with the CPA about when it comes to some of the complex things I've encountered with investments impacting taxes.

My view is it's always best to seek professional advice when it comes to money/tax just understand how you are paying for that advice and be wary of egregious mutual fund/ETF expenses and financial planner fees on assets under mgmt. Financial planners are all fiduciaries now but a fiduciary can still take 2.5% in fees for the rest of your life when it might cost 75x+ less for the same investment advice.

Bumping to share some feedback. While I wasn't able to join, our firm met with Chris/Holistiplan yesterday, and feedback was very strong. Easy to see how this will allow advisors able to give tax advice, or even someone just wanting to ask gain tax related insights, to significantly automate and systemize the process. We should immediately be able to go deeper for more people, and spend more time on forward casting with less time spent simply getting facts right in a tax model.

We are moving forward with tests and expect to broadly deploy once we have a deeper understanding of how it works. If you have been curious and haven't taken a peek, here is an endorsement to do so.

hypeiv said:

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Not a FA, but what I have been told by FAs is the risk isn't worth the reward. If you have a bunch of money with a FA and they mess your taxes up you will likely be moving to a different person. The upside of doing taxes isn't worth the downside. Many FAs seem hesitant to even recommend a tax preparer for that same reason.

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And you don't even have to mess up their taxes for them to move on. Sometimes just having a large tax liability can be the driving force in them moving elsewhere. Had a very good client with multiple businesses, and one year most of them made money, or didn't lose as much. His largest business did very well, its best year ever. The last half of the year, on more than one occasion, I had discussed with him the possible tax liability, via phone, memo, and snail mail (he shunned computers). We implemented some things that helped. He wound up owing just over a million dollars and that was the last time I saw him, lol.

So you are spot on, a FA with people that have lots of money with them would be risking a lot just for the income from tax services.

Ah, thank you! It was great to meet them. Excited to get you all on the platform.