In response to the growing demands of today’s clients and prospects, one of the most effective ways financial advisors can differentiate themselves is by highlighting their ability to offer comprehensive tax-planning services. That’s because tax planning is the top service clients want,1 and one of the top five knowledge gaps for advisors.2
Often, captive advisors, such as those who work for major brokerages, must avoid discussing tax matters at the urging of their compliance teams, who worry about the risks of giving tax advice. In contrast, an independent advisor at a registered investment advisory (RIA) firm – a professional who is both educated and conscientious about tax planning, and who typically has more autonomy and influence in deciding upon their service offering – has a greater ability to seize the opportunity.
In this article, we’ll explore tax planning and why it can be a powerful tool for firm differentiation and discuss how RIAs can offer tax planning services without exposing themselves to the risks associated with giving tax advice.
Tax planning is intertwined with many key areas of financial planning and is relevant to all clients.
In an interview on the American College of Financial Services’ Shares podcast, Jeff Levine, chief planning officer at Buckingham Wealth Partners, explained, “If we think about how diverse people are, not only in their goals, but their assets, their liabilities, their income, their expenses – one thing you know about everybody walking into your office is they’d like to pay as little tax as possible.
“And when we work with advisors, a lot of times we see that even if they don’t think they’re doing tax planning, they’re doing tax planning. They’re selling assets and triggering gains. They’re helping clients establish either IRAs or Roth IRAs. They’re making decisions that have a meaningful impact on clients’ taxes.”
Financial advisors routinely integrate tax considerations into financial planning, ensuring that decisions are made with an eye toward tax efficiency. However, even though tax planning is inevitably connected with broader financial planning, many advisory firms’ compliance departments caution advisors against discussing tax matters. This is because giving tax advice can open firms up to legal liability if the client is unhappy with the results of the advice.
In broad terms, tax planning is general and not prescriptive. It involves illustrating different tax scenarios and explaining general tax laws and their implications. In contrast, tax advice involves giving clients specific advice related to particular tax situations (see Table 1).
| Tax Planning | Tax Advice |
| Focuses on general information on tax law and illustrating how tax law may apply to clients’ situations | Involves providing specific recommendations on tax-related issues, such as how to handle a particular tax situation |
| Includes projecting the tax implications of different strategies and allowing clients to make informed choices | Includes the provision of a plan of action to carry out the tax strategy recommended |
| “Selling these shares at a loss creates a capital loss. This can be used to offset other capital gains income or up to $3,000 in ordinary income” | “I recommend selling these shares at a loss – that will create a capital loss that will lower your total tax bill this year” |
RIAs must clearly differentiate between giving tax advice, which should only be done by CPAs, attorneys, or other tax professionals, and offering general tax planning. They must ensure clients understand that the information shared with them is meant to inform and educate, not advise or direct.
If they do so, RIAs can – in consultation with their compliance teams – help clients optimize their taxes by:
Integrated planning such as this can enhance financial outcomes and have an impact on client wealth. As college professor of wealth management Michael Finke, PhD, CFP®, explained on the Shares podcast, “One area [where] advisors can provide value is through tax planning. Tax efficiency is a way for investors to achieve alpha reliably and consistently, and I think it’s one of the more underappreciated aspects of wealth management.”
Tax planning services are a significant differentiation opportunity for RIAs, not only because clients value tax-planning services – particularly when they are integrated with broader financial-planning services – but also because tax planning can have a meaningful impact on client wealth.
Indeed, all financial decisions at all stages of life have tax implications; therefore, tax planning is as relevant to working clients in their peak earning years as it is to retirees contemplating the tax implications of leaving an inheritance to their adult children.
To leverage this opportunity to the fullest, RIAs must:
RIAs have a unique opportunity to differentiate themselves by offering comprehensive tax planning services. By integrating tax strategies into their financial planning and educating clients about the benefits of proactive tax management, RIAs can position themselves as indispensable partners in their clients’ financial success.
1 2023 Herbers & Company Service Market Growth Study, among consumers with at least $250K in household assets.
2 RIA Growth and Specialized Knowledge Survey. The American College of Financial Services. 2022.
Jared Trexler is senior vice president, chief marketing and strategy officer at the American College of Financial Services.
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