Next year provides financial advisers with a unique opportunity to help wealthy clients and prospects.
Next year provides financial advisers with a unique opportunity to help wealthy clients and prospects.
Starting Jan. 1, taxpayers with a modified-adjusted-gross income of more than $100,000 will be permitted to convert a traditional individual retirement account to a Roth.
Until now, Roth IRAs have been available only to those who earn a modified-adjusted-gross income of less than $100,000; few advisers had clients who could take advantage of the accounts.
A provision in the Tax Increase Prevention and Reconciliation Act of 2005, however, removes the income restriction on Roth IRA conversion eligibility and offers a special tax incentive for those who choose to convert during 2010 — the option to include the taxable portion of any 2010 conversions in taxable income for 2011 and 2012.
The tax window also opens the door to a tremendous tax-planning opportunity for millions of people, who hold more than $1 trillion in tax-deferred IRAs and defined contribution plan assets.
With that much money at stake, wealthy people will be inundated with opportunities to convert — and a weak stock market makes the decision even more appealing.
The advisers who get to their clients and prospects first can position themselves as experts, and will gain a competitive advantage.
How can an adviser use this tax law change as a business-building opportunity?
First, the adviser must educate himself about the change — what it is, how it works, who can benefit most and why. Once educated about Roth and the misconceptions about the new provision, an adviser can begin to put a plan in place to generate buzz and create a Roth presence.
The tax law change will happen at the beginning of next year, but the press is writing about it now. To stand out in a crowded market, you should be the adviser who knows the most and uses the media the most creatively.
This means writing articles for the local newspaper, being interviewed on the radio about the significance of the change and generally creating a buzz around the change and its impact. Savvy advisers will review their client base and find opportunities to speak at clubs and meetings.
Many advisers think that they have all of a client's assets, but suspect that there may be other assets elsewhere that the client hasn't disclosed.
The Roth discussion gives an adviser a built-in reason to inquire about all of a client's retirement holdings.
Sitting down with existing clients and reviewing their plans, talking about their retirement approach and discussing the impact of different scenarios all lead to a deepening of the relationship.
Even if no Roth conversion takes place, the dialogue helps build the credibility of the adviser with the client.
Advisers can also use the Roth change as a reason to hold a seminar. Invite clients, their friends and family members and educate them about the Jan. 1 change and its impact.
Afterward, schedule a meeting with each attendee to review their retirement portfolio.
This is also a chance to strength-en center-of-influence relationships. What better reason to form partnerships with an accountant or attorney than an issue that affects all three practices — tax planning, legacy planning and investment planning.
Reach out to other providers and offer to do joint educational seminars or individual reviews of clients.
Advisers often are told not to ask for a referral unless they have to have something valuable to offer to the referral. Offering a free review of retirement assets and then providing insights about conversion possibilities is valuable.
The tax law change presents advisers with a one-time opportunity to launch a marketing plan designed to expand their businesses. Smart advisers will make the most of it.
Beverly D. Flaxington is a principal of The Collaborative, a Medfield, Mass., firm that helps clients improve business practices.
