Tax
Advisors Can Improve Client Relations By Talking About Tax
Advisors can improve their client relationships by more clearly conveying the tax savings they can deliver, according to SEI.
According to a new poll by the firm, over 90 per cent of financial advisors said their clients only “rarely or occasionally” ask about tax minimization. However, more than two-thirds of advisors say they can help preserve over 3 per cent of clients’ wealth through tax management strategies.
“As a result, advisors should proactively communicate with their clients and discuss the advantages of deploying tax-management techniques. It’s not enough to only provide tax-efficient strategies, advisors need to communicate these strategies to clients and demonstrate the positive impact it has on investors’ total wealth and meeting their goals. Ultimately, this will provide additional value in building the client-advisor relationship,” said Kevin Crowe, solutions unit leader of the SEI Advisor Network.
Almost all advisors are using tax minimization strategies for clients, and just under a third say they can save 6 per cent of clients’ wealth annually. The most popular strategies for managing taxes include: tax-managed mutual funds (40 per cent), tax-efficient separate accounts (27 per cent), tax-exempt investments (13 per cent), and harvesting losses at the end of the year (10 per cent).
SEI recommends all advisors use the following five steps to increase tax savings:
1. Gift appreciated securities instead of cash
2. Take advantage of investment vehicles that provide tax-free income
3. Fund qualified accounts (IRAs, 401Ks, 403Bs, and others) to the maximum amounts, including catch-up provisions
4. Maximize loss harvesting opportunities within taxable (non-qualified) accounts
5. Pay attention to asset location by placing less favorable securities in qualified accounts and more tax-efficient securities in non-qualified accounts