Boost client engagement by promoting tax-efficient planning strategies

Financial advisors take an active role throughout the year to help clients save on taxes and improve their financial health. But despite the value-added benefits clients derive from tax-efficient investing and financial planning, advisors often don’t get credit for providing these services.

Why does tax-efficiency expertise fly under the radar? One reason is not showcasing your proficiency in this area the way you would retirement planning or portfolio construction. Another is failing to share specific examples of the myriad tax-smart strategies you use that demonstrate to clients how you help reduce their tax liability during their lifetime.

And that’s a lost marketing opportunity for your practice, especially when you consider that saving on taxes is as increasingly important to clients as maintaining a portfolio that delivers competitive returns or generates adequate income in retirement. In fact, the demand for tax advice is on the rise. Nearly half (45%) of high-net-worth advisory practices now offer tax-planning services, versus 29% who did so in 2017, according to Cerulli Associates.¹

To better capitalize on your often-overlooked expertise in tax-efficient planning, you can position yourself as a go-to tax professional. Don’t be shy about promoting your tax-smart capabilities, which could range from tax-efficient portfolio construction to tax-smart estate planning and charitable giving, as a key service.  

When it comes to helping clients reduce their tax burden, you play a critical role, perhaps one even more important than an accountant or estate planning attorney. Since you have a more complete picture of a client’s finances, you have more opportunities to add value throughout the year and during a client’s lifetime.

How to use tax efficiency to enhance your value and attract and retain clients

Most clients know what they get for their money when they hire a CPA to do their taxes. You can drive home your value proposition more clearly by spelling out exactly how you are helping your clients save money on taxes.

How do you do that? By highlighting all the ways you build tax efficiency into clients’ personal finances. Some examples include:

• Guiding them through the process of opening a 401(k) retirement account when they enter the workforce so their savings can benefit from tax-advantaged growth.
• Advising them to start saving for their kids’ education expenses with a tax-friendly 529 savings plan when their children are born.
• Helping them keep more of what they earn on their investments via tax-loss harvesting at year-end.
• Making smart tax-efficient withdrawals from their investment accounts in retirement.
• Explaining why gifting long-term appreciated assets to charity rather than cash can reduce their tax liability.
• Ticking off the various ways you can help them lessen their tax burden when leaving assets to heirs.

Engage your clients by spelling out how you can help them reduce their tax burden. T. Rowe Price suggests two approaches when connecting with clients. One is a “lifetime milestones” approach. These tax-related discussions center on key stages in your clients’ lives, such as entering the workforce and enrolling in a retirement savings plan, getting married, buying a first home, having a child, and nearing and entering retirement. 

The second approach to consider is including a tax-planning check-in during the client’s regular quarterly meeting that focuses on timely strategies for the current tax year. Of course, utilizing both approaches in tandem will help ensure that you address all tax-savings opportunities.

Focusing tax-planning strategies around “lifetime milestones”

Discussing tax-smart approaches to your clients’ finances should be a key pillar of their long-term plan and not just a conversation around the April 15 tax-filing deadline or at year-end. Instead, address specific tax-saving strategies when your clients reach important lifetime milestones that come with tax consequences.

• If your client just welcomed a new baby to the family, drive home the tax-savings benefits of a 529 college savings plan.
• If a client is planning to purchase a new home, discuss how they might be able to save on taxes by taking deductions for mortgage interest and property taxes.
• If they are philanthropic, explain how they can save money by giving to charities in the most tax-efficient way.
• If they’re nearing retirement, address how their tax situation might change as they transition from full-time work to using their savings and other retirement income sources like Social Security.
• If they’ve stopped working and have entered retirement, that’s the time to educate them on a long-term distribution plan that identifies which investment accounts to take withdrawals from to limit taxes throughout retirement.

Incorporating tax-planning check-ins during regular quarterly meetings

Since it’s impossible to address all the tax-savings strategies in a single annual meeting with your client, it makes more sense to sit down quarterly and address a few items at a time. For example,

• In the first quarter, you can focus on strategies to generate adequate income in retirement and ways they might be able to build a more tax-efficient portfolio with financial products such as exchange traded funds (ETFs) and municipal bonds. You can also review account beneficiaries to make sure your client’s assets will be distributed as they see fit, and do an estate plan check-in.  
• In the second quarter, you can start planning a charitable contribution strategy for the current calendar year. Another valuable exercise is the ongoing evaluation of your client's portfolio.
• In the third quarter, you can focus on the annual employee benefits open enrollment period and help your client take advantage of the most tax-advantaged accounts offered in their plan. You can also discuss tax savings tips when saving for education.
• In the fourth quarter, it’s time to go through your client’s portfolio to identify investments that have fallen in value as possible candidates for tax-loss harvesting. It is also a good time to see if your clients can contribute more to their tax-advantaged retirement accounts or whether it makes sense to convert from a traditional IRA to a Roth IRA. Year-end is also the time to identify any upcoming lifetime milestones in the new year that might have tax consequences.

Mapping out a clear and comprehensive plan to regularly educate your clients on the topic of tax-efficient investing and financial planning will ensure an ongoing dialogue on a key topic. Highlighting the many ways you help them save on taxes should be a centerpiece of your client engagement communications. If you don’t highlight your strengths, your clients might not know just how instrumental you are in making Tax Day far less painful for them—now and in the future.