This article is the 1st in a series of the 7 most common mistakes financial advisors make on tax planning with clients.
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When I come off stage after speaking about taxes at industry conferences, one of the first questions I get (after trying to get past advisors who want to show off their tax knowledge) is, “I get the importance of tax planning and I think I’m pretty good at it. But many of my clients, and especially my prospects, never provide me with their tax documents.”
I want to show you how to establish a system for getting client tax returns each year.
As a CPA and tax preparer, the idea of clients not providing tax documents is foreign to me. My clients often hand me their tax documents before we even exchange pleasantries. However, in working with hundreds of financial advisors around the country, I’ve learned that for even the best and most tax-focused advisors, getting clients to consistently provide their tax information is a real struggle.
In my experience, there are two reasons clients and prospects fail to provide tax information:
1. We have a tax person. In most clients’ minds, you are their “investment person” and someone else (or themselves, if they self-prepare) is their “tax person.” As such, it makes about as much sense giving you their tax documents as it would be to give it to their dentist. One of our first steps is to get clients to think of you when they think of taxes.
For example, when inviting a client to meet with you (and again when confirming the appointment), add the phrase: “So that we can make the best use of our time together and to double check that you are not overpaying the IRS, please be sure to bring a copy of your tax return to our meeting.”
When sending out a client newsletter, include: “An advisor we know of recently discovered an $800,000 mistake on his client’s tax return because the wrong box was checked when they retired. Double checking for mistakes is just one of the reasons we need a copy of your tax return each year.” (Yes, this is a true story, and you have permission to share it.)
Lastly, in every client meeting, verbally explain: “In retirement, taxes will likely be your biggest single expense, with the IRS not-so-patiently waiting to claim somewhere between 0% and 80% of your nest egg. Providing us a copy of your tax return each year is our first line of defense against overpaying the IRS.”
Because we are reprogramming the client’s thinking about you and taxes, this will require ongoing setting and resetting of expectations around taxes. The best advisors include some reference to tax planning in nearly every client communication.
2. It’s a PITA (pain In the assets) With very few expectations, no client enjoys dealing with taxes. Once it’s done for the year, they’d rather not worry about it again, which includes not wanting to get you a copy. Overcoming this hassle factor requires both messaging and logistics. For example: “Mr. & Mrs. Client, as you know, providing us a copy of your tax return each year helps us insure you are not overpaying the IRS. However, while the idea of paying less in taxes feels good, we know it can still be a hassle to get us a copy. Great news! We have several options for making this as easy as possible, including just bringing it to your next meeting so we can make a digital copy, or simply uploading it to our secure client portal.”
At this point you may be thinking: “l’ll just have them email their tax preparer to send me a copy.” On paper this is a great strategy, but it rarely works. Why? Because like financial advisors, tax preparers also have very strict rules about sharing client information. CPAs specifically are required to have the client sign a separate information release document, every year, which includes language on how a client can file a complaint against the CPA if they feel information was shared inappropriately.
This is not to say it can’t be done and you are welcome to email [email protected] to get a sample of the release letter we use with advisors. Be warned, though, it’s not the easiest path. Just include “CPA information release” in the subject line and my team will send you a copy.
This information only has value if you take action, so here is what I recommend:
- Consistently message to clients the importance of providing you with their tax documents using the scripts above, as well as the examples I share in the Retirement Tax Services podcast.
- Make it as easy as possible for clients to provide you with their tax documents, such as having an easy-to-use client portal.
- Once you get the client’s tax documents, demonstrate value to them as quickly as possible, which I will cover in more detail next week in mistake #6 – “Your tax knowledge isn’t getting you more clients”.
Come back next week for part two in this seven-week series. Until next time, happy tax planning!
Steven A. Jarvis, CPA, MBA, is CEO and head CPA of Retirement Tax Services. Want more on the most common mistakes advisors make on tax planning? Join Steven for an online session on April 27th and use code "AdvisorPerspectives" at checkout for an exclusive discount.
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This article is the 1st in a series of the 7 most common mistakes financial advisors make on tax planning with clients.
