Tax Fixation
If one thing distinguishes Pure from other planning shops, it would be its fixation on taxes.

Other firms may say they offer comprehensive planning, Clopine says, “but they’re really not looking at the taxes in depth. If they don’t really know [taxes], they don’t want to give tax advice.”

Most CPAs don’t want to bother with comprehensive tax and investment planning either, he says. With three CPAs on staff, though, Pure will jump right in with recommendations on asset location, tax-loss harvesting, Roth conversions/recharacterizations, donor-advised funds and strategies for reducing taxes on real estate transactions. The firm does not do tax returns.

Pure CPAs analyze all the free assessments and the formal plans done for clients. “They’re really good,” Fenison says of his accountants. “When Al [Clopine] looks at [a case], people say it feels like they’re being X-rayed.”

Pure planners watch to make sure all of a client’s assets are positioned correctly, with tax-efficient assets in taxable accounts or trusts, and inefficient assets in tax-sheltered accounts. “We check each position daily to see if it’s located properly, has sufficient cash reserves, and to see if there are tax-harvesting opportunities,” Fenison says.

Warschauer is impressed with the firm’s tax focus. “They make [rebalancing] trades in the most efficient portfolio to get back to where you want to be. That’s pretty leading edge as far as I can see.”

“I definitely like the fact that when you talk about Roth conversions, they’re looking at your income tax projections,” adds Fred Brown, a retired engineer and Pure client. “The projections they present have been pretty spot on.”

Almost everyone can improve what they’re doing with their taxes, Clopine says, especially with a long-term financial plan that looks out 20 or more years. At retirement, clients may not have a lot of taxable income, at least until age 70½ when they “have a bunch of RMDs [and] all of a sudden they’re in a giant tax bracket,” he says. That’s where the Roth conversions come in; clients are urged to shift assets to Roths while they’re in lower brackets.
That’s what Brown did. Pure advisors found he had too much money in traditional retirement plans. “All my money was in 401(k)s and IRAs, so I had a huge bucket [of taxable income] waiting to kick my butt when I turned 70½,” he says.

Pure had Brown do a series of conversions and recharacterizations in 2010 and 2011. “They do two conversions, one equity and one fixed [income], so you can keep the better of the two,” Brown says. “We can recharacterize one or both. The intent was not to keep both, because then I’d be in the big tax bracket.”

With careful tax planning, retirees “can pay a 15% tax rate even if they’re living a 25% bracket lifestyle,” Clopine says.

The focus on Roth conversions makes Pure Financial somewhat unique among advisory shops. And there’s a reason for that: Clients end up with less money after doing a conversion and paying the tax bill. That means there’s less for an advisor to manage. What’s more, the resulting multiple 1099s that clients get from all of the account shuffling are confusing. “That’s the reason most [advisors] don’t do them,” Fenison says.

The firm has its own proprietary technology to track Roth conversions, asset location and tax-loss opportunities. Most financial planning software isn’t detailed enough on the tax side for Pure’s purposes, Fenison says.

Two times a week, Pure runs training sessions on taxes for its advisors. The analysis can be intense.

“When we hire new advisors, they come in very confident” about taxes, Clopine says. “Then when we go through a case study, they realize they don’t know much of anything.”

Clients’ CPAs tend to be in the same boat. Some understand what Pure advisors are trying to do, and some don’t like the added complication. That may be why the firm has had mixed success networking with the tax-preparation community.

When the firm started, Fenison tried partnering with some CPA firms and outside attorneys, “but we couldn’t control their quality, and they wouldn’t stick to their pricing,” he says. Now Pure does much of the number-crunching in-house and refers clients to outside advisors that Pure has screened.

“There’s no monetary incentive” received from the outside professionals, Fenison says, and he’s concluded that using unrelated parties for tax and legal work reduces the conflicts from doing it all in-house. “You get too much of an incestuous relationship when it’s all under your control.”