Registered investment advisors (RIAs) are increasingly incorporating tax planning services into their practices to differentiate their service models from peers. With the great wealth transfer underway, the demands of high-net-worth (HNW) investors are shifting as client demographics skew younger, with a growing emphasis on tailored, comprehensive financial solutions. A recent PwC study highlights this trend, revealing that nearly half (47%) of HNW investors seek tax planning services from their wealth advisors, with a significant portion (46%) willing to switch firms to obtain this increasingly vital service.
The traditional model, where advisors meet with clients annually to review investment portfolios, is obsolete. Firms relying on this outdated approach risk stagnating organic growth and falling behind their forward-thinking peers, who recognize the need to offer a much more holistic suite of financial services.
It’s clear that RIAs who prioritize tax planning as a core offering stand to gain a competitive edge. By proactively addressing clients' tax needs, advisors can elevate their practices and foster deeper client relationships—positioning themselves as valued, trusted partners. Here are several critical benefits of adding tax planning to a firm’s core service offerings.
Provide Real Value To Clients
Delivering genuine value to the next generation of clients necessitates a holistic approach to financial planning, one that integrates the expertise of certified professionals including Certified Financial Planners (CFPs), Certified Public Accountants (CPAs) and Chartered Financial Analysts (CFAs). By convening these specialists in client meetings, RIAs can demonstrate how various elements of financial planning coalesce, with tax professionals spearheading strategic initiatives to alleviate future tax burdens at both the state and federal levels.
This collaborative model not only enhances client buy-in to the financial plan, but it also streamlines the process, providing clients with a convenient one-stop-shop experience. Instead of engaging with uncoordinated professionals across various practices, clients benefit from centralized guidance that addresses all of their financial needs.
For RIAs, the absence of any of these components translates to an incomplete service experience, potentially undermining client satisfaction and retention. In an increasingly competitive landscape, the ability to deliver holistic, forward-thinking planning is indispensable for RIAs seeking to differentiate themselves and provide tangible value to their clientele.
Increase Client Satisfaction
Client retention is paramount for the sustained success of an RIA, as contented clients tend to remain loyal and serve as invaluable sources of referral business. According to Schwab's 2023 RIA Benchmarking Study, client referrals contribute significantly to growth, constituting 70% of new clients and 69% of new client assets. Further, Schwab’s study underscores the importance of personalized services in retaining and attracting the next generation of clients, highlighting the correlation between tailored service offerings and increased client retention. This underscores the need for RIAs to adapt their services to the evolving demands of younger clients, promoting long-term relationships and ongoing growth.
Combat Fee Erosion
To address fee erosion, RIAs are expanding the scope of their service offerings, as evidenced by Cerulli's recent U.S. RIA Marketplace report. This expansion of offerings reflects a growing demand for holistic financial planning, prompting advisors to integrate tax preparation services as well. Fidelity's observations support this shift, noting that advisors are augmenting their offerings without increasing fees, thereby enriching client experiences and fostering stronger connections. By incorporating tax services, RIAs can enhance their appeal and potentially mitigate fee compression pressures.
Additionally, satisfied clients become valuable sources of referrals, facilitating potential growth opportunities for the firm. This strategic approach can safeguard against fee erosion while enhancing the RIA's value proposition, solidifying its position as a trusted advisor in the eyes of clients.
Adapt To Thrive
The great wealth transfer is driving increased demand for comprehensive financial planning, presenting a prime opportunity for RIAs to include tax planning as a core offering. Firms that fail to evolve beyond the "old" model of financial planning, which primarily focuses on investment management, will face significant challenges in differentiating themselves from competitors who embrace a holistic approach. Neglecting to incorporate tax planning into their service might prove disastrous for RIAs, hindering client retention efforts in addition to organic growth.
Jason Gordo is co-founder and president of Modern Wealth Management.