Clients are worried about tax increases—which makes advisors worried about tax increases, according to a Nationwide survey of 200 advisors.
Tax policy is the top concern for the clients of 74% of advisors and financial professionals who were part of a recent study by Nationwide Financial. The proposed increases to income taxes, capital gains taxes, and inheritance and gift taxes are particularly troubling for high-net-worth and ultra-high-net-worth clients, Nationwide said.
“Right now, tax policy is top of mind for advisors, financial professionals and the clients they serve. They are clearly concerned about taxes affecting their portfolios, and it’s impacting their approach to investing,” Eric Henderson, president of Nationwide Annuity at Nationwide Financial, said in a statement. “Working with an advisor can help clients enhance their long-term financial outcomes through a holistic approach to planning and investing for greater tax-efficiency.”
Henderson said in an interview Tuesday he did not think clients are more worried than they should be about taxes even though no one knows as yet what will be enacted.
“Clients want to, and need to, talk to their advisor about the future,” he said. “They need to be diversified between taxable assets, tax deferred assets and nontaxable assets. Most people do not have that diversity.
“The Biden administration also has talked about taxing capital gains at a higher rate. Investors may want to take some gains now before rates increase,” Henderson added. “Clients also will want to look into tax-deferred annuities that provide a guaranteed lifetime income. Most importantly, they need to talk to their financial advisor” to determine what is best for them.
The clients’ concern transfers to advisors. Seventy-two percent of the advisors and financial professionals said they are very concerned about tax increases over the next four years, while 17% are somewhat concerned, the survey said.
Every other issue trailed far behind the angst being created by tax policy proposals. Among the new administration’s other policy proposals, only 9% of advisors ranked pandemic relief as their clients’ top concern; 4% ranked health care policy as the top concern, and an equal percentage rated immigration policy as their clients’ top worry.
When the survey question was restricted to what financial concerns clients will care about over the next year, the results were somewhat different. Fifty-nine percent of advisors said taxes will be the top financial concern; while 51% will care most about protecting assets, and 39% will be most worried about managing volatility.
According to a related survey, the “2021 Nationwide Retirement Institute Tax-Efficient Retirement Income Survey” released earlier this year, 60% of Americans said they expect their taxes to increase in the next four years.
Because of the concern, taxes are dominating conversations advisors are having with clients. Eighty-eight percent of the advisors said their clients want to discuss the impact of tax policy on their investments and financial plans.
No matter how the question was asked, taxes came out as the most concerning. When the advisors were ask to choose the single most important macro issue that will adversely impact their clients’ portfolios over the next 12 months, 32% said taxes, far outdistancing the federal budget deficit that came in second at 12%; volatility and the pandemic, which tied at 11%; gridlock in Washington at 9%, and inflation at 8%.
At the same time, 53% of advisors said tax policy will impact their approach to investing, with domestic economic performance and political/social discord in the United States tied for a distant second at 30%. Inflation came in third at 27%.
Because of the impact of the new administration’s proposed policies, one-third of advisors said they will invest more conservatively in 2021, and 10% said they will invest more aggressively, while 44% said they will invest about the same. Ten percent said the Biden administration’s policies will not impact how they invest, the survey said.