For example, there is a growing opportunity for technology solutions that integrate tax planning and financial planning to help you evaluate the short term and long term tax implications of clients’ important life stages, such as marriage or divorce, selling a business or other financial windfalls. Solutions that integrate tax planning and financial planning could also help you manage clients’ taxable investments and tax-deferred vehicles side-by side, to potentially increase returns without increasing risk through asset location (Source: Ernst & Young, Asset Location Strategies: A key to tax-efficient investing, 2014).
These integrated planning solutions could help you drive more tax-aware retirement income strategies, such as optimizing Roth conversions; diversifying withdrawals from different types of taxable, tax-deferred and tax-free vehicles; managing the tax impact of required minimum distributions and the taxation of guaranteed income streams from Social Security and different types of annuities. For your High Net Worth clients (individuals who have investable financial assets ranging from $1 million to $5 less than million), there is an opportunity for more integrated solutions that help you solve their complex tax planning and financial planning needs, from determining the best strategy for exercising stock options, to a range of different estate planning and wealth transfer strategies incorporating trusts or insurance.
Tailoring Tax Strategies With Artificial Intelligence
Advanced analytics and Artificial Intelligence (AI) are making financial planning more integrated and intuitive than ever. AI can be a powerful tool to attract and retain a new category of client you’ve never served before, providing a level of access and advice your clients never expected. It can transform your service offering—from low-cost robo advice to keep fees in check, to more sophisticated holistic solutions such as risk management and tax-planning.
RIAs and fee-based advisors say that the most important way of using Artificial Intelligence will be to provide personalized planning, according to our Advisor Authority Special Report on The Rise of AI. Whereas current financial planning platforms often rely on somewhat generic assumptions about clients’ tax rates through the stages of accumulation and retirement, AI and advanced analytics could lead to solutions that not only provide greater integration of tax planning and financial planning, but are also highly customized to each individual client’s unique financial situation.
Likewise, both advisors and investors agree that one of AI’s greatest strengths is helping advisors to make accurate predictions about clients’ future needs and behavior. Using the predictive powers of AI to anticipate clients’ changing needs and evaluate the tax impact—at both the Federal and state level, in both the short term and the long term—could help avoid unintended consequences and provide a more optimal outcome.
Adapt And Adopt For Greater Success
Year-over-year, investors say that personalized advice for a holistic financial picture is one of the top three factors for choosing their advisor. Year-over-year, investors also say that their top reason to work with a financial advisor is to feel more confident in their financial future. And this year, investors say that taxes are among their top three concerns. Tax planning is a fundamental part of a holistic financial plan. It becomes far more important for helping clients feel more confident in a year where they face the uncertainties of tax reform.
The 2019 tax season will be upon us before we know it. Be proactive in addressing clients’ tax planning needs, adapting your approach to tax-advantaged investing and adopting the technology that can help.
And for the greatest benefit to your clients and your practice, make tax planning an ongoing focus all year long—not just at year end or in the months leading up to April 15th. Most importantly, keep an eye on the future, as the intersection of technology and tax planning is ripe for disruption. The innovation of technology solutions that use advanced analytics and Artificial Intelligence to integrate tax planning and financial planning will help you deepen the advisor/investor relationship, create a unique customer experience for your clients, and create a competitive advantage to drive greater profitability for your practice.