Advisors and tax preparers are two pros that clients need to succeed financially, which makes it imperative that they communicate well and act as a team. So how come relationships between the two often go wrong?
“All too often, the client and separate advisors don’t take the time to establish a strong working relationship,” said Jenny Kramer, Milwaukee-based tax partner at Sikich.
“Professionals need to view themselves as part of a larger team,” said Kramer. “They should establish early on with a client that it’s essential for all the client’s advisors to regularly communicate—and gain the necessary approvals from the client to do so in advance. Then the advisors should establish agreed-upon roles, responsibilities and the timing of information sharing.”
Lack of collaboration “could result in a client having a mismatched investment position, an unforeseen tax burden or a missed tax saving,” he said.
It’s not up to clients to build the bridges—or even recognize the need for them. “Never assume the client has updated all members of their advisory team,” Kramer said. “Wealthy clients trust that their advisors are taking care of them and generally don’t want to be an intermediary between the professionals.”
Clients have enough to contend with without having to make sure their consultants are communicating, advisors say.
“A client may believe that since they have a life insurance advisor, an estate planning attorney, and a tax professional, they have all of their financial bases covered,” said Joshua Hanover, managing director and office lead at CBIZ Marks Paneth’s Boca Raton, Fla., office. But “if those team members aren’t proactively communicating with each other and coordinating, planning, opportunities are slipping through the cracks.”
Added Brian Stoner, a CPA in Burbank, Calif., “It’s extremely important that the advisors and the tax preparers are on the same page as far as communication and strategy goes, but that communication is not always there. ... A lot of the time the client has no clue the investment and retirement options should be coordinated. Both the preparer and advisor should try to let the client know about this need.”
What should a client’s financial team do, and when?
For starters, “advisors and preparers [need] to get together by phone or email at end of October or beginning of November to discuss investing strategy and investment gains,” Stoner said. “The advisor needs to tell the preparer what to expect from a potential taxable income standpoint before the year is over, so if tax harvesting or maybe deferring some sales until the next year [is needed] because of other potential income the preparer knows about but the advisor doesn’t—or vice-versa.”
Hanover said, “Everything, including Roth conversions, cash flow concerns to cover income or estate taxes through insurance or lines of credit … direct indexing and other loss harvesting strategies, retitling of financial assets, setting up tax-advantaged accounts and so on must all be coordinated on both the tax and finance fronts."
Bruce Primeau, a CPA and president of Summit Wealth Advocates in Prior Lake, Minn., said advisors should assess the work of the tax preparers they work with.
“As a wealth management firm, we work closely with CPA firms across the country and what we look for is consistency in their preparation skills,” he said. “Are they able to translate the more complicated tax strategies we’re designing or implementing into the client’s tax returns without error? Are they willing to strategize with us?”
To advisors, Morris Armstrong, enrolled agent and RIA at Armstrong Financial Strategies in Cheshire, Conn., said, “Don’t bother us unless we have our signed disclosure document from the mutual client that says we can discuss the return with you. If the client gives you permission to give us information, please do it within a reasonable amount of time and in a medium that we request.”
Advisors should always remember what they bring to the relationship.
“Depending on the client’s situation, the financial advisor may be the financial center of influence,” Hanover said. “They may even know more of the client’s estate plan and financial situation than the client themselves. They may serve as the client’s relationship hub ... and advise [preparers] of issues the client may not have otherwise thought to divulge. They can also attest to the shortcomings of the previous tax professional.”