Using Tax Preparation in Financial Planning

Practical Accountant notes that firms have financial planning obligations even though that may not be a niche in the firm. If you don’t guide clients, they may seek assistance elsewhere, and that means the possible loss of their accounting work.

Clients need advice on retirement, estate planning, college tuition, investments, life insurance, asset protection, and tax planning.

Here are some tactical initiatives used by firms during tax preparation time:

• Look for life-changing events such as births, marriages, divorces, remarriage, or retirement.

• A birth, for example, may trigger a discussion about guardianship, estate planning, life or disability insurance, a 529 plan, etc.

• Evaluate the amount of tax exempt v. taxable interest income to see if it is appropriate for the client.

• Where there is significant dividend or interest income, analyze the degree of diversification and the adequacy of the return on investment.  Also review asset allocation. Look for multiplicity of mutual funds that all have the same investments. Watch for clients who invest exclusively in equities with no fixed portfolio.

• Elderly clients should normally avoid high growth stocks.

• Business owners and other CEOs might be interested in planning engagements for executive compensation.

• Clients who have realized losses (not incurred for tax purposes) in a good market may need help.

• Large distributions from retirement plans may represent planning opportunities.

When the tax preparation session segues into a financial planning session, it is sometimes appropriate to suggest a special financial planning meeting. Among other things, that facilitates a separate billing. Some practitioners don’t charge for this meeting, considering it a good investment of time.

If the firm does not have a financial services capability, it can direct the client to a source of assistance that does not threaten the client relationship. But offering financial services represents a way to strengthen the client relationship.