A recent report by the Investment Company Institute revealed that U.S. retirement assets climbed to a staggering $40 trillion as of the end of the second quarter. This growth was led by an increase in IRA assets to $14.5 trillion. In addition, a good chunk of the remainder of the $40 trillion is sitting in 401(k) and other company plans, most of which will eventually end up in IRAs.
The ICI report states that “Retirement assets accounted for 32 percent of all household financial assets in the Untired States at the end of June 2024.”
These numbers should be a wake-up call for financial advisors to take advantage of this growing opportunity to acquire a share of these retirement funds. But just the opposite is happening. At our IRA training workshops, we are hearing that advisors are winning business from other advisors who are not well versed on the tax planning that clients want and need.
Of course, the rising stock market has increased advisor income based on assets under management. But for many advisors, this business boom has led to complacency, leaving them vulnerable to losing big chunks of this $40 trillion opportunity to stock market reversals and taxes on IRA distributions.
Fees based on market returns are becoming commoditized, resulting in pressure to reduce fees to meet the competition, since investment services are seemingly available everywhere at rock-bottom prices. This model is not sustainable for the long run.
We’ve reached what I call “crossover point” where consumers now believe they know more than their advisors about the tax planning for their retirement assets. That makes sense since it’s their money and for many, their IRAs are their largest pool of assets. They know these funds will eventually be subject to taxes.
When I travel around the country presenting retirement tax planning programs for consumers, they are constantly telling me that they are looking for financial advisors that have the requisite tax planning knowledge, but they find that most don’t. They say they have “outgrown” their current advisors, and they are right!
These consumers (potentially very profitable clients for financial advisors) say this lack of knowledge has caused them to move to better trained advisors who can address their tax planning concerns. In many cases, they are leaving financial advisors they have been with for 20 or 30 years. The clients realized that tax planning is what matters when retirement funds must be withdrawn, and their current financial advisors were either not addressing this or did not have the tax planning knowledge to do so.
Tax planning, especially in the retirement area, is a long-term growth area. Tax planning services are seen as especially valuable because they require specialized knowledge (especially on the IRA tax rules) and can produce more tangible and quantifiable results in the form of substantial tax savings, regardless of how the market is doing.
Financial advisors have the opportunity of a lifetime right now to capture chunks of this $40 trillion in retirement assets by creating a plan to get up to speed on the IRA tax rules. Even advisors who think they are familiar with the rules are probably not. Just in the last four years, the SECURE Act and SECURE 2.0, plus the recent IRS final SECURE regulations and proposed SECURE 2.0 regulations, have made major changes in the distribution rules that will affect every client with an IRA.
A great place to start is by reviewing many of my recent Investment News IRA Alert columns right here:
These will provide a great guide to the latest changes.
Another place to get educated on the volume of all IRA-related tax planning issues is by attending our upcoming Instant IRA Success Workshop: Ed Slott’s 2-Day IRA Workshop. This is a full two days of intense training on every aspect of IRA tax and estate planning that advisors can immediately share with clients. We go through a 400-plus page workshop manual that advisors can use as a reference guide when working with clients.
Additionally, advisors can use this newly-obtained IRA knowledge to add value and fee income by helping clients avoid costly errors, some of which are so bad they can end a client’s IRA.
One recent egregious example is highlighted in my Investment News article where actor James Caan’s estate had to pay nearly a million dollars in taxes and penalties due to rollover errors that could have easily been avoided had their financial advisors known how the IRA rollover rules work. You don’t want something like this happening on your watch.
Another invaluable service that clients are looking for is help in evaluating rollover options when they are retiring or leaving a company. One of those options involve taking advantage of the NUA (net unrealized appreciation) tax break for highly appreciated company stock in a 401(k) plan. This can be a huge tax saving opportunity. But you have to know exactly how the rules work to help your clients benefit.
The best investment advisors can make now is in their tax planning knowledge. This will produce the highest long-term returns and make your financial planning business more valuable. It will attract the best clients who we know are desperately looking for these services. This translates to higher fees and happier clients who will likely refer others to you for all the right reasons. All in all, a great return on investment!
For more information on Ed Slott and Ed Slott’s 2-Day IRA Workshop, please visit www.IRAhelp.com
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