As explored in Part !, there is a compelling case for wealth managers to be offering tax preparation services on a regular basis. Yet, as mentioned, relatively few firms currently do so.
There are reasons for this (beyond mere overconfidence in current service models), but all can be addressed.
Tax prep and wealth management are related but not the same. Each requires specialized training, education, and skills that, in many cases, do not overlap. Therefore, firms that wish to offer tax prep must either (i) train their people as tax-prep professionals, (ii) hire a tax-prep team, (iii) acquire a tax-prep team, and/or (iv) outsource the function. The first three options are expensive and require considerable resources, thereby limiting themselves to larger firms or firms that already have some sort of tax background.
Outsourcing, however, offers a solution for firms of all sizes and backgrounds and can allow for the kind of scale and investment necessary to offer the best possible tax-prep services without sacrificing internal resources. Indeed, outsourcing firms may be best positioned to invest in the people, platforms, and technology that a first-rate tax-prep practice truly requires.
Importantly, outsourcing is different from making referrals. Many wealth-management firms simply refer their clients to third-party tax-prep professionals, and there is nothing wrong with that model. It may not be optimal, however, unless circumstances allow for seamless integration of the services. For many, outsourcing can be the bridge that serves clients and advisors best.
Firms that offer tax-prep services invariably will find themselves strained during “tax season,” which generally precedes each filing deadline and is no longer limited to the few months leading up to April 15th. Deadlines for extended returns and other filing requirements mean that firms involved in tax prep will need to go through multiple “tax seasons” each year.
Again, there are ways to deal with these periods of strain. First, firms with scale can create separate tax departments that largely insulate other parts of the business during these periods. Second, firms can outsource some or all of their tax-prep work. Third, firms can simply deal with the seasonal strain by allocating their resources appropriately and working to protect and reward the portion of the workforce that is impacted.
It is expensive to offer tax-prep services not only from the perspective of personnel but also from the perspective of training and education, licensing, technology, and other costs. Making matters even more challenging, margins are generally lower on tax-prep work than they are on wealth management. This, however, is a narrow way to examine the opportunity. Again, outsourcing remains a viable alternative for most wealth managers, with an opportunity to charge a slight markup or fee for oversight services. More importantly, wealth-management firms that offer tax prep – whether themselves or through others – should be doing so not just to make more money but because they (i) believe it’s what clients want and need, (ii) see it as an opportunity for better client retention and attraction, and (iii) think their overall offering for clients will be better and more holistic.
Some wealth-management firms are reluctant to offer tax prep because they assume referrals from accounting firms will be negatively impacted. In most cases, this is unlikely. First, firms that receive referrals from accounting firms – or any other firms – should of course not be soliciting their clients. Second, most accounting firms operate at or near capacity and are unlikely to see a wealth-management firm as a competitor. Third, wealth-management firms are unlikely to be able to provide audit and certain other services offered by accounting firms, again reinforcing a lack of competition between the two types of firms.
Wealth-management firms often prefer not to offer their clients new services because they believe that if they make a mistake with the new services, then their overall client relationships may be jeopardized. That’s true, but it’s not a complete argument. They must also ask themselves what will happen – and what will their clients and competitors do – if they do not offer those services. They must also be prepared to address any errors or omissions, just as they do with all their other services, and show their clients they are prepared to assume full responsibility if and when mistakes are made. Most clients who work with reputable organizations that take full responsibility for their actions will appreciate their firms even more when they do so.
None of this is to say that all wealth-management firms should offer tax-prep services; nor is it to say that all clients want integrated tax-prep services. The point is that many clients do want integrated services and that firms who wish to serve them can and should find ways to do so – or others will.
Millennial workers retain coverage after switching employers more often than boomers did.
Firm believes that delivering advice locally is key to expanding financial health.
New appointments are now in line for the top job and have received $30M retention bonuses.
Luke Lee launched the company in 2016. It eventually issued $1.2 billion high-risk investments.
The company aims to bring Quicken's budgeting and investment tool tracking to its 20,000-plus advisor network
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
