Three Reasons Your Advisor Won't Talk About Taxes

If you work with a financial advisor and a CPA, you’ve probably been stuck in the gray area between them more than a few times. For example, let’s say you read one of my articles. Roth conversions. You ask your CPA about the strategy in your situation, and the CPA tells you to ask about it. financial advisor. When you ask your financial advisor, they tell you that they cannot give you tax advice. In neutral territory you give up and go back to playing Wordle.

Wouldn’t it be easier if you hired someone to do both (financial advice and taxes)? Full disclosure: My firm does both, but as of now, only a small minority of clients use our tax services. I believe this is the future. Yes, I also believe this will lead to better results for clients, but more than that, I think it’s easier.

So why isn’t your advisor talking about taxes? Below are three possible reasons.

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1. Income

I once heard a Vanguard advisor say that where their products end, their recommendations end. This is not a dig at Vanguard. This is true for most product manufacturers in most industries. You won’t be asking the sales rep at the Ford dealership for advice on which Honda motorcycle you should buy. No, they give advice on things they get paid for.

Evan T. Beach, CFP®, AWMA®

I earned my CERTIFIED FINANCIAL PLANNER certification at the age of 26. I also hold an IRS Enrolled Agent license, which allows for a unique planning approach that can be beneficial to retirees and people selling their businesses who want to minimize lifetime taxes and maximize income.

Since most financial advisors are still affiliated with a product manufacturer, their recommendations extend to those products as well. Most advisors I know who offer tax advice are or tax planning They are independent. They either charge separately for this advice or they bundle it with everything else they do.

2. Responsibility

If you’ve worked with an advisor, you can probably search your inbox for “this is not tax advice” and get multiple results from that advisor. Providing tax advice comes with significant responsibility. Imagine I wrote instructions on how to perform a knee replacement and then sent you to an orthopedic surgeon with those instructions. The likelihood of making mistakes is very high, especially if the advisor giving the advice is not hands-on in the return preparation process.

Typically, an investment firm will have specific procedures for providing investment advice. They probably won’t have the same rules tax consultancyand so there will be a slew of statements stating that any advice is “not tax advice”. Additionally, the insurance most advisors carry does not cover errors and omissions related to tax advice. All this means that this is a risky proposition for the advisor.

3. Information

The CERTIFIED FINANCIAL PLANNER certification is the gold standard designation for financial advisors and planners. One of the modules in modules CFP The program is a tax. I struggled to overcome this when I was 25 because I didn’t have practical experience because we didn’t give a lot of tax advice in our practice.

I started working with retirees in 2015 and realized how much value you could provide by understanding the impact your advice had on the taxes clients paid. I took the Enrolled Agent classwork in 2021 and passed the three required exams to become licensed through the IRS. This course went much deeper than the CFP did, and things started to work out.

My experience with friends who offer tax advice in the profession is that they either followed the path I did or started out as a CPA. financial planning. CFP certification alone is often not enough.

When it comes to who does what, I usually think of the tax advisor as the passenger in the car looking in the rearview mirror. Their job is to minimize taxes on everything that has already happened. The financial advisor should look at the dashboard to see what is coming and minimize taxes based on that. To do this, you need to plan for future taxes. If you want to use the free version of the software we use for this, You can access it here.

This article was written by and represents the views of our contributing consultant and not by Kiplinger’s editorial staff. You can check consultant records at: SEC or with FINRA.

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