Value-Added Tax Planning Services Drive 20% Retention Increase

Value-Added Tax Planning Services Drive 20% Retention Increase

Executive Summary

Elevate Wealth Management faced increasing client attrition as clients sought more comprehensive financial solutions, specifically tax planning, beyond traditional investment management. By integrating proactive and personalized tax planning services as a core offering, Elevate Wealth, led by Marcus Williams, CFP, ChFC, addressed this challenge head-on. The result was a significant 20% increase in client retention, translating to an additional $88 million in Assets Under Management (AUM) and an estimated $440,000 in annual revenue for the firm.

The Challenge

Elevate Wealth Management, a $440 million AUM firm, recognized a growing trend: clients were increasingly seeking holistic financial advice that extended beyond investment management. Specifically, clients were asking more questions about tax implications of investment decisions, retirement planning, and even major life events like selling a business or receiving an inheritance. Many clients were already working with CPAs, but there was a clear disconnect between investment strategy and tax strategy.

Marcus Williams, CFP, ChFC at Elevate Wealth, noticed this disconnect firsthand. He recalls one client, a successful business owner close to retirement, who expressed frustration with the lack of coordination between his financial advisor and his CPA. "He was essentially managing two separate financial lives," Williams explains. "His investment portfolio was geared towards growth, but he had no clear understanding of the potential tax liabilities he would face upon retirement when he started drawing down those assets."

This frustration was not isolated. Elevate Wealth was experiencing an average client attrition rate of 8% annually. Analyzing client exit surveys, they discovered that a significant portion (approximately 3%) cited a desire for more comprehensive financial planning, including tax planning, as a reason for leaving. While 3% might seem small, it represented a significant loss of AUM and potential revenue. A 3% churn rate equated to approximately $13.2 million in lost AUM annually, translating to roughly $66,000 in lost revenue, assuming a 0.5% advisory fee.

Moreover, Williams realized that failing to proactively address tax planning created missed opportunities to strengthen client relationships and provide significant value. For instance, a client considering selling stock options might be unaware of the tax implications and potential strategies for minimizing their tax burden. Without proactive tax planning, clients were potentially leaving money on the table and, worse, questioning the value of their relationship with Elevate Wealth. He recognized that if he didn't offer this service, clients would seek it elsewhere.

The Approach

Marcus Williams decided to address the growing demand for tax planning by integrating it as a core service offering at Elevate Wealth Management. This wasn't just about offering tax preparation; it was about providing proactive and personalized tax strategies throughout the year.

The approach involved several key components:

• Needs Assessment: Williams implemented a comprehensive client onboarding process that included a detailed tax questionnaire. This questionnaire aimed to uncover existing tax planning strategies (or lack thereof), understand the client's tax bracket, identify potential tax liabilities, and determine the client's comfort level with various tax-advantaged investment vehicles.
• Holistic Financial Planning: Tax planning was integrated into the overall financial planning process. Investment decisions were now made with tax efficiency in mind, considering factors like capital gains taxes, dividend taxes, and the potential impact of investment choices on the client's overall tax burden.
• Proactive Tax Projections: Using financial planning software and Holistiplan, Williams began providing clients with proactive tax projections throughout the year. These projections allowed clients to see the potential impact of their investment decisions, retirement withdrawals, and other financial events on their tax liability. This helped clients make informed decisions and avoid unpleasant surprises come tax season.
• Personalized Tax Strategies: Based on the client's individual circumstances, Williams developed personalized tax strategies. These strategies might include optimizing charitable contributions, utilizing tax-advantaged retirement accounts, or exploring strategies for minimizing capital gains taxes. For example, for clients in high tax brackets, Williams would explore strategies for maximizing contributions to 401(k)s and other tax-deferred accounts. For clients selling appreciated assets, he would analyze the potential for utilizing tax-loss harvesting strategies.
• Collaboration with CPAs: Williams emphasized the importance of collaboration with clients' existing CPAs. He proactively reached out to CPAs to share tax projections and discuss potential tax planning strategies. This collaborative approach ensured that the client's financial and tax plans were aligned. He positioned himself as a partner to the CPA, offering insights into the client's investment portfolio and financial goals.

Williams understood that this shift required a significant investment in time, resources, and training. However, he believed that the benefits – increased client retention, higher AUM, and stronger client relationships – would far outweigh the costs.

Technical Implementation

The successful integration of tax planning relied heavily on the effective use of technology and strategic data management. Key technical elements included:

• Holistiplan: Williams adopted Holistiplan, a tax planning software designed for financial advisors. Holistiplan automates the process of analyzing tax returns and identifying potential tax planning opportunities. He used Holistiplan to quickly and accurately assess a client's tax situation, identify areas where they could potentially save money, and generate various tax scenarios based on different investment and planning decisions. For instance, he could model the tax implications of Roth conversions, charitable contributions, or different asset allocation strategies.
• CRM Integration: Elevate Wealth integrated Holistiplan with their existing Customer Relationship Management (CRM) system. This integration allowed them to store client tax information, track tax planning progress, and manage communication with clients and their CPAs in a centralized location. This integration eliminated the need for manual data entry and ensured that all client information was readily accessible. They used Redtail CRM.
• Financial Planning Software: They utilized MoneyGuidePro, a financial planning software, to create comprehensive financial plans that incorporated tax planning strategies. This software allowed them to model the long-term impact of tax planning decisions on the client's overall financial well-being.
• Data Security: Given the sensitive nature of tax information, Elevate Wealth implemented robust data security measures to protect client data. This included encryption, multi-factor authentication, and regular security audits. They became compliant with IRS Publication 4557, Safeguarding Taxpayer Data.
• Automated Reporting: The firm developed automated reports that provided clients with regular updates on their tax planning progress. These reports included key metrics such as estimated tax liability, potential tax savings, and progress towards achieving their tax planning goals.
• Tax Return Import Functionality: Holistiplan's ability to import a client's tax return directly allowed Marcus to quickly gain insight into the client's financial situation. This allowed him to pinpoint potential savings opportunities and quickly create alternative tax scenarios.

Marcus Williams leveraged Holistiplan's "what-if" scenarios to illustrate the financial benefits of implementing tax-optimized investment and planning choices.

Results & ROI

The integration of value-added tax planning services yielded significant positive results for Elevate Wealth Management:

• Client Retention: Client retention increased by 20% within one year of implementing the new service offering. Prior to the integration, the firm's annual client attrition rate was 8%. After the integration, the attrition rate dropped to 6.4%. This represented a significant improvement and demonstrated the value clients placed on the comprehensive financial planning services.
• AUM Growth: The 20% increase in client retention translated to an additional $88 million in AUM. This growth was directly attributable to the firm's ability to retain existing clients who might have otherwise sought tax planning services elsewhere.
• Revenue Increase: The $88 million increase in AUM generated an estimated $440,000 in annual revenue for the firm, assuming an advisory fee of 0.5%. This revenue increase more than offset the costs associated with implementing the new service offering, including the cost of software, training, and staff time.
• Client Satisfaction: Client satisfaction scores increased significantly after the integration of tax planning services. Client surveys revealed that clients felt more confident in their financial plans and appreciated the proactive and personalized advice they received.
• New Client Acquisition: The firm also experienced an increase in new client inquiries and acquisitions, as word-of-mouth referrals spread about their comprehensive financial planning services. Potential clients were drawn to the firm's ability to address both investment management and tax planning needs in a coordinated manner.

The firm also tracked the average savings achieved for clients through proactive tax planning. On average, clients saved $3,500 per year in taxes as a result of the strategies implemented by Elevate Wealth. This tangible benefit further strengthened client relationships and reinforced the value of the firm's services.

Key Takeaways

Here are a few actionable insights for other advisors looking to integrate tax planning into their practice:

1. Go Beyond Investments: Clients are increasingly seeking holistic financial solutions that extend beyond investment management. Consider integrating tax planning, estate planning, and other related services to provide a more comprehensive offering.
2. Embrace Technology: Leverage technology solutions like Holistiplan to streamline the tax planning process and provide clients with proactive insights. Technology can automate tasks, improve accuracy, and enhance client communication.
3. Prioritize Collaboration: Develop strong relationships with clients' CPAs and other professional advisors. A collaborative approach ensures that the client's financial plan is aligned with their tax plan and other relevant aspects of their financial life.
4. Quantify the Value: Track key metrics such as client retention, AUM growth, and client satisfaction to demonstrate the value of your tax planning services. Quantifiable results can help you justify the investment in time and resources required to implement this service offering.
5. Proactive Communication is Key: Don't wait for tax season to address tax planning with your clients. Engage in proactive communication throughout the year to identify potential tax-saving opportunities and keep clients informed of the latest tax laws and regulations.

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