For all of the sports fans out there, unless you have a one-sided blowout, you already know the fourth quarter is big. It can change the course of the previous three quarters if a team can make up for 75 percent of the game.
As a financial advisor, the fourth quarter of the calendar year always seems to be the busiest time of year for new customers. I think customers may look back on what they have achieved this year, and fortunately for us that often includes a constructive assessment of their professional relationships and whether they are being well looked after. The good news for us: You weren’t served well. The bad news for you is that if your customers are underserved, you will eventually lose them.
I encourage anyone reading this to approach the fourth quarter like it was a Super Bowl game and you only have that quarter to win it all. Except the game in this scenario is your customer relationship. I believe that with an aggressive attitude here in the fourth quarter of the year you can change the whole attitude of your customer relationship. Of course, this also means this can be one of the busiest times of the year.
If you’re a CPA who thinks fourth quarter is your chance to recharge before another tax season floods you with work, then keep recharging. But if you’re a CPA financial planner who realizes the importance of financial planning in a CPA firm and is wondering if your tax business could be eaten alive by blockchain technology and other technological efficiencies, read on. The fourth quarter is your chance to make this year a great one by simply exceeding your customers’ expectations.
Start with the tax
To make things easy for the CPA guys, I think the first topic for a fourth quarter session will be tax planning. You may feel like your clients are well prepared for the upcoming tax year close, but they probably don’t know if you don’t tell them. Your clients are pounded daily by marketers telling them about the tax reform and how this year could be different. Whether the marketers choose the state and local 199A Withholding Tax or other very sweeping changes in the tax code, they’ll get your customers’ attention.
To get their attention back where it should be in your company, you may need to be more proactive. Start by contacting your clients for a year-end tax audit. In this meeting you might want to show them how this year’s tax return may differ from the past one, focusing on the main differences between the two tax years. Even beyond the tax reform, the savvy planner will extend the tax discussion regarding your customers’ financial planning options to several other relevant areas.
I would start with a basic understanding of where exactly they will be on the 2018 tax bracket. Until you have this, you cannot have a smart conversation about speeding up, deferring or reducing taxable income for that year. You can expand this at a glance to single prints versus the newly expanded standard print to determine whether specific prints should be bundled this year or next to maximize the delicate balance between single prints and the standard print.
I know this has not been discussed when we get a new high net worth client whose CPA has put them in a low tax bracket. This can happen when someone retires and has no social security or lives on after-tax savings and investments. For many of these clients, this is only a temporary situation until it is reached with the minimum distributions required. Perhaps it would be a better idea to take advantage of these low bracket opportunities by creating income. You can earn income by changing investments, making short term capital gains, or making distributions from retirement accounts. Perhaps better than an IRA payout, consider a Roth conversion to use up that lower bracket taxable income.
For clients already subject to RMDs, make sure they have made these distributions to avoid the onerous tax penalty for underdrawing. This conversation can also lead to the uncovering of forgotten retirement accounts, which can result in a payout being less than it should be. On the other hand, if a customer is taking RMDs and doesn’t need the money, they might be a candidate to donate the RMD to a charity.
Examine your customer’s gift strategies. Of course, you always have the RMD idea and the opportunity to give away valued securities. But look at their charitable strategies in the light of the new standard deduction. Your client might consider bundling their contributions so that they significantly exceed the standard withholding and offer them the maximum tax advantage. This contribution can also be made to a charity donation account so that you get the deduction when the check is written, but control the actual distribution from the gift foundation to the charities so that the gift can be made at the pace your client wants.
View your client’s asset statements. Are there opportunities to utilize losses or to achieve capital gains? Most customers react reflexively because they do nothing for fear of burdening their tax bills and leave some of these basic planning concepts on the table year after year. It really blows my mind when I meet a client who is still reporting capital losses from the last market crisis – now almost 10 years ago!
If you have a customer with a net operating loss carryforward, you may have an opportunity to take advantage of these NOLs this year. The most obvious choice might be Roth conversions, which could become completely tax free if the NOL is sizeable enough.
Your larger customers will all enjoy the 199A deduction for qualified business income. They know it can be good for them, but they may not know whether they will qualify or benefit from it. Due to the complex moving parts, a detailed forecast is essential here. The good news is that they may still have time in 2018 to reshape earnings and W-2 wages to maximize this new determination. I haven’t seen a disqualified taxpayer willing to convert to a C corporation for the lower tax rates. Most cite the sunset provision and the inherent double taxation of the C-Corps as the most significant obstacles.
While this may sound like a lot of work, the most successful practitioners know that this type of proactive service is simply the table for your best customers. If you don’t do this for her, you probably won’t have a lot of avid fans.
Now, I’d like to take you to other fourth quarter services that you can use so that your customers know how important they are to you. Here you can compensate for three quarters or even years of undersupply beyond the tax and investment plan. Take this opportunity in the fourth quarter to access all of the reviews and services any reasonable person believes should be included in any personal financial planning. These may include a review of cash flow, risk management, investment planning, retirement planning, estate planning, family management, educational planning, or any other planning issue that needs to be current and updated. Of course, a meeting where you try to make up for past poor service won’t immediately change your feelings, but it is the beginning where you identify issues that need your attention and begin to collect and integrate the data other professionals so that you can be comfortable with your comprehensive review.
When it comes to cash flow, every financial life is driven by income and expenses. This alone can make or break any financial plan. I find it negligent to work with assumptions when starting a design project that are never updated. Part of the timeliness and validity of a plan should include a review of your original income and expense assumptions, followed by some basic assessments to ensure that those assumptions are still true and on track. If not, your client’s entire financial plan can fail, and whose problem is it?
When it comes to risk management, just as it does cash flow, does it still work for them? Start this review with the advice you originally provided and make sure that it is still relevant and that the customer has actually implemented the advice. For example, if you recommended changing the title of your life insurance policy to remove it from the estate and it was never done, then who is responsible? A good lawyer will get your insurance company to sort this out as regulators and courts are likely to rule against you.
For investment planning, you have probably defined their risk tolerance and investment needs in the original plan and presented them with a recommended allocation. Do you know how this portfolio is put together today? Have your recommendations been used? If all the relevant factors are taken into account, are they still suitable today? This matters whether your company is managing, overseeing, or simply giving advice on implementation elsewhere.
Make sure your clients’ estate plans are current and relevant. Relevance is based on facts and circumstances in your client’s life, as well as changes in laws and taxes. You can never be held accountable in a court of law for failing to recommend updates to estate plans that obviously need updating. But this is a place I never want to be, and it’s riskier than you think. You see, if the client thinks you are their financial planner, it is reasonable to assume that you are responsible for keeping them up to date and relevant. You will be found negligent if you helped create the plan without ever seeing that it was properly executed and updated when necessary. An aggressive consultant can find negligence in your planning efforts if you don’t track whether all of your recommendations have been implemented. One easy area where this is common is making recommended title changes as per the estate plan or recommending moving a risky rental property to an LLC for possible asset protection.
I could go on and on about all of the things that a reasonable person might think should be part of an overall financial planning relationship. But that’s not why we started this article. We started this with my firsthand observation that many firms, including many CPA financial planning firms, are not doing enough work to create or keep a plan up to date.
Use the fourth quarter to prove how valuable you can be by offering a service that will help put the entire financial house in order and keep it that way forever.