For My Accountant Friends: Establishing Strong and Profitable Relationships with Investment Advisers
As advisers and fiduciaries under the federal Advisers Act, we primarily plan and execute investment strategies for clients at Tradition Capital in Summit, NJ. But just like accountants, we have a “tax season.” Now, mind you, it is nowhere near the stress-filled deadline-aware environment that accountants endure prior to April 15th every year, but we have one too. Ours starts in the 4th quarter of the prior year. We busy ourselves making sure that affected clients withdraw required money from their IRAs in order to avoid any tax penalties for an under-withdrawal. We examine taxable portfolios, mostly personally-owned non-retirement accounts, where there may be market losses in particular securities. No investment adviser wants losses, but we ALL experience them. So, we decide on whether to realize any loss with a sale so that our client can use it to reduce capital gains taxes. This allows us to manage portfolios tax-efficiently, by helping clients reduce a substantial federal and (possibly) state annual tax burden.
Then, in the 1st quarter of the year, we field a large number of accountants’ requests for portfolio information. We send realized capital gain and loss reports, dividend and interest compilations, various cash-flow reports showing potential tax deductions, and extra information related to quarterly tax estimates and other withheld tax payments.
So our tax season is not so dramatic, but it does aid each client in helping our fellow financial professionals do their own best job for those we mutually serve.
But advisors, who typically have full year exposure to the client and his/her affairs, need to have ready access to the final accountants’ products: the Federal 1040s and State returns. And we often do not receive them, even after a request.
The tax information contained in tax returns is rich with needed information which helps us do a better job in overseeing investments and finances. Carryover and carryforwards of losses and charitable contributions can help guide execution and donation decisions in the coming years. Adjusted Gross Income will dictate whether Schedule “A” deductions are reduced. Calculated Taxable Income gives us the all-important bracket percentage so that taxable vs. non-taxable income investment decisions can be made to give the client the best retained income advantage. And we see whether the dreaded AMT is paid, which then might help us determine whether the deduction of our fees is possible. These are only a few of the reasons to receive tax return copies.
We realize that requests for returns are rather intrusive prior to April 15th, so we typically don’t ask then. But in situations where we have supplied information readily identifiable to our firm, or where we have received tax returns in the past, it should be normal protocol to send the Adviser the returns.
We do understand that privacy standards must be respected, and that the client must provide more than implicit allowance for this sensitive information. But an explicit permission provided by the client, preferably one that is permanent until canceled, allows us to receive this vital information yearly, and avoids mutual annoyance and the excessive time-consumption of repetitive requests.
So what to do?
- Create a standard file document to be executed by the client to automatically provide copies of tax returns to certain individuals and professionals each year. Be sure to include language making the client responsible to inform you of any changes to the acceptable recipients, and that you will do all you can to respect privacy and keep unnecessary information confidential.
- Call the Investment Adviser, introduce yourself, and start to lay the groundwork for a productive, client-protective, relationship. (I can count on one hand, if that, the number of such pro-active calls from accountants I have received in almost 40 years!) Believe me, you will jump several rungs up the advisor’s “Go To” professional ladder just by doing this. Remember to emphasize cooperation and not any presumption of being the quarterback. Your advisor contact after all is consistently in contact with the client, where you may be only once or twice a year.
- Send those tax returns! And then schedule a discussion to discuss tax planning.
An accountant should also aim for 6 touch points with the fiduciary-investment adviser each year. For instance:
- Ask for supporting documents by phone, not email, and chat up the advisor for 5 minutes.
- After the return is completed, call the advisor and ask if he/she would like to attend the signing, or, indicate it has been forwarded to the client and copy will be forwarded after 4/15.
- The post-return tax planning discussion above.
- Send a professional tax planning article to the advisor.
- Seek the advisor’s advice or pearl-of-wisdom at some point in the year, especially if it is about the means and methods of how the advisor “sees things.” You in so doing will flatter without fuss, and enhance the notion of cooperativeness.
- Ask the advisor if you can be a regular recipient of investment statements for the client. The client will likely agree it is a good idea. The advisor also gets an opportunity to show off a little, since we all have new web-based planning and investment software to which we can get the accountant access.
Then….(and I will bet I am right)….for the first 5-6 advisers with whom you connect, you will receive 2 new client referrals or revenue opportunities in the first 12-18 months, and up to 6 or 7 within 24 to 36 months. And this is mostly annually replicated client cash flow!
Please note, I did not include the need to cross-refer a client, because we advisers crave a responsive, non-competitive professional relationship that first enhances the existing client’s needs, and the adviser’s fiduciary responsibilities. We appreciate referrals, as do Accountants, but a sound working relationship is paramount. Thanks for reading my perspectives.
Michael C. Provine JD., LL.M
Chief Compliance Officer
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