Tax Planning Is Table Stakes for Advisors

There are 196 days until taxes are due, but clients want help now.

Americans paid more than $206 billion in capital gains taxes last year, according to the Tax Foundation, a Washington think tank. By our calculations, that is … a lot of money. For good reason, along with portfolio management and estate planning, tax planning is quickly becoming one of the most in-demand advisory services. Nearly 70% of high-net-worth clients say reducing taxes is important, yet fewer than half of advisors provide this service, according to a new report from Cerulli and Parametric. As clients shift focus from investment returns to services, tax planning is giving advisors a leg up.

“Ten years from now, this will need to be the standard, and if you’re not doing it, you can be at a distinct disadvantage,” said Scott Smith, senior director of advice relationships at Cerulli.

1 for You, 19 for Me

Traditionally, many firms limited tax planning to end-of-year tax-loss harvesting. Now, more offices are adopting systems that handle it monthly, weekly or even daily. Despite recognizing their shortcomings, many firms hesitate to invest in the expertise needed, viewing it as costly. Smith warned that without strong tax planning, performance gains can be quickly eroded by taxes.

Transition management is another area of growing emphasis. For example, when clients bring 401(k)s in-house, advisors often restructure portfolios. “They end up trading a bunch of things to get the recipe they want,” Scott said. “But it’s created a lot of capital gains tax along the way.” He recommended treating this process as a multi-year transition, rather than an immediate overhaul to minimize tax impact.

The Cerulli report found:

• Some 53% of advisors working with clients holding $5 million or more in assets offer tax planning.
• Only 38% of advisors working with clients under $100,000 provide the service.

“Tax planning used to be a value-add; now it’s table stakes,” said Adam Wojtkowski, founder of Copper Beech Wealth Management. “They want integrated wealth management where tax strategy is central to every decision.

Declare the Pennies on Your Eyes. Client questions are also evolving. While many still ask, “How do I lower my taxes?” others are becoming more sophisticated, said Patrick Huey, principal advisor at Victory Independent Planning. Since the passage of the One Big Beautiful Bill Act, clients are asking how new rules affect income, Social Security, Roth conversions and legacy planning.

“Clients now recognize that taxes aren’t a once-a-year headache,” Huey told Advisor Upside. “They’re a crucial piece of every wealth and retirement strategy, especially in the face of sweeping tax law changes that create moving targets and new phase-outs.”