Are you a tax savvy Adviser?

There can often be a gap in the relationship between an adviser and their client – something I call the Value Gap. This is the gap between what a client believes to be the value their adviser is delivering to them vs the planning and activities, especially the unseen activities that contribute to the actual value delivered to a client.

Advisers need to continuously work on closing the value gap and articulate the different components that underpin their advice to help clients understandthe true value their adviser delivers. One area we see as a key opportunity for Advisers to showcase their value with their clients is in proactively managing a client’s investment tax experience.

Why is investment tax important to a client?

Tax has often been considered as the exclusive realm of the accountant, but advisers have a significant opportunity to add value to their clients through investment tax.

Clients often have a special relationship with tax. They know at a high level what it is, but it can also have negative connotations for some. It’s somethings that most of us will experience, it can be complex, hard to control and the sometimes can lead to a cost or something taken away.

This is where advisers can point to specific elements of a financial plan and demonstrate proactive or intentional tax smart recommendations. We suggest advisers frame the conversation around the idea of tax opportunities and how the steps taken today can create value not only now but into the future.

How to have a tax savvy conversation

One way to articulate investment tax and the advice expertise you offer is through structural tax opportunities. Superannuation salary sacrifice, contribution strategies and Transition to Retirement Strategies (TTR) are the bread and butter for Advisers but the value is often tied to the wealth you are building for a clients’ future retirement. A potential benefit of your strategy you can highlight, Is that active steps taken to review the different tax rates that may reduce the amount of tax paid may allow for more assets to be invested. You as the Adviser know these benefits but ask yourself if your clients know this and truly understand the value of these strategies. Could they make tax effective decisions themselves? And even if they could, would they take the time to do this themselves?

To highlight these benefits, using modelling or case studies that shows the tax saved and even benefits of reinvesting these savings can become invaluable demonstration of how your advice can help continue to build their overall wealth.

For different clients this can extend into other investment opportunities such as tax paid investment bonds for different planning needs like education savings plans or life estate planning. Equally working with clients with offshore pension assets requires particular skill and expertise that should be clearly articulated and reminded to a client.

In addition to structural tax opportunities, there are also proactive tax-effective portfolio selection and implementation options to be advised.

Tax-effective advice on investment selection can be demonstrated through different components of portfolio design.

Holding direct shares has the benefit of having greater control over those share holdings. Ensuring you get all the dividends and franking credits associated with these holdings, and opportunities for parcel lot selection to allow greater control on tax outcomes when portfolio trading does occur.

Selecting lower turnover and tax effective structures such as ETFs can be a clear way to highlight tax effective advice.

Selecting actively managed funds that are very considered in their implementation to avoid negative tax consequences for investors. This may include using derivatives to take tactical positions and reduce the need for trading underlying physical holdings creating unnecessary capital gains and trading costs that erode returns. It can also include multi-manager strategies that centralise underlying manger portfolios to offset trades, reduce overall trading and minimise unnecessary trading and tax consequences for your clients.

Managed Accounts are a great way to combine all of these tax smart recommendations to your clients. While the implementation and ongoing management is scalable for the Adviser, it is still giving the client a personalised tax experience that benefits from multiple tax effective strategies.

Bottom line

Advisers have the skill and expertise to make tax effective recommendations through both structural and portfolio decisions for their clients.

If you are already delivering all of these tax management opportunities to your clients – make sure you are highlighting your great work and linking these recommendations as just one component of the overall value you are delivering. Amplify your value and close the value gap between you and your client.

For others, you may want to consider how you could you better articulate proactively managing investment tax in your value proposition or consider solutions such as managed accounts to help you more explicitly demonstrate this value add.

Site preferences