Why tax-related services drive business for RIAs

Tax-related services represent a major potential opportunity for financial advisors to expand their relationship with clients and grow their business, according to experts.

Possible changes to the rules governing estates and other potentially expiring provisions of the Tax Cuts and Jobs Act next year — and the respective competitive dynamics in the fields of accounting and wealth management — highlight the reasons behind frequent M&A deals, technology solutions and other moves marrying the professions under the same roof, four advisors and industry executives said in panels at last week's Future Proof conference.

READ MORE: Taxes + wealth: 2 connected but still (for now) distinct fields are merging

Advisors could begin by understanding the familiar twin trends affecting accounting firms right now: the challenges of succession planning and private equity-fueled consolidation, according to Andree Mohr, president of Waltham, Massachusetts-based registered investment advisory firm Integrated Partners. About 60% of certified public accountants are at least 60 years old, and roughly 40% of CPA firms have already received private equity capital, Mohr noted.

"What that has done for them is it has forced in new service lines. And, for those of you that work with CPAs today, you know that traditionally, they don't like change, and they are not natural marketers. So as private equity comes into the space and asks them to increase revenues, increase fees, they need to add new lines of services, and those look like advisory services," Mohr said.

"Because it is so hard to become a CPA," she continued, "there is not as much young talent getting into the profession, and so therefore they are looking for ways to grow their businesses without having to hire new talent or overwork their already overworked employees. So by partnering with CPAs right now, we are actually providing a solution to two of their biggest problems that the industry is facing."

READ MORE: Advisory practices aren't meeting clients' tax demands, study finds 

Besides solving problems buffeting accounting firms, RIAs and other advisory firms can deliver answers for their clients by integrating tax services either directly or through strategic collaborations with CPA firms. 

In a live taping of "The Compound & Friends" podcast at Future Proof, New York-based Ritholtz Wealth Management CEO Josh Brown pointed out the fact that people only have so much time in the day to spend discussing financial topics.

"Wealthy people don't want to take 10 meetings in a week to do all this stuff," Brown said in an interview with Peter Mallouk, the CEO of Overland Park, Kansas-based RIA firm Creative Planning.

Last year, Mallouk's firm launched Creative Planning for Business after acquiring an RIA and professional services firm with a large base of entrepreneurial clients. Since so many high net worth and ultrahigh net worth clients either own businesses or once did, RIAs get an edge by offering them services like tax, trusts, legal or consulting, Mallouk said.

"What's interesting about it is, the more specialized you are, the more appealing it is to that very high net worth client, because they value their time," Mallouk said. "They want to pay for it. They want to pay for advice. They're far more willing to pay for advice. They understand markets better. The retention rate is much, much higher with that group. The growth rate is higher with that group at Creative Planning than any other group. And they want, like you said, Josh, they want all that stuff coordinated. They don't want you to tell them, 'Go to these 10 different people to do this.'"

Those ideas could prove especially timely for clients wondering how to make sense of so many Tax Cuts and Jobs Act provisions that may reach their sunset date at the end of 2025, with this year's election poised to decide which party controls Congress and the White House.

READ MORE: Private equity 'revolution' brings risks to wealth and accounting 

Those quandaries merit a team-based approach to serving clients, said Jerry Sneed, a senior vice president with Shelton, Connecticut-based RIA firm Procyon Partners. For example, estate taxes currently start at a floor of $13.61 million for individuals and $27.22 million for joint filers, but those exclusions could revert back to half those levels after next year.

"What you're trying to do is deliver your client a solution," said Sneed. "What we do is, we reach out and say, 'Hey, Mr. Client, we're going to reach out to your estate attorney as well as your tax advisor. We're going to do a prep call with me and them to discuss scenarios going into next year with the exclusion, etc. and all the changes coming up. We're going to come back to you with our analysis and some decisions in an efficient manner.' And clients like, appreciate that and respect that."