The most successful financial planners are always thinking about growth. They either want to find new prospects or increase their services available to existing clients. Without adding a lot of personal time and effort, you can accomplish both simultaneously by building a tax practice within your financial advisory firm.
You don’t need to have a tax background to be successful. When you build out your own tax practice, you can start by hiring an accountant or CPA for your in-house team.
The goal of building a tax practice is to convert those clients to financial services clients eventually. Tax preparation allows you to get in front of customers once a year. This will enable you to review their taxes with them and provide an overview of how to include their tax planning strategy as part of a holistic financial plan.
The tax client might not be ready for your other services at first, but you’ll be there when they are.
There are several steps involved in starting a tax practice. First, you need to build the foundation before starting a tax practice. This includes everything from office space and software to pens and business cards.
Next, you should hire a tax professional to prepare returns and market the business to bring in new clients.
Finally, make sure you hire someone to assist with appointment setting and other practice management tasks.
- In Stage 1, things will be modest. For the first year or two, you and two accountants will handle all the business at hand – between 100-400 returns.
- During Stage 2, you should be processing 400-1000 returns, so you’ll need to hire an additional advisor and possibly a tax practice manager.
- By the time you reach Stage 3, your office will have 1000-2000 tax clients, with the potential addition of another advisor and additional accountants.
Renting v. Owning a Tax Practice
One way to find out if building a tax practice or buying a tax practice will work for your wealth management company is to partner with an existing tax firm.
You do this by offering tax services and holistic financial planning to their clients in exchange for their accounting services. You or one of your financial advisors will then meet with the clients to go over the return and lay out tax planning strategies for the coming year.
Develop a relationship with a CPA or tax firm in your community to borrow their clients. After you have nurtured and developed your bond with them and their customers, you can start to look for longer-term solutions, like purchasing a tax firm or building your own tax practice.
Set up a cost-sharing arrangement so that a percentage of any new business goes back to the host tax firm as part of the agreement.
This gives you an excellent platform from which to attract new clients to your wealth management firm.
- Find brings the client in.
- Mined formulates recommendations and closes the sale.
- Grind manages the financial services portion moving forward.
As with building a tax practice and buying a tax practice, there are also advantages and disadvantages to renting one:
Advantages to partnering with a tax firm:
- You are approaching an audience that is already made up of tax clients.
- Staffing is already managed, so you don’t have the expense of added accountants for tax season.
- The tax firm can serve as your second office for meetings with potential financial services clients.
- If the tax practice owner ever decides to sell or retire, you’re already ingrained as the next buyer.
Disadvantages to partnering with a tax firm:
- Limited penetration in the surrounding area since you don’t control the marketing.
- You have little to no say in the staff hired.
Why Successful Financial Advisors Choose to Offer Tax Planning
A proven way to grow your existing financial services business is to add a tax practice. Preparing taxes and providing tax advice is one of the most significant opportunities that wealth professionals have today.
Delivering ongoing advice (taxes aren’t a one-time thing) and deeper solutions to their tax concerns is a way to differentiate yourself as a unique, multi-solution financial advisor. It also showcases your firm’s capabilities to a new group of potential clients.
Now that you have tax clients, you can use their returns to find areas where you can save them money. This shows that you’re willing to go above and beyond to provide the additional retirement and legacy planning service.
By putting solutions and strategies in place to anticipate tax changes, you will differentiate yourself from other advisors and tax professionals, allowing you to charge more considerable financial planning fees.
The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time of the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.