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In the months ahead, be prepared to encounter prospective clients who are concerned about the impact of the presidential election on taxes and ask you, "what are you telling your clients today?" Using a tax tenet as your response can help turn a follow-up phone call into a first meeting.
Taxes can be a client's easiest investment "fee" to reduce.
By helping prospective clients think of taxes as a fee that can be reduced, you open the door to discussing efficient strategies for tax reduction. Consider asking, "what steps do you typically take to reduce the amount you pay in taxes each year?"
The answer will shed light on how tax-aware prospective clients are and provide the ability to discuss tax-planning strategies, such as systematic tax-loss harvesting. This question is particularly important for self-directed prospects who are often unfamiliar with tax-management strategies.
Asset location can be as important as asset allocation.
While asset allocation is choosing the right mix of assets, asset location is where those investments are placed. Some strategies located in prospective clients' taxable accounts may be better suited for their retirement accounts. Conversely, some strategies currently located in their retirement accounts may be better suited for their taxable accounts.
Consider asking, "to what degree are you investing differently in your taxable versus retirement accounts?" Spotting high-tax-exposure investments, like mutual funds and high turnover strategies, in prospective clients' accounts can provide you with an easy way to illustrate how asset location decisions can affect after-tax returns.
Uncle Sam can be a coach, not simply a referee.
Coaches instruct players on how to apply the rules to win the game while referees enforce the rules and penalize players who don't follow them. Seeing uncle Sam's value as a coach requires recognizing the tax code for what it is: a set of rules designed to encourage some behaviors and discourage others. By understanding which behaviors uncle Sam wants to encourage, you can help your clients to reduce their tax burden.
Consider asking, "to what degree are you interested in charitable giving?" Charitable giving can be an opportunity for prospective clients to reduce taxable income. Strategies such as giving with appreciated securities or bunching multiple contributions into a single year can be easy ways to lower taxes. Split-interest giving may be an option for prospective clients who are less charitably inclined or who need an income stream.
Bottom Line: Rather than debating a prospective clients' views on proposed tax-law changes, lift the conversation to a higher plane by using a tax tenet.
"Using a tax tenet as your response can help turn a follow-up phone call into a first meeting."
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