Do Your Financial Advisor and Tax Preparer Talk to Each Other? (And Why It Costs You If They Don't)

Make sure your advisor & tax preparer talk to each other!

Since we’ve been running both an RIA firm and a tax & accounting firm since 2011, we often find the lack of communication between financial advisors and tax professionals acts as a wealth leak for clients. Think of it like this: building wealth without tax coordination is like "filling a swimming pool with the drain open."  No reason that this should happen to you, so let’s talk about what you can do to make sure you benefit from coordinated planning between professionals.

• The Statistic: Research shows that simple asset location strategies (placing investments in the right accounts) can add up to 60 basis points (0.60%) to annual returns. On a $1M portfolio, that is $6,000/year purely from coordination.

• The Risk: Uncoordinated planning often leads to IRS underpayment penalties or missed deadlines for estimated taxes, especially for business owners with irregular income.

Here are FOUR red flags to watch out for if your financial advisor and tax preparer (or CPA) don’t talk to each other (use this as a checklist for yourself to make sure both professionals are on the same page):

1. Did your advisor recommend a Roth conversion without asking to see your last tax return (or current year’s draft if during tax filing season)?
   

2. Did your tax preparer/CPA file your return without asking about your investment sales or any real estate purchases?
   

3. If you’re a business owner, what type of retirement plan would be best for your business structure to maximize contributions and/or reduce taxable income?
   

4. Do your advisor & preparer have each other’s contact information & talk at least once a year re: your total financial situation?

At MF Advisers, Inc. and MF Tax & Accounting, Inc., we are big believers in the "Three-Way Meeting" for our clients (and so should your current professionals; if not, time to look elsewhere).

• The best advisors/tax pros know that the right thing for the mutual client is to have the annual coordination meeting (preferably NOT during tax season when busy tax professionals have minimal time); best to do this in summer/fall when planning for the rest of the current year makes the most sense.
  

• If you don't have a team that talks/wants to talk, we can become the hub that connects the dots to your tax & financial picture (a personal CFO if you like).
  

• The alternative can cost you potentially hundreds, thousands, or even more over time, especially if you’re a business owner or a high-earning professional so don’t settle for incomplete planning that effectively costs you real $ over time.

No matter your situation, your financial advisor & tax professional should have your best interests in mind and should relish the opportunity to make sure they coordinate to make that happen. Now that you know this, make sure your pros do this for you going forward (or hire ones that will gladly do it OR do both) – you’re welcome!

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Find an experienced financial advisor who works with clients’ other professionals on tax-smart investing, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for your financial future.

For more information, please email marty@mfadvisers.com (PA), matt@mfadvisers.com (FL), or call (570) 760-6524 (PA) or (561) 329-1296 (FL).