Personal finance is a subject many of us don’t spend much time thinking about. We might have an accountant who prepares our yearly tax returns and a financial advisor who guides us with our investments. An attorney may assist with issues such as a home purchase and setting up a basic will. Later in life, we may hire an estate lawyer to aid with generational wealth and legacy planning. One of the wisest things we can do for our financial well-being is to have a strong team of advisors.
However, often these advisors work separately with little or no interaction, let alone coordination. That’s where an experienced financial advisor can help. He or she knows that every decision you make – every milestone you reach – will have an impact on your financial life and needs to be considered as part of a larger picture. Just like your doctor has a team of people who support them, so should your financial advisor. And it’s important that your financial team work together to help you reach your financial goals
The Benefits of Tax Advisors and Financial Advisors Working Together
A single advisor can rarely provide the same level or insight as multiple, specialized professionals. Most financial advisors simply do not have the training and experience to become experts in all areas of tax planning while most CPAs do not have expertise to help you rebalance your portfolio. But just as having multiple people in your corner is better than just one, having those people coordinate their efforts can lead to better outcomes than having each work in a silo. Here are some reasons why:
- Advisors have different perspectives: There are multiple pieces to your finances, including income tax planning, budgeting, investment planning, retirement strategies, and risk management. Your financial and tax advisors will have different perspectives, and they can put those two perspectives together to a client’s advantage.
- Your tax picture and your investment strategy overlap: Taxes and investments go hand-in-hand, beyond just capital gains. Smart withdrawal strategies require an understanding of your current and future tax situation. The best investment strategy for you and your specific situation can be enhanced with input from your tax advisor.
- It saves you, the client, time: When you have your trusted advisors on the same page and talking to each other on your behalf you save time and energy that can be utilized in other parts of your life. Why have two, separate meetings, one a single meeting can save you time while also, often yielding better financial results?
An effective group of advisors that collaborate on your behalf will brainstorm ideas and paint a more holistic financial picture. Working together, they can usually develop the most tax-efficient and most effective strategies for achieving their client’s financial goals.
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Aligning your advisors allows your team to develop a synergistic strategy that best suits you and your family’s needs. It can also help you plan for key financial decisions. For example, many clients consider downsizing their home or renting as they approach retirement. The impact of each depends on future income streams and whether you plan to itemize deductions. With tax and financial advisors working together, taxable income generated by your portfolio can be managed to support your housing decision.
Similarly, your team can help you time your financial moves to take advantage of lower tax rates, when appropriate. A carefully planned Roth conversion strategy looks at not only the what and the how, but when the conversion should take place to minimize tax exposure. A unified strategy might consider potential required minimum distributions around age 72, helping you time conversions to reduce RMDs. Tax loss harvesting, or selling one set of securities at a loss to offset capital gains, also has timing and communication components that require close coordination between your CPA and financial advisor. Without it, you might be leaving money on the table (for Uncle Sam to scoop up).
Finally, when your financial advisor and tax advisor work together, they can help you more effectively implement a smart estate plan. Reducing or avoiding federal estate or gift taxes is possible, even for high net worth families, but only if handled properly by their financial team. Many use life insurance as a tool to cover potential taxes. It’s important that your financial advisor and CPA work together to determine how much insurance you need and make accurate projections of your estate size and anticipated federal and state taxes.
You’ve worked hard your entire professional career to build your income and accumulate assets. Along the way, you probably realized that working with a team helped you leverage the expertise of others while freeing you up to do what you do best. But that requires communication and a commitment toward a single goal. It’s no different with your financial future. A good financial advisor can help you build a team where each professional provides specialized financial insights – and is also able to weave those different threads together in a way that better supports your overarching financial goals.
Wells Fargo Advisors Financial Network and its affiliates do not provide legal or tax advice. Transactions requiring tax consideration should be reviewed carefully with your accountant or tax advisor. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.