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

Despite a plethora of major M&A deals and rising client demand for combining tax and wealth management services, many advisory practices don't offer tax planning, a new survey found.

Consumers from at least 90% of households with more than $250,000 in assets told Herbers & Company that they wanted tax planning services, while 73% of advisory practices reported that they currently provide them, according to a survey this year of nearly 1,600 investors and more than 700 advisory firms released by the industry consulting firm on Oct. 4. 

Among the advisory teams growing organically at the fastest rate, 97% do tax planning — compared to 49% among all other firms. Tax planning easily surpassed more traditional industry services such as retirement (74%), investment management (55%), cash flow advice (41%), insurance (30%), estates (28%) and education (21%). Interestingly, the share of advisory firms that help clients with those needs outpaced each of those figures by double digits, except in the area of retirement planning, where the 67% of practices came in seven points lower.

Retirement planning usually takes the top spot in the firm's consumer studies, but tax advice and strategy "jumped to No. 1" in the past year, according to Angie Herbers, the managing partner of the consulting firm.

"The big takeaway here is that really, regardless of consumer demand, the firms that are growing faster are more able to meet consumer demand as consumer demand evolves and changes. To me, if you want to grow and you want to capture the consumer market as an advisory firm, you would focus 100% of your growth efforts on expanding the services that you provide," Herbers said in an interview. "The survey clearly said that growth comes from expanding your services."

Practice and client management

Two must-have client conversations for college planning: 529s, FAFSA

October 1, 2023 9:00 AM

Financial advisors increasingly thinking about the best means of organic growth may also take the cue to consider adding tax services from many sizable M&A transactions in recent years displaying how the largest firms in the industry are investing in them as well.

Creative Planning launched the Creative Planning for Business division earlier this year after acquiring a firm that provides accounting, business consulting, technology and human capital services in addition to wealth. The firm also purchased the RIA unit of a large accounting firm in 2022. Another former wealth and advisory arm of a certified public accountant company, Choreo, spun off from its parent in a private equity deal and made two transactions of billion-dollar practices last year as well. Savant Wealth Management completed a billion-dollar deal of its own earlier this year for a firm that provides outsourced investment management to CPAs. More recently, Cetera Financial Group's parent secured an agreement last month to buy tax-focused wealth management firm Avantax at a price of $1.2 billion.

Edelman Financial Engines closed a similar deal to those of its fellow giants in 2021 with the purchase of Bothell, Washington-based Viridian Advisors and its team of CPAs, financial advisors and client service associates. Edelman has subsequently ramped up its tax planning support resources for its 145 offices nationwide with the help of the former Viridian accountants and the integration of Holistiplan's software.

Tax planning is a "key component" for client retention alongside risk management, trust services and estates, according to Suzanne van Staveren, Edelman's chief financial officer and chief operating officer.

"As someone's wealth grows, as their complexity increases, that's really an area where we want to be helpful to our clients," van Staveren said in an interview. "Clients stay with us for the long term, and their complexity grows as well. So we want to make sure that we can continue to service them." 

Professional development

A CFO to-do list for the remainder of 2023

October 2, 2023 6:16 AM

Software and other technology solutions replacing planners' previously widespread manual Excel spreadsheets could help more advisory teams add tax services, Herbers said. Her company is hosting a webinar about the more than 300 different data points from its "market growth study" on Oct. 12.

The larger economic conditions and higher interest rates, as well as a continuing talent shortage in the accounting industry, have created opportunities for advisory practices to narrow the differences between the consumer demand and their current capabilities, she said. 

"We had a good 10-year bull market and now we have more turbulent economic times, and often that also triggers tax issues," Herbers said. "All of those things combined together — what consumers said was, 'We are relying on our financial advisor to fill in the gaps on tax planning.'"