How You May Benefit from Integrated Wealth-Management and Tax-Return Preparation Services

In recent years, clients have benefited dramatically as their financial advisors have adopted increasingly “holistic” approaches to wealth management. In addition to foundational portfolio-management services, many of the industry’s most capable firms now offer tax planning, estate planning, risk management, and other services such as retirement, education, philanthropic, and cash-flow planning.

As client preferences continue to evolve, so too are forward-thinking advisors who are offering even more holistic and integrated services. This is especially evident around taxes. For many years, it has been common to rely on one firm for portfolio management and financial planning, typically including tax planning, while another firm independently handles tax compliance and return preparation (“tax prep”). Yet multiple surveys reveal that a growing number of clients are questioning whether this historic separation continues to serve them best.

Key Takeaways

• Tax planning is important to optimize wealth: Coordinating tax planning with portfolio management and other areas of financial planning not only can help investors optimize after-tax returns but also helps them optimize the rest of their financial circumstances.
• Integrating tax planning with tax prep can offer substantial benefits: Integrated tax planning and tax prep can lead to more efficient and effective client outcomes.
• One size does not fit all: Not every client must or should obtain tax prep services from their wealth manager. The key is continuous and deliberate coordination, and multiple approaches can work.

Why Tax Planning and Wealth Management Should Be Intertwined

Financial outcomes and tax outcomes, while often discussed separately, are inextricably linked. Together, they determine how much wealth you ultimately get to keep.

This is where tax planning comes into play. Taxes matter and, for many clients, represent one of the largest expenses they will bear. They therefore rightly expect their wealth managers to help mitigate that expense, both in the investment context and from a more general life-planning perspective.

When investing and tax planning occur in isolation, investors may experience suboptimal outcomes. Their investments may perform as expected, but they may miss several tax-related opportunities, including:

• Deploying asset location strategies to buy, hold, and sell positions in tax-efficient accounts, like retirement accounts.
• Utilizing unrealized losses to offset gains (i.e., tax-loss harvesting).
• Rebalancing with specific attention to taxes.
• Investing in tax-efficient, tax-free, tax-mitigation, and tax-deferral strategies.
• Aligning charitable intent with tax mitigation.
• Considering special tax breaks, such as for qualified small business stock and qualified Opportunity Zone funds.
• Weighing the consequences of investing in assets that may receive special tax treatment, such as options and collectibles.
• Planning around the amount and timing of any ensuing tax payments.

More broadly—beyond investing—clients should always be thinking about the potential impact of taxes on the rest of their affairs, including:

• Ordinary- and deferred-compensation planning.
• Retirement planning.
• Home ownership.
• Interest and debt planning.
• Education savings and tuition spending.

Ultimately, building wealth without a highly coordinated focus on taxes is like filling a swimming pool without thinking about the drains, leaks, splashing, and evaporation. Sure, the water level may initially rise, but it makes little sense to ignore how much—and how quickly—the water will leave the pool and how that water loss can be mitigated with a bit of planning.

Even modest improvements in tax efficiency can have a meaningful impact over time. Research from The Vanguard Group has suggested that thoughtful asset location alone—placing investments in the most tax-appropriate accounts—can add up to 60 basis points of additional return in the first year. While outcomes will vary based on individual circumstances, the broader point is clear: tax-aware decision-making is not incremental and can meaningfully enhance long-term results.

Why Consider Integrating Tax Planning With Tax Prep

While effective tax planning is critical to most clients, many advisory firms are unable or unwilling to take on the related function of tax prep. Research from McKinsey & Company shows this gap may be increasingly problematic: client preferences for “holistic advice” have increased substantially in recent years, and clients increasingly want integrated tax-prep services. In its Affluent and High-Net-Worth Consumer Insights Survey, McKinsey asked clients: “What services would you or do you find most valuable if provided by your wealth institution?” Tax prep consistently ranked among the most valued services mentioned.

There are good reasons for this trend. First, integrating tax planning with tax prep can be more efficient for both clients and advisors. In an integrated model, tax prep becomes less of an annual obligation and more of a continuous, seamless process. It offers additional opportunities for planning as the return takes shape and leaves less room for miscommunications or missed opportunities. It can also create a less stressful experience for clients by involving the advisor in the process of gathering information each year as well as projecting as early as possible the need for additional tax payments.

Second, advisors who are directly or indirectly involved in the tax-prep process often develop a deeper understanding of how taxes affect their clients’ financial lives, helping them provide even more informed and effective advice. The closer the coordination between wealth management and tax professionals, the greater the opportunity for proactive planning, intentional dialogue, and a more thoughtful approach to portfolio management. The tax return, after all, is a reflection of many interconnected decisions. Coordination helps ensure that those decisions are fully understood and faithfully represented. To understand some of the broader implications, read our summary for tax planning.

Third, client demand for quality tax-prep professionals has been met with a diminishing supply of those professionals. According to the AICPA, a large share of the CPA workforce is at retirement age, with about three-quarters of CPAs reaching retirement eligibility around 2020, raising concerns about the profession’s talent pipeline. Wealth managers who can fill this gap for clients have an opportunity to satisfy yet another need for those clients.

Lastly, even among existing independent CPAs and other tax professionals, not all of them have the expertise that clients of wealth managers may require. Many, for example, do not have sufficient experience or expertise with complex alternative investment strategies.

One Size Does Not Fit All

None of this is to suggest that every client should obtain tax prep services from their wealth manager. Many excellent accountants operate independently, and strong collaboration among independent professionals can also produce great results. Additionally, some wealth managers may outsource some or all of the tax-prep function, which can also be highly effective. The key is not necessarily structure but continuous and deliberate coordination, ensuring that the professionals working for a client are working from a shared understanding.

Clients may benefit from asking themselves a few basic questions:

• Does my tax return preparer have a clear understanding of my investment activity?
• Does my wealth manager review my tax return as part of my financial planning?
• Are tax-related decisions effectively communicated between the professionals advising me?
• Are tax considerations addressed throughout the year and not only at filing time?
• Does someone have a complete view of my financial picture?

If the answer to any of these questions is no, there may be opportunities for improvement.

When To Speak With a Financial Advisor

Navigating these complexities requires specialized expertise. You should consider speaking with your financial advisor about a more integrated approach to taxes, especially if:

• Your financial circumstances have become more complex due to business ownership, inheritance, significant career changes, or general increases in wealth.
• You are approaching retirement.
• You want to check if your investment portfolio is fully aligned with your long-term tax-planning strategies.

At Focus, our team is dedicated to providing comprehensive wealth management and tax services tailored to your unique needs. We annually prepare or supervise the preparation of thousands of tax returns in multiple jurisdictions and have decades of experience with this critical function.

Ready to optimize your financial strategy? Schedule a meeting with us today to discuss how integrated tax prep may benefit you and your family.

This communication is for informational purposes only. The content does not purport to present a complete picture, but Focus believes the information is representative of issues and needs facing some clients. This should not be construed as specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice. This represents the opinions of Focus, may contain forward-looking statements, and presents information that may change due to market conditions or other factors. Nothing contained in this presentation may be relied upon as a guarantee, promise, assurance, or representation as to the future. Investing involves risk, including, but not limited to, loss of principal. Numerous representatives of Focus may provide investment philosophies, strategies, or market opinions that vary. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. This is prepared using third party sources considered to be reliable; however, accuracy or completeness cannot be guaranteed. The information provided will not be updated any time after the date of publication

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