Your Financial Planner, CPA and Attorney Work Best When They Work Together

Three people working together in an office

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Imagine you had a sizable tax-loss to carry forward — a position that can give investors a lot of flexibility and provide a cushion against capital gains. Knowing that you have this arrow in your tax quiver, your adviser might look to upgrade your portfolio by trimming gains and deploying those proceeds into investments that have lagged, assured that these moves are taking place in a tax-efficient way.

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Now imagine that same situation where your adviser was unaware that you had already used up those losses. What was meant to be a portfolio upgrade could instead become a tax liability. Surely, you would be displeased and you may very well be looking for a new adviser.

Thankfully, those situations can be sidestepped by having open lines of communications with clients’ accountants. At my firm, we proactively coordinate with the other professionals our clients engage with anytime our work overlaps with theirs. We want to make sure that any moves we make will be a benefit when looked at from all angles.

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I wish more financial advisers would do the same.

The case for coordination

It’s not unusual for clients to think of their financial lives in silos. If they need advice on finances, they engage a financial planner. If they’re looking for sophisticated tax strategies or structuring the sale of their business, they consult with an accountant or attorney, respectively.

But I would argue that clients could get so much more out of each of these interactions if they worked with these professionals in a holistic way.

Without open communication and coordination, the professionals you rely on could be unwittingly undermining the work of others. Even the most forthcoming of clients may lack the knowledge on all the details of the work they’ve done with an accountant or attorney. We don’t expect our clients to be tax or legal experts, which is why they hire these professionals in the first place. So we confer with the people with the knowledge of these topics to work toward the better solutions for our clients.

How an accountant can help

Whenever we begin working with a client, we ask to see their tax return. The 1040 reveals a lot about what’s going on in their lives. Are they on track for retirement? Is college education a priority? Have they taken the steps to enact the necessary legacy planning? The tax return contains many of these details.

But sometimes we can’t get access to the tax return. A busy client may forget to supply it, or they might have an incomplete version. Other times, there might be items in the return we don’t understand, and we need additional insights to make sense of it. That’s when we seek out the expertise of an accountant to fill in the gaps.

There are several situations where working directly with a client’s accountant helps us better serve our clients.

Tax planning: Tax efficiency is a key consideration whenever we make investment decisions because we consider taxes to be a key friction point on portfolio performance and we want to avoid that. But we’re not tax planners. That takes place on the individual level with an accountant. That’s why periodic check-ins with our clients’ outside accountants can help us make sure our work adheres to any of the long-term tax planning they are doing.

In particular, we want to be in communication near the end of each year, when accountants have a clearer picture of our clients’ tax liability. For example, if an accountant identifies a big tax liability, we might be able to do some tax-loss harvesting by selling declining shares to offset gains. Alternately, if a client is experiencing a dip in their taxable income, we might suggest a Roth conversion of their individual retirement account to take advantage of them slipping into a lower-than-usual tax bracket.

Retirement planning: Another situation that comes up a lot for our clients who are business owners is the decision to set up retirement plans for themselves and their employees. First, we want to make their accountant aware that we’re doing this. In addition, we need to understand the client’s taxable income so that we can advise them on how much of a contribution they can make. Some clients have a good grasp on this. More often than not, they don’t have the exact amount at their fingertips, so it’s imperative that we consult with their accountant.

Sale of a business: When we’re advising clients on the sale of business, we need a clear understanding of their tax situation. By knowing this ahead of the sale, we are able to tailor our advice appropriately — and more importantly, make sure to set aside enough funds to cover any taxes they will owe so there wouldn’t be any nasty surprises at tax time.

Clients who are in the middle of selling their business can’t be expected to know the granular details of their tax liability. Their attention is focused elsewhere, and we don’t want them to have to take their eye off the ball. That’s why we want to be in touch with their accountants.

Working with attorneys

Likewise, coordinating with our clients’ outside attorneys can also help us work toward better results for our clients. At first blush, it might seem that attorneys and financial planners wouldn’t need to consult one another because their domains seem so different. In reality, we can each inform the other’s work. For that reason, we start our engagements with clients with a document review to ensure that beneficiaries are correct and that everything is up to date.

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That’s something that we as financial planners can flag because we talk with our clients on a quarterly basis, if not more. But attorneys don’t have as many points of contact. They may only be in touch every few years when a major issue arises and therefore might not be aware of smaller issues.

There are two cases in particular where consulting with an attorney is especially important.

Estate planning: Certainly, clients need an estate planning attorney to execute wills and trusts to make sure their estate planning needs are met. But clients may not be aware of other estate plannings issue that they may have on their hands. Even when a client has taken the necessary estate planning steps, those plans need to be updated on a regular basis so they still comport their current situation.

In addition, there are a number of estate planning opportunities we want our clients paying attention to. With the current estate and gift tax exemptions of $11.58 million set to sunset in 2025, we want to work with estate planning attorneys to identify strategies to lock in those high exemptions through lifetime gifting before any tax law changes come down.

Divorce planning: We can also be of service to clients who are going through a divorce. Given the current divorce rates in our country, it’s a situation we deal with a lot.

When attorneys work with divorcing clients, their goal is to get the best settlement for their clients and allow clients to move on to the next stage of their lives as quickly as possible. But what may appear to be a favorable settlement, might not serve a client well long-term. We are able to run through different scenarios to understand the impact it might have on their post-divorce cash flow and retirement.

For example, a client may believe that being awarded the family home in the divorce is a win. But the home may end up being too big a drain on their post-divorce resources. It may be better in the long term to sell the home, divide the proceeds and use some of those assets to supplement retirement savings.

As advisers, we have a good handle on what’s going on in our clients’ lives, but we don’t know everything. By working hand-in-glove with our clients’ accountants and attorneys we can work toward getting a more complete picture and providing our clients with holistic advice.

Disclaimer

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment adviser. Private Advisor Group and Bleakley Financial Group are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Bleakley Financial Group and LPL Financial do not provide legal or tax advice or services. Please consult your legal or tax adviser regarding your specific situation.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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For over 30 years, Andy Schwartz has provided financial planning and wealth management services to clients throughout the country. As an independent adviser, his advice and guidance is always personalized and focused on the client's success. He is the founder and principal of Bleakley Financial Group, a wealth management firm servicing over $5.5 billion in client brokerage and advisory assets.