Obviously, tax returns need to be in compliance with tax rules and regulations. Nobody looks good in an orange jumpsuit. Beyond that, I work with clients to identify opportunities where they exist and plan ahead to avoid surprises.
The first general rule with income taxes is that any and all income, regardless of who paid it or how they made the payment, is taxable at regular income tax rates. The tens of thousands of subsequent pages of regulations are effectively the exceptions to that first rule. There are many times where taxpayers do have lawful tax options to choose from which offer different tax results. I help clients identify and navigate those areas.
I also work with clients to plan ahead to help avoid surprises with their tax returns. When I complete a client's return for the year, I also run an initial projection for the next tax year. If your tax bill is looking to be thousands of dollars different next year, I think it's better to know that ahead of time. I also help clients make adjustments to manage refunds or balances due. Some clients prefer a refund, others prefer a balance due. My goal is to help clients avoid expecting one and getting the other.
Our tax return fees include 2 hours of tax planning services during the year, so there's no extra cost to clients for most of these basic planning strategies.
Personal finance is primarily personal, and life is a lot more than a spreadsheet. I really like Morgan Housel's idea of developing a financial plan that helps you sleep well at night. Peace of mind varies by person, but is mistakenly overlooked in almost all financial plans. My goal is always to illustrate options and let clients choose the path they're most comfortable with.
The way I think about finances is a combination of my education, my own life experiences (wins and losses along the way), observations from working with clients, and wisdom from a laundry list of others that's too much to itemize here. The blog posts on our website offer some additional insights.
For the vast majority of investors, simple diversified portfolios with an adequate savings rate over time will get the job done. People run into problems when they try to juice the returns because they're not saving enough. I defer to simplicity unless there's a compelling reason and clear value proposition to making things more complicated. Most of the time there is not.
For decades, Morningstar's research has found that the single best predictor of investment performance is low fees. Investing is one of those areas where paying more doesn't always get you more. I help clients to understand what they are paying in fees on their accounts and whether the fees are at a level they're comfortable with. I always consider fees when making recommendations and work to keep them as low as possible. Our firm only charges hourly fees for plan development.
The research on active vs. passive investment management overwhelmingly supports a passive approach. A recent study found that across a 20 year window, 95% of active managers did not outperform their benchmarks. The reality is nobody knows what the price of a stock or the market will be next week much less next year, so it doesn't make a lot of sense to pay big fees for guesses (even if they're highly educated guesses). The experts of finance actually have a pretty awful track record when you really look at it.
That said, there can also be shortcomings with a mindless indexing strategy. Valuations (prices paid for investments) are a crucial component in investment returns and are often ignored entirely with passive investing. Paying relatively higher prices is going to take a toll on returns. There's no way around it: returns are calculated based on the price paid. Holding other things equal, higher prices mean lower returns.
My personal opinion is that a buy and hold strategy that's mindful of valuations and fees on top of an adequate savings rate is very likely to be a successful strategy over time. Basically that means investing like an owner instead of a trader, not overpaying for assets or advice, and having the discipline to save a reasonable amount of your earnings for a reasonable number of years.
A lot of investment surveys will ask clients how much risk they're willing to take, without considering whether the risk is necessary. If you can achieve your financial goals with little risk, then why would you roll the dice? Taking risks that you don't need to take will catch up with you in the long run.
A lot of financial advisors sell investments that include fees at the time of purchase (loads or commissions) or have higher recurring annual fees (expense ratios). Other advisors may charge fees for managing the client's level of investments (like assets under management fees).
While baked-in fees means a client doesn't have to separately pay their advisor (which can be convenient), it also means clients may not know how much they're paying in fees (which can be a problem). If you don't know how much you're paying in fees, or if you mistakenly think you're not paying any fees at all, you might be unpleasantly surprised.
I think the fees charged to clients should align with the actual services the advisor provides, so I charge clients an hourly rate for plan development. Plan development time will vary by client, but a basic plan can generally be put together for about the same cost as a tax return. This pricing is transparent, easy to understand, and aligns the fees with the work that's actually done for clients.
The main differences clients comment about include:
- no product sales pressure
- transparent fees based on the work provided
- integrated tax and financial plans
- focusing on the clients whole financial picture and not a single product or account
Clients will often need to work with other professionals in executing their financial plan. This could include an attorney for a will, an insurance agent for a new policy, a banker for a mortgage or refinance, or others based on client needs.
Clients are always able to use a professional they have an established relationship with. If requested, I can offer referrals within my network of professionals as well. To avoid conflicts of interest, I don't receive or accept any referral incentives from any third-party professionals.
ASHLAND ADVISORS, PLLC
Luke Speltz CPA, CMA | 5235 Bulldog Avenue | Van Meter, Iowa
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