The majority of financial planners I have the privilege to engage with say they avoid the area of income tax when it comes to their clients’ planning. Why? They believe it is a specialist field that is best when left to tax practitioners and accountants. They believe it is a high-risk area due to its complexity. My question, is it an appropriate strategy for us to follow? Or are we losing more than we gain in the process?
Is tax really that complicated? Oh yes. It is complex. Not disputing the fact. But so is every other area of financial planning. Investment Planning, Retirement Planning, Estate Planning, Risk Planning, you name it. The one thing all of these areas have in common, is that they all impact the client’s income tax position. And vice versa. Any change in the client’s income tax position, impacts on his or her financial planning. It is of utmost importance to have the ability to see the entire picture.
Avoiding income tax by advising our clients to find a tax practitioner that can help, is not the best approach. It is critical that we are able to deal with and consider the client’s income tax position ourselves. Or at the very least have an appropriate strategy and process in place to facilitate this.
The lost opportunities
We have a tendency to focus on risks and finding reasons to avoid certain things. A whole new world of opportunities reveals itself when we focus on more than just the risks. Income tax offers such a new world for us and our clients.
- Strengthen the trusted relationship with our clients;
- Deepen our understanding of the client’s finances;
- At least 9 opportunities for financial planning and adding value from a tax assessment (IT34);
- Enhanced value proposition to our clients;
- Improved outcomes for clients.
Must we become tax practitioners?
Only when one provides advice on the application of any tax act, or completes and submits tax returns, and charges a fee for either of these, is it necessary to be registered as a tax practitioner. If you want to diversify your practice’s income stream, have a keen interest in tax, have the resources you can employ to run a tax department for your practice, and open more opportunities for your practice, then it can be a good idea to become a registered tax practitioner.
The alternative is not to become a registered tax practitioner, but to become knowledgeable in the area of income tax, to enable us to provide better advice that is inherently more holistic and that enables us to identify and quantify risks and opportunities with regards to the client’s financial planning.
The last alternative is to partner with a trusted tax practitioner that we can closely work with and that will help us in identifying risks and opportunities.
Don’t avoid it, embrace it
Income tax offers many opportunities. The reasons to embrace income tax far outshines the reasons to avoid it. We must determine which option above will best address our own unique needs and practices, and follow through with an action plan. Our clients will thank us for it.
Personal Income Tax for Financial Planning Online Course – Everything you need to know, including learning about the 9 opportunities available from a client’s income tax assessment.
Integrating Income Tax into your Financial Planning Practice – Article written by the author, published in the Financial Planner Magazine by the FPI.
The Tax Tool (Free Trial) – Software that calculates tax, identifies all the opportunities and more (South Africa).
If you are looking to partner with a registered tax practitioner that can help you with all your tax needs in your practice, contact the author.