Advisors need to take the long view when it comes to soothing clients’ tax fears and help them connect with their future selves, according to Steve Zuschin, EVP and Director of Advisor Sales at LifeYield. That can be hard to do when the prevailing message is to act now.
“All of the things that we’re reading about in the press that’s getting so much attention right now around these proposed changes is that if they get approved this year, it’s too late; it’s too late to make short term adjustments to avoid any consequences,” Zuschin said.
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Zuschin reminds advisors that conversations about tax reform proposals are based largely on speculation.
“It’s the same type of speculation we generally avoid with our regular investing. When it comes to investing in super risky stocks or things that we’re not really sure on, we really wouldn’t allocate that much time or resources to it.”
Making portfolio changes based on something that might happen “could prove to be consequential financially, where really you avoided something that never came to fruition anyways.”
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To help clients manage anxiety around this uncertainty, he encourages advisors to show them a more holistic view of their finances.
“I think the general public is pretty intimidated by these topics and just see the headlines, so just giving them a really good understanding of what it means to them in dollars and cents” can go a long way toward preventing knee-jerk reaction.
For example, most plan participants are in a tax bracket that will be unaffected by any of the proposed changes, Zuschin said. Advisors can help their clients determine “whether or not they will be financially impacted themselves, and from there, talk about what are some of the things we can do. I like to look at it from like a tactical versus strategic standpoint.”
In fact, proposed tax changes can represent an opportunity for advisors, especially those serving younger people with more earning years ahead of them.
“If they’re worried that tax rates will go up, that should be more incentive to be saving more and take advantage of the tax rates that they have today,” he said.
Getting participants to opt in to a retirement plan can be a challenge in the best of times. Zuschin advises changing the conversation to talk about what today’s financial decisions will cost their future selves.
“Let’s say we have $500, and you want to go spend it on something that gives you an immediate reward today versus saving it in the plan,” he explained. “Let’s look at what that $500 could potentially be worth when you reach retirement. Would you be willing to spend that much money on the thing that you’re considering buying today?”
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Danielle Andrus works as an editor for The Financial Planning Association® (FPA®). Over the past 15 years, she has worked in various capacities, including writing and editing. Andrus has worked for several notable publications and outlets and spent more than seven years as the executive managing editor at ALM Media, publisher of Investment Advisor magazine and ThinkAdvisor.com. Before that, she was online editor for Summit Professional Networks, where she oversaw newsletter development for four magazines, including Benefits Selling, Senior Market Advisor, Boomer Market Advisor, and Bank Advisor.
