How to Transform Your Financial Business Model with Tax Services

[ Financial services business models are rapidly evolving and generating intensive introspection for advisors to determine what they specifically do for their clients and how they want to be perceived in their communities. The expanding holistic financial planning movement and the growing threat of rising taxes in retirement are vital factors that challenge the traditional distinction between wealth management advice and accountant/CPA tax services. The more profound financial knowledge needed for increasingly complex investment products and alternatives, along with advanced high-net-worth insurance products and strategies, puts the advisor in a unique position to work with the client’s tax professional and lead an overarching financial strategy.

To help explore how advisors are integrating, or even in some cases, leading with proactive tax planning, we reached out to our Institute Founding Member, Erik Flegal, the Founder and CEO of Fortune Tax Alliance LLC, an affiliate of Family Fortune Financial – a Mount Pleasant, South Carolina-based, SEC-registered investment adviser firm. Fortune Tax Alliance LLC focuses on helping their clients “identify opportunities to potentially reduce taxes, minimize hidden fees, and manage commissions.” In this article, we dig further with questions to understand his insightful perspective. We also learn how he presents his tax mitigation services and establishes a “win-win,” noninvasive tax alliance with the client’s other advisors.]

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Hortz: What initially motivated you to centrally focus on the tax equation to propel the rest of your financial planning services? Can you share your thoughts and strategy development as you put together your new approach and business model?

Flegal: When I started in this industry 20 years ago, I wanted to show immediate value. I was a cold caller and I was good at contacting people and explaining the benefits of working with us. Most of it revolved around planning and better asset allocation. We spent a lot of time on asset selection and got very used to the phrase “past performance is no guarantee of future results.” However, when talking to clients annually, taxes were always the first thing we discussed. It amazed me that we did not have a solution that spent time focused on tax mitigation in the same way that we concentrated on past performance of the stock market.

There have since been strategies that harvest losses, but never a concerted effort to offset taxes more significantly each year. I started at Smith Barney, which became Morgan Stanley, and have worked on technology and sales development. At no point was there any emphasis on tax mitigation or strategy. We had disclaimers that said we do not offer tax advice. I joined Wells Fargo Private Bank, thinking they would take a more integrated approach since they deal predominantly with higher net worth individuals. However, their approach was even more limiting, and they still used the disclaimer that they did not give tax advice.

I saw that most of our high-net-worth clients had more than one advisor and that we needed a way to differentiate ourselves and capture their attention. We recognized the significant value of tax planning as an important aspect of comprehensive financial advice. However, we understand that RIAs are not licensed to provide tax mitigation advice directly. To address this, we established an affiliated entity, Fortune Tax Alliance, to focus on this equally important practice, ensuring that clients receive specialized and compliant tax planning services. Tax planning seemed like a natural evolution of our practice. We determined that there were legal and ethical ways to do this.

Hortz: How did you transform your firm into a tax-forward financial planning business model? What steps have to be taken to make this transition?

Flegal: My first step in learning about this world was asking one of our top asset managers for an introduction to his best estate planning attorney. It just so happened that this attorney dealt with very large households and had rewritten tax code for an offshore jurisdiction. He designed some of the most fascinating structures to help mitigate tax and taught me about them. He also introduced me to many other players. It began a five-year odyssey of learning.

Additionally, the tax code is constantly changing, and the solutions are also evolving. We have worked with our compliance department to design a process to diligence our solutions and create a risk tolerance questionnaire for our clients to help them better understand their rules, structure, and limitations. Some solutions are investments offered by outside firms with unique tax attributes, and others are designed and implemented by outside counsel. Some of our solutions require a legal opinion from an attorney or law firm with a tax specialization.

I would like to emphasize that we are not pioneers. Many of these strategies have been used for years, and many practitioners, from tax attorneys to tax planning professionals, have been helping people navigate their options for decades as well. Our unique skill has been educating and communicating these solutions with clients while collaboratively looping in their professional advisor teams. Fortune Tax Alliance does not provide investment advice or wealth planning services; we focus solely on tax consulting and related services.

Hortz: Why do you feel this is a crucial and competitive financial services business model for financial advisors and the industry?

Flegal: Most advisors are driven by asset gathering. There is no better way to grow an asset base than to help people save money on taxes and manage the saved assets. A very simple example is utilizing an IRA account. If a client funds their IRA account, the advisor gets to manage the assets in the IRA, and the client will have additional money that they save from the tax deduction. At Fortune Tax Alliance, our tax strategies aim to identify potential tax savings, and these savings can then be managed by the client's investment advisor to grow their wealth.

Most clients are driven by growing their wealth. Implementing tax strategies each year can be a way to provide clients with potential benefits that are not correlated to market performance. In a good market year, these strategies can enhance a client's overall financial situation. In a bad market year, these strategies can help clients by potentially reducing the impact of losses. This approach gives clients valuable outcomes to discuss and can enhance their confidence in their holistic financial plan that takes into account both growth of wealth and tax mitigation.

Potentially more important is that certain tax rates are scheduled to rise after 2026. Creating tax-advantaged structures gives clients a powerful tool to try and hopefully navigate a potential tax rate increase. That is why many clients have done ROTH IRA conversions over the past decade. While Fortune Tax Alliance helps identify ways to potentially save on taxes, the wealth management firm, like Family Fortune Financial, can then assist in managing these savings to generate more wealth in the long term. This collaborative approach can help grow a wealth management practice and make it more attractive for client referrals, subject, of course, to acting in the best interest of the client, disclosure of conflicts of interest, and adherence to ethical processes.

Hortz: Can you tell us more about your subsidiary, Fortune Tax Alliance? What are your goals and growth strategy for this advisor support organization?

Flegal: Fortune Tax Alliance (FTA) was born to make tax planning streamlined and accessible to financial advisors. I am a process-driven person, so we developed this company to offer these tax services in a turnkey fashion for the advisor. We created this subsidiary company to distinguish the tax planning from the wealth management side of our business.

Our largest challenge initially was partnering with other financial advisors as a fellow advisor. When it comes to helping other advisors, we want to stay in our lane and be additive to their current advisory group. We never want to compete and take business they have worked hard to earn. We can delineate our tax planning advisor services from our wealth management firm by developing Fortune Tax Alliance as a stand-alone business. Separating the FTA practice from the advisory practice eliminates 80% of partnership anxiety.

Our goal is to offer advisors a resource if their clients are looking into tax mitigation services which they might not have expertise on. As of this writing, we have 23 different strategies and growing. We offer education, guidance, and ongoing support to help advisors feel comfortable with what to offer clients and how to explain FTA, if they want to refer their clients.

We do not charge commissions or offer a financial benefit to financial advisors who refer their clients; we charge a fixed fee directly to the client. Instead, we try our best to recommend strategies aimed at maximizing benefits for the clients, so that we can build a relationship with both the advisor and the client. Although tax planning is process-driven, each relationship takes time to cultivate and educate. Some of the strategies are turnkey, but they take time and precision to implement correctly.

We are currently offering support to high-end advisors through organizations like First Financial Resources (FFR) and larger registered investment advisory firms that see tax planning, or at the very least, access to tax planning, as an important component of client service.

Hortz: How do you help advisors rejigger their mindsets and business models into a tax-forward financial planning model? What have you found has been the most needed support to assist them in this transition?

Flegal: Most advisors are very receptive to making referrals for tax planning when they understand how access to this aspect of a holistic financial planning approach can benefit their clients and build even more trust that they have their client’s best interest in mind. Most advisors have a few business owners or high-income earners in their book of business. Once they know what we do, they can confidently approach these clients and refer to us to address the tax aspect that indirectly impacts wealth in the long term. These tax solutions that we offer may eventually bring new assets for them to manage, which may have been realized through tax savings. It only takes one success for their mind to open to the possibilities.

Hortz: Financial advisors have always been trying to work with tax professionals and other client advisors with mixed results over time. How do you best approach them, and how does your business model or ways of operating help achieve better results?

Flegal: This question hits the core of our value proposition. The historical partnership between a CPA and financial advisor was one of shared clients and leads or a formal professional alliance. There was no enhancement of services. The tax focus was always backward-looking. Our tax planning focus is forward-looking and we provide tax strategies which will eventually require the services of a financial team to turn into specific financial and investment decisions and integrate into their holistic financial planning. The relationship is symbiotic, in a way.

Our model is based on enhancing the solution set that advisors and CPAs bring to their clients. We spend a lot of time and resources educating advisors on our solutions and implementing the strategies in a turnkey fashion. It is not to say CPAs are not doing their job. On the contrary, they are experts in compliance and ensuring that there are no problems with the IRS.

Our best results come from working with collaborative and curious advisors. If an advisor can share some of their client’s situations, we can offer our services to their client base by providing tax planning services through FTA, which can complement the advisor's financial planning efforts. This collaborative approach ensures that all strategies are implemented in the best interest of the client and comply with regulatory requirements.

Hortz: Do you have any other thoughts or suggestions for financial advisors looking for more competitive business models or practice management ideas to grow their firms and better engage their clients?

Flegal: Over the last five years, I have encountered many clients looking for tax planning help. There is room for many more advisors to help. The beauty of collaborating with specialized tax consulting firms like Fortune Tax Alliance is that it offers significant growth potential for independent advisors as they build client trust and satisfaction. They can help direct their clients to resources that address an important aspect of their finances.

This field is fairly insulated against larger firms due to their traditional focus on asset gathering and charging an asset-based fee, which may limit their flexibility. Independent early movers can leverage this collaboration to differentiate their value proposition from larger firms and capture new assets, at the same time, always ensuring that they act in the best interest of the client and adhere to ethical practices.

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