When Advisors Have Tax Blind Spots, Clients Leave Billions in Returns on the Table

During a recent interview with ThinkAdvisor, Todd Mackay, president of Avantax Wealth Management, took a moment to reflect on the impending 40th anniversary of the founding of the firm, which will be recognized in 2023.

Back in 1983, one forward-thinking certified public accountant noticed a growing need for clients to receive investment advice that aligned with their tax situations. As Mackay tells the story, in referring tax clients to someone else for financial planning, this often meant the CPA’s clients were placed in inappropriate investments or accounts, resulting in adverse tax implications.

Ultimately, teaming up with other like-minded tax and investment advisory professionals allowed for a much more integrated and tax-efficient client service process — one that the firm continues to champion today.

“We like to say that our tax-smart roots reinvented how financial services could be delivered to clients,” Mackay says.

Since the 1980s, Avantax has grown to support a network of independent tax and other professionals who provide comprehensive financial services to families, individuals and small businesses. Today, the firm works with more than 3,000 independent and employee financial professionals who together manage over $76 billion in assets across all 50 states.

Recounted in the Q&A below are some of Mackay’s top tax insights and lessons he has learned by leading a nationally representative advisory shop through a period of meaningful growth and industry evolution.

THINKADVISOR: In your position as president of Avantax Wealth Management, what do tax-aware advisory services look like and why are they important?

Mackay: Our operational philosophy is that all comprehensive financial planning should be designed with tax management strategies in mind, from the very beginning. That central thesis has really propelled our firm’s growth over the decades, both with our clients and with the advisory professionals who choose to join us as employees or as independent partners.

This is important because of the sheer scale of tax-inefficient investing that is happening today. Our estimate is that as much as $650 billion in tax savings alpha could be realized by advisors and their clients — each and every year. It is a staggering amount of money that could be put back into the pockets of households across the U.S.

We believe we are the only firm with our scale and resources that brings this exclusive focus to bear for our clients. All our advisors, whether they’re independent or are our employee-based advisors, work hand in hand with tax professionals or CPAs, and every financial plan that we deliver has those tax strategies and tax focus inherent in all of the planning that they do.

As such, every strategy we deliver has a tax focus inherent in the plan, and we feel this is a major differentiator in the marketplace.

THINKADVISOR: Do you find CPAs and advisors have an easy time collaborating? What are the biggest challenges that come along with this tax-first focus?   

Mackay: Absolutely. All too often, financial advisors focus on the initial return on investments, without giving any concern to potential tax liabilities down the road. With ongoing dialogue between the tax professional and the financial professional, the focus immediately shifts to strategies that yield the best after-tax results.

The old adage is true, in this sense: It’s not about what you make – it’s about what you keep. When these professionals work together to identify problems and find better solutions, clients gain the confidence of knowing they have a more comprehensive approach to planning.