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How Tax Information Augments Wealth Management CRMs to Deliver Better Advice and Drive More Revenue

Responsive AI
April 18, 2023

Getting a full picture of your client’s financial situation is critically important In financial advisory and often one of the biggest challenges. Tax data delivered straight from the IRS with your client’s consent can help advisory firms overcome this challenge by illuminating what’s really happening in their clients’ financial lives.

We’ll start by examining three ways in which tax filings can create opportunities to learn more about a client’s real financial situation and provide better advice, while generating revenue opportunities for your business.

Three Scenarios that Use Tax Data to Enhance Wealth Management Customer Relationship Management

Responsive AI has integrated IRS tax updates and aggregated banking data into our Prioritize dashboard for financial advisors. Each of the following scenarios arise out of advisors having access to this data.

Scenario 1: Job Changes and 401K Rollovers

Sandra Johnson recently submitted a new Form W2: Wage and Tax Statement to the IRS signifying that she’s had a job change. According to tax rules, Sandra’s financial advisor knows there is a 60-day window to seize the opportunity to roll over her 401K to an IRA. The advisor reaches out to Sandra in a timely manner to see what she wants to do. Even if she doesn’t want to do the roll over, there’s still opportunity to have a relevant conversation with Sandra and discuss other held away assets. The result: Sandra gets time-sensitive advice and her advisor either increases Assets Under Management (AUM) and/or has an opportunity to learn more about their client.

Scenario 2: Liquidity Events and Knowing When Money is in Motion

Bill Fowler’s advisor learns that he has recently sold small business assets in a Personal Income Tax (Form 1040) filing with the IRS. Bill gets a call from his advisor to discuss how he wants to invest the proceeds of the recent sale. This gives Bill’s advisor an opportunity to develop a long-term plan for selling other assets and investing the proceeds. The result is a win-win: Bill gets timely advice and his advisor gets an opportunity to increase AUM based on money in motion.

Scenario 3: Capital Gains Declarations Trigger New Investment Opportunities

Jordan Fatherhood’s recently sold home is picked up by his advisor on a capital gains declaration on Schedule B of Form 1040. If Jordan and his partner haven’t purchased a new home yet, then the advisor can open up a conversation on planning. If they’ve downsized, then there are likely surplus assets to potentially invest. Again, Jordan’s advisor gets a heads up about a money-in-motion event that facilitates better advice for their client and an opportunity to grow the practice.

How Tax Data Makes Better Financial Advisor Software

Up-to-date tax information can be used to deliver more targeted, better advice for your clients and ultimately increase the value of the advisory services you provide.

  • Understanding Income Sources: A financial advisor can use a client's tax information to understand where their income comes from, such as employment, investments, or rental properties. This can help an advisor make informed recommendations regarding investments and retirement planning.

  • Identifying Tax-Loss Harvesting Opportunities: By analyzing a client's tax return, a financial advisor can identify any potential tax-loss harvesting opportunities which can help lower the client's tax bill.

  • Analyzing Deductions and Credits: A financial advisor can use a client's tax information to identify any deductions or credits for which they may be eligible.

  • Maximizing Retirement Contributions: By reviewing a client's tax return, a financial advisor can identify any unused contribution limits for retirement accounts and maximize retirement savings.

  • Planning for Charitable Contributions: A client's tax information can also be used to understand their charitable giving patterns and preferences, and make recommendations for tax-efficient giving strategies.

  • Calculating Estimated Tax Payments: Based on a client's previous tax returns, a financial advisor can help calculate their estimated tax payments for the current year, helping them avoid penalties and ensure they are meeting their tax obligations.

Why Tax Data is a Win-Win for Advisors and Clients

Few information sources available to financial advisors are more reliable than tax data because it’s not in the interest of most people to lie to tax authorities. This creates a solid foundation – a ground truth - on which to build a data-driven wealth advisory strategy that can deliver the following benefits to firms and their advisors:

  • Automate onboarding – Tax and aggregated banking data can be used to streamline and automate onboarding new clients.
  • Repair CRM data – Tax data is a reliable way to update contact information, family status, address, children, assets (home, assets held away, income, dividends) and events (options exercised, job change, home downsized), as well as tax specific information that contributes to  client financial wellness (tax lien, status of your tax return, identity theft).
  • Suitability and KYC – The more you know about clients, the easier it is for advisors to meet and exceed regulatory requirements. 
  • Cross-sell opportunities – And finally, the more timely and relevant an advisor’s intervention can be in their client’s real-world timelines, the better the advice that can be offered, the more trust that can be built, and the greater the opportunities to grow the business.

For more information about how Responsive AI delivers actionable insights to advisors, contact the sales team for a live demo.

Responsive AI