Form 1040: A marketing tool for wealth management services, part 2

Editor's note: The following is the second of a two-part series.

By R. Bruce Smith, CFP
RBS & Associates

In the first installment of our discussion of the Form 1040, we explained why it's a perfect tool to begin the process of financial planning with an existing tax or consulting client. It provides an annual opportunity for data gathering, which is one of the greatest obstacles to client planning. It also lays out a systematic method for creating follow-up conversations with clients and demonstrates a proactive approach to meeting challenges. It provides a way to develop niche-marketing opportunities for groups of clients by classifying them according to similar characteristics.

In a survey of high net worth households by the Forrester Research Group conducted in 2001, affluent clients overwhelming cited receiving timely and comprehensive advice from their financial advisor as being the primary reason they retained the relationship. Additionally, in a similar survey of wealthy households conducted in 2002, the Spectrum Group found that 83 percent expected their primary advisor to understand their total financial picture. The Form 1040 offers a fundamental tool in developing this type of desired relationship with affluent clients.

Form 1040 also offers a focused approach toward cross-selling opportunities with existing clients. In our seminar "Cross Selling to Tax Clients," we examine several cross-selling factors, including what tax returns indicate about a client's financial life, how to identify possible financial opportunities, how to initiate conversation and follow-up, uncovering needs and challenges, developing a method for organizing a plan and strategy, and how to implement the right solutions.

It is important to understand that this is a reframing exercise of a familiar task for accounting professionals. Certainly all accountants know their way around a Form 1040. But understanding it from the vantage point of a financial planner and financial services sales person is another frame of mind altogether.

Form 1040 reveals portfolio assets, mortgage-refinancing opportunities, illiquid assets that might be converted to better uses and potential needs for diversification. It also reveals retirement planning needs, estate planning opportunities, educational planning, college savings and needs for wealth preservation. Each line documents a fact of an individual's financial life, and if used as a financial planning guide rather than a tax compliance document, it can open the door to an ongoing dialogue with a client that will be productive for all. It is something that is seldom done by the other financial professionals your client deals with and will differentiate you from them.

Let's suppose after tax season you have asked a top client to come in for some planning discussions, offering an hour of your time as an inducement. Let's take a brief look at an example of items you might discuss and possible courses of action as a result.

Portfolio and investment facts flow through to the Form 1040, as we all know. You use this as an opportunity to briefly review the various investment statements that have generated this information. You discuss how the underlying portfolios are structured, what the investment policy is, what goals are being targeted and what risk parameters the client is willing to accept. You determine how the client has gotten into the current structure, and whether there is a real plan involved or only a succession of sales ideas. You separate the taxable assets from the non taxable and qualified, and assess how this fits with the larger picture of the client's assets and liabilities. In a short 30 minutes, with the right questions, you should have a very good sense of what the client's investment and risk situation really is, and should be in a position to offer some preliminary insights and possible improvements. You also have positioned yourself as a knowledgeable source for future questions by the client. And you have positioned yourself as a potential manager for those assets.

As you can see, the Form 1040 provides a natural framework with which a practitioner can begin the process of wealth management with a client. Too often it is ignored by all financial advisors and is viewed by the client as an annual nuisance. Yet it naturally functions as a fundamental data-gathering tool. Given the tax background of an accounting professional, there are unique strategies, discussions and insights that can be offered which will position you as the advisor of choice to your targeted clients.

If you are proactive in your approach and incorporate the use of Form 1040 evaluation into your practice, you will quickly differentiate yourself with your clients and position yourself to reap the rewards.

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