Form 1040: A marketing tool for wealth management services, part 1

By R. Bruce Smith, CFP
RBS & Associates

It's tax season, and a client brings in his tax data for a meeting to discuss filing for the year. As is often the case, you plow through the mountainous information, verifying that all the necessary information is available.

During discussions, the clients mention their rental property and some current issues pertaining to the Schedule E. They also mention several capital loss issues relating to Schedule D. There are other general comments regarding their investments, their retirement planning (with a few jokes about working until age 80) and other issues they feel are important. Being a good listener, you ask a few pertinent questions, make some relevant notes and assure them you will discuss these items after the crush of tax season.

A month after tax season, you call the clients into your office for a meeting. You explain that you have had an opportunity to analyze the issues regarding their rental property and agree it is losing money from a cash flow perspective. You also note their displeasure with the headaches of being a landlord. You point out that you have inquired through a real estate associate about the value of the property and determined the property could represent a tidy capital gain.

You also have analyzed some of the tax implications and found the capital losses from their stock portfolio that have been carried forward would provide shelter for the gains from the property. You also have reviewed their retirement portfolio and determined that reinvesting the gains and reallocating the portfolio would result (based on conservative assumptions) a significant likelihood of them being able to retire before age 80. You have investigated several investment possibilities and have some recommendations of suitable investments involving some insurance annuities and mutual funds. You would recommend the clients consider making the suggested changes and offer to handle all the details for them.

Your clients is thrilled that you have already determined a solution to a problem that had been plaguing them for some time, and they are ready to make a change. You call the real estate associate, introduce them to the client and begin the process of selling the property. The clients want to begin the investment process with a start-up amount, so they decide to roll over a bank certificate that has just come due. You set up an account through your broker dealer, putting all the necessary paperwork in place. The clients mention they have also considered taking advantage of the low mortgage rates, and you refer them to the mortgage subsidiary of your firm. They also ask you to do a through review of their existing portfolios and, given that they own a successful business, also ask you to review their estate plan and the company's retirement plan, with recommendations for any necessary changes and tax planning advantages.

It's only 10:30 in the morning, and you've already made a profit for the day.

And by the way, the client asks you to come to lunch with his two business partners and discuss taking over the corporate work for the company — and maybe their personal portfolios and tax work as well. Next month, he'd like you to be his guest at the trade association dinner and outing for his industry (given that he's the incoming president) and meet the other officers and Executive Board members.

All of this as a result of one item from Form 1040.

What else might be hidden in the other 900 returns from this past tax year?

According to AICPA President Barry Melancon, "CPAs are uniquely qualified to offer personal financial planning advice because of their comprehensive, analytical and strategic approach to problem solving, decision making and information delivery." Form 1040 offers a financial planning and sales tool unlike any other, because it provides a snapshot of much of the client's financial life.

As a CFP, I have always considered Form 1040 one of my primary financial planning tools. As a stockbroker, I have always considered it one of my greatest sales and prospecting tools. I have always wondered why the accounting profession was not leveraging its value.

"Personal financial planning is becoming a virtual necessity," Melancon says "It's a market available for a dominant player to claim. If we still hesitate to move into our market niche as the professional of choice in financial services, that position may fall to another."

In Part 2, we'll look at using Form 1040 as a wealth management tool.

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