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Gaining Clients With Tax Return Reviews

Advisors can set themselves apart by showing investors how to save money.

Sheryl Rowling, 04/10/2017

It’s not always easy for financial advisors to convert a prospect into a client. In the introductory meeting, the advisor likely will emphasize the firm’s holistic approach, efficient portfolio management, and high level of service. Chances are the potential client will hear this same pitch in each interview of a new advisor. So, how can advisors truly differentiate their services and bring in new clients?

The answer is easier than they might think: Advisors should show potential clients how they can save them money based on their particular circumstances—by reviewing their tax returns in the meeting.

There are secrets in tax returns.

This article will explain five steps to discovering savings opportunities, as well as how to detect common investment mistakes.

1 Interest Income
The first step to reviewing the tax return (Form 1040) is to look at Schedule B, Interest and Ordinary Dividends. Part 1 of the schedule displays sources and amounts of interest income. (E X H I B I T 1 ) When reviewing interest income, consider:

Is the amount of taxable interest income high?
If yes, it might mean that the investor has too much invested in bonds or too much invested in bonds in taxable accounts. Holding bonds in retirement accounts can effectively defer tax on interest income recognized each year.

Is there a high amount of interest income from bank accounts?
This could mean that the investor has too much idle cash that could be invested for higher returns. It might also be a sign that the investor is holding more than the FDIC-insured amount at a particular bank.

Before completing your investigation of interest income, look at line 8(b) on Page 1 of the Form 1040. (E X H I B I T 2 )


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