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Financial services business models are rapidly evolving and generating intensive introspection for advisors to determine what they specifically do for their clients and how they want to be perceived in their communities. The expanding holistic financial planning movement and the growing threat of rising taxes in retirement are vital factors that challenge the traditional distinction between wealth management advice and accountant/CPA tax services. The more profound financial knowledge needed for increasingly complex investment products and alternatives, along with advanced high-net-worth insurance products and strategies, puts the advisor in a unique position to work with the client’s tax professional and lead an overarching financial strategy.
To help explore how advisors are integrating, or even in some cases, leading with proactive tax planning, we reached out to our Institute Founding Member, Erik Flegal, the Founder and CEO of Fortune Tax Alliance LLC, a subsidiary and affiliate of Family Fortune Financial – a Mount Pleasant, South Carolina-based financial advisory firm focusing on helping their clients “avoid overpaying taxes, hidden fees, and commissions”. In this article, we dig further with questions to understand his insightful perspective. We also learn how he presents his tax mitigation services and establishes a “win-win,” noninvasive tax alliance with the client’s other advisors.
Hortz: What initially motivated you to centrally focus on the tax equation to propel the rest of your financial planning services? Can you share your thoughts and strategy development as you put together your new approach and business model?
Flegal: When I started in this industry 20 years ago, I wanted to show immediate value. I was a cold caller and I was good at contacting people and explaining the benefits of working with us. Most of it revolved around planning and better asset allocation. We spent a lot of time on asset selection and got very used to the phrase “past performance is no guarantee of future results.” However, when talking to clients annually, taxes were always the first thing we discussed. It amazed me that we did not have a solution that spent time focused on tax mitigation in the same way that we concentrated on past performance of the stock market.
There have since been strategies that harvest losses, but never a concerted effort to offset taxes more significantly each year. I started at Smith Barney, which became Morgan Stanley, and have worked on technology and sales development. At no point was there any emphasis on tax mitigation or strategy. We had disclaimers that said we do not offer tax advice. I joined Wells Fargo Private Bank, thinking they would take a more integrated approach since they deal predominantly with higher net worth individuals. However, their approach was even more limiting, and they still used the disclaimer that they did not give tax advice.
I saw that most of our high-net-worth clients had more than one advisor and that we needed a way to differentiate ourselves and capture their attention. Tax planning seemed like a natural evolution of our practice. We determined that there were legal and ethical ways to do this.
Hortz: How did you transform your firm into a tax-forward financial planning business model? What steps have to be taken to make this transition?
Flegal: My first step in learning about this world was asking one of our top asset managers for an introduction to his best estate planning attorney. It just so happened that this attorney dealt with very large households and had rewritten tax code for an offshore jurisdiction. He designed some of the most fascinating structures to help mitigate tax, and he taught me about them. He also introduced me to many other players. It began a five-year odyssey of learning.
Additionally, the tax code is constantly changing, and the solutions are also evolving. We have worked with our compliance department to design a process to diligence our solutions and create a risk tolerance questionnaire for our clients to help them better understand their rules, structure, and limitations. Some solutions are investments offered by outside firms with unique tax attributes, and others are designed and implemented by outside counsel. Some of our solutions require a legal opinion from an attorney or law firm with a tax specialization.
I would like to emphasize that we are not pioneers. Many of these strategies have been used for years, and many practitioners, from tax attorneys to tax planning professionals, have been helping people navigate their options for decades as well. Our unique skill has been educating and communicating these solutions with clients while collaboratively looping in their professional advisor teams.
Hortz: Why do you feel this is a crucial and competitive financial services business model for financial advisors and the industry?
Flegal: Most advisors are driven by asset gathering. There is no better way to grow an asset base than to help people save money on tax and manage the saved assets. A very simple example is utilizing an IRA account. If a client funds their IRA account, the advisor gets to manage the assets in the IRA, and the client will have additional money that they save from the tax deduction. Most of our tax strategies work that way but on a much larger scale.
Most clients are driven by growing their wealth. Saving money on taxes each year is a non-correlated-to-the-market way to position advisors to show consistent, tangible benefits annually. In a good market year, these strategies are a feather in an advisor’s cap. In a bad market year, these strategies can help an advisor show value and mitigate some of the losses. This differentiator gives clients something to discuss at cocktail parties and country clubs. The advisor’s practice is differentiated, and that is incredibly valuable in generating referrals.
Potentially more important is that certain tax rates are scheduled to rise after 2026. Creating tax-advantaged structures gives clients a powerful tool to navigate a potential tax rate increase. That is why many clients have done ROTH IRA conversions over the past decade. An advisor who can articulate ways to save on taxes in the long term will generate more wealth in the long term. That is a recipe to grow a wealth management practice rapidly and one that is more attractive for clients to refer their friends, family, and associates.
Hortz: Can you tell us more about your subsidiary, Fortune Tax Alliance? What are your goals and growth strategy for this advisor support organization?
Flegal: Fortune Tax Alliance (FTA) was born to make tax planning streamlined and accessible to financial advisors. I am a process-driven person, so we developed this company to offer these tax services in a turnkey fashion for the advisor. We created this subsidiary company to distinguish the tax planning from the wealth management side of our business.
Our largest challenge initially was partnering with other financial advisors as a fellow advisor. When it comes to helping other advisors, we want to stay in our lane and be additive to their current advisory group. We never want to compete and take business they have worked hard to earn. We can delineate our tax planning advisor services from our wealth management firm by developing Fortune Tax Alliance as a stand-alone business. Separating the FTA practice from the advisory practice eliminates 80% of partnership anxiety.
Our goal is to help advisors understand and implement the tools they have available. As of this writing, we have 23 different strategies and growing. We offer education, guidance, and ongoing support to help advisors feel comfortable with what to offer clients and how to explain FTA.
We do not charge commissions; we charge a monthly fee because we can maximize benefits for all involved through an ongoing relationship with the advisor and the client. Although tax planning is process-driven, each relationship takes time to cultivate and educate. Some of the strategies are turnkey, but they take time and precision to implement correctly.
We are currently offering support to high-end advisors through organizations like First Financial Resources (FFR) and larger registered investment advisory firms that see tax planning as the next frontier of their client service.
Hortz: How do you help advisors rejigger their mindsets and business models into a tax-forward financial planning model? What have you found has been the most needed support to assist them in this transition?
Flegal: Most advisors are very receptive to tax planning when they understand how this differentiates and grows their practice. Most advisors have a few business owners or high-income earners in their book of business. Once they know what we do, they can confidently approach these clients and offer new strategies. These solutions can bring new assets to manage, which are realized through tax savings. It only takes one success for their mind to open to the possibilities.
Over the past two years, we have worked hard to create a process for showing clients and advisors how we work as a team. The process is 5 steps and if we cannot provide immediate monetary value, we will not engage. The gross cost and net benefit to the client is very clear, and advisors interested in revenue sharing can also participate.
Hortz: Financial advisors have always been trying to work with tax professionals and other client advisors with mixed results over time. How do you best approach them, and how does your business model or ways of operating help achieve better results?
Flegal: This question hits the core of our value proposition. The historical partnership between a CPA and financial advisor was one of shared clients and leads or a formal professional alliance. There was no enhancement of services. The tax focus was always backward-looking. Our tax planning focus is forward-looking and requires the participation of all members of a financial team to implement appropriately. The old model was quid pro quo, whereas the new model is symbiotic.
Our model is based on enhancing the solution set that advisors and CPAs bring to their clients. We spend a lot of time and resources educating advisors on our solutions and implementing the strategies in a turnkey fashion. It’s not to say CPAs are not doing their job. On the contrary, they are experts in compliance and staying in the good graces of the IRS. For most, there is not enough time to design a thorough tax planning strategy and keep that strategy up to speed with the changes in tax code. They simply have too many clients.
Our best results come from working with collaborative and curious advisors. If an advisor is confident enough to share some of these client situations, we can significantly impact their client base and do so reasonably quickly.
Hortz: Do you have any other thoughts or suggestions for financial advisors looking for more competitive business models or practice management ideas to grow their firms and better engage their clients?
Flegal: Over the last five years, I have encountered many clients looking for tax planning help. There is room for many more advisors to help. The beauty is that this arena is fairly insulated against the larger firms due to their antiquated mindset of focusing on asset hunting and charging an asset-based fee. It keeps them from competing in any other way. This is truly an area of growth for independent early movers. It is also a wonderful way to distinguish value from that of larger firms and capture assets.
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