Your “Big Name” Financial Advisor is Costing You “Big Bucks"

Robert Falcon |

The Greatest Value an Advisor Offers Lies Outside Investment Management

I write often about the dangers of sending your kids to “elite” schools. Why? While these schools may be well known, you often grossly overpay for the degree as you can get a better educational “bang per buck” elsewhere. Parents who send their kids to these schools get to boast about the “name brand” school their child attends. Brand trumps value to these parents, and as a result, many of these parents carry their parental student loans (PLUS, credit card, and home equity debt) into retirement.

Similarly, many families choose a financial advisor with a big household name. You know them. You see their advertisements on television, so they must be really good, right? While these families again can boast about the name recognition, they do not receive the combined tax, financial, retirement, and college financial planning “bang per buck” they can get by hiring a more attentive and responsive tax focused advisor at the same price.

In this Part 1 of 2 blogs, you will read actual examples where I utilized tax planning expertise to save my clients significant dollars. How many of these services are you receiving from your advisor? If you aren’t working with a financial advisor who is also a tax professional, the answer is “not many.”

Roth Conversions

Roth conversions are ideal when a taxpayer is in a low tax bracket. The tax rates put in place due to the 2017 Tax Cuts and Jobs Act were the lowest in decades, and I know these rates will automatically go up in 2025 (at the latest). While most of my clients have a healthy income, I had one client with a startup business (i.e., low income) and a significant IRA balance who was a prime candidate for a Roth conversion.

In late March 2020, the market was getting crushed due to Covid-19, and some of the small cap and ex-US funds I used in my client’s portfolios were down 40% or more. In fact, their prices were the same as they were 2016.

I am not a market timer, and I had no idea if the market would fall further. What I did know was (1) the market would recover (after a cure or a vaccine was discovered), and (2) my clients could enjoy a 40% tax discount at that time thanks to the market decline. I executed a Roth conversion for this client by moving the depressed funds from his IRA to his Roth IRA and he paid the tax. One year later (March 20, 2021) those same funds were almost 70% higher than the date of conversion. My client will never pay tax on the 70% growth nor any future growth of these funds.

Contributing Appreciated Stock to Charity

Clients with charitable intent and appreciated securities in taxable (brokerage accounts) do not need to use cash to make charitable contributions. They can contribute appreciated stock/mutual funds/ETFs to a charity or a Donor Advised Fund (DAV) and receive a charitable deduction on their tax return equal to the current fair market value of the stock. Therefore, if a fund purchased for $5,000 is held for more than 12 months and grows to $9,000 and is then contributed to charity, the client will get a $9,000 charitable deduction and will not pay any capital gain tax on the $4,000 appreciation.

After rebalancing one client in March of 2020, his $19,000 Small Cap fund investment doubled over the next year to $39,000. They recently contributed $25,000 from this fund to a DAV (saving $8,750 in taxes) and will direct contributions to their charities from the DAV over the next few years.

Using Appreciated Company Stock to Fund College

One of my clients amassed a significant amount of appreciated company stock before coming on board as a client. As part of a program to lower his concentration, I designed a gifting strategy whereby he was able to avoid capital gains taxes on the stock while funding his 2 young sons’ college education.

I instructed him to gift shares worth ~$15,000 (individual gift tax limit) into each child’s UTMA account. I made sure that the shares gifted to each son had appreciated just under $2,200 to avoid the “Kiddie Tax.” Soon after the stock was gifted, the stock was sold in each child’s account, triggering a long-term capital gain that was taxed at each child’s 0% capital gains tax rate. The maximum annual Coverdell contribution of $2,000 was transferred into each child’s Coverdell Educational Savings Account, where (unlike 529 plans) it was invested in high growth mutual funds and/or ETFs. The remaining balance was then contributed to each child’s UTMA 529. I prepared the tax returns for the parents and both kids for free as tax prep is included in my fee.

This client continues to receive company stock in the form of RSUs and stock options, and we repeated this gifting exercise in 2021 and will continue this practice in future years.

Maximizing Workplace Retirement Plan Contributions

Many of my clients do a great job of maximizing their contributions to their workplace 401K ($19,500 in 2021, or $26,000 if over age 49). The company will match these contributions each period they are made, but there is no company match for periods when the employee does not make a contribution.

Unfortunately, I saw that many of my new clients were reaching the maximum contribution limit in July or August, as their companies withheld 401(k) contributions on both their base salary and their annual bonuses. Since they were no longer making 401(k) contributions after August, they missed out on the company match for 5 months or so. I monitored their contributions through the year then had them lower their contribution percentage to make sure they receive their company match through December.

Correcting Employer W-2 Mistakes to Save Thousands

One senior executive at a pharmaceuticals company participated in his company’s non-qualified deferred compensation plan. While his employer properly excluded the deferred income from federal wages from 2015 – 2020, the deferral was not reflected in his PA wages, so he paid PA tax each year on his deferred comp. Therefore, my client should not pay PA tax again on the deferred amounts (which totaled $90,000) when paid out.

My client was involuntarily terminated from his job in 2020 and the full amount of deferred compensation was distributed to him. Unfortunately, the PA wages shown on his W-2 were not reduced by the $90,000 upon which he had already paid PA tax. I provided the taxpayer (and his employer) with a reconciliation of prior year PA and Federal wages, guidance on the pertinent PA tax law, and a clear explanation of the employer’s error. My client was subsequently issued a corrected W-2 that reported PA wages $110,000 lower, saving him $3,377 on his 2020 Pennsylvania Income Tax return.


Look in the mirror and ask yourself if you are receiving these kinds of services from your financial advisor. What value are you getting for the fee you are paying?