Top 10 value-added services your investment advisor should provide

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Beyond investment recommendations, what services should your investment advisor provide? We asked Brett S. Miller, CPA, a wealth manager at Select Consulting, Inc., what are the top 10 value-added services that advisors should be providing to their dental clients.

1. Deduct investment fees through your practice. Most doctors have the investment fees for their retirement plans automatically deducted from their accounts. Miller recommends that your advisor bill your practice instead. This allows you to maximize your tax-deferred savings and immediately deduct the investment fees at today’s higher tax rates.
2. Tax-free conversion to Roth IRA in 2010. As we discussed in our January column, recent tax law changes make it possible for doctors and spouses to have a tax-free Roth IRA beginning in 2010. The key is finding an advisor who understands the applicable tax laws and can guide you through the conversion process properly at the least possible tax cost.
3. Tax planning strategies. Advisors should provide their clients with year-end tax planning strategies related to their investments. Based on each client’s individual tax situation, transactions can be undertaken to harvest tax losses or offset capital gains with losses. For clients with charitable intentions, advisors can assist with gifting appreciated securities to charitable organizations or establishing a donor-advised fund.
4. Different asset allocations based on account registrations. Based on risk tolerance, investor intelligence, and investment horizon, an advisor needs to help clients determine their appropriate asset allocations between stocks and bonds. Miller recommends different asset allocation among different types of accounts to optimize tax benefits. Tax-deferred retirement accounts should be more conservatively positioned and focus on income generation, while after-tax personal accounts need to be positioned for capital gains and dividends growth, taxed at a maximum 15% rate for federal income tax purposes.
5. Investing health savings accounts (HSA). Most doctors have their HSAs invested in a money market account at their local bank earning 1% or less. Miller suggests using HSA custodians that allow the assets to be invested in no-load mutual funds with no monthly fees to help doctors build a tax-free savings vehicle to meet health-care costs in retirement.
6. Investing children and family limited partnership (FLP) accounts. Many times, children’s accounts (529 plan, ESAs, UTMAs, etc.) and FLP accounts have smaller asset balances. Many advisors have no interest in managing these accounts and place the investments in high-commission products or subject the account to an annual fee. Miller disagrees with this practice and feels that advisors should help their clients establish, fund, and manage these accounts at no charge.
7. Fee breaks and no-fee accounts. Advisors should have their objectives aligned with their clients’ – to increase assets and build wealth. Thus, an advisor’s fees need to be fair with respect to the assets they manage. Miller suggests that doctors use fee-only advisors who charge a percentage of assets under management. They should avoid commissioned-based products and seek advisors who give fee breaks as clients approach the $1, $2, and $3 million thresholds. Advisors should also offer to manage several of their clients’ accounts on a no-fee basis. For example, fees should not be assessed on smaller children’s accounts or individual bond portfolios that require no active management.
8. Taxable conversion to Roth IRA after practice sale. In the year(s) following their practice sale, doctors should live off the sale proceeds, which results in little, if any, taxable income. For some, this may be a good time to convert taxable IRAs to tax-free Roth IRAs. By utilizing lower tax brackets, doctors can convert portions of their IRAs to Roths at very favorable rates. Your advisor will need to run income tax projections to determine the appropriate amount to convert.
9. Timing distributions in retirement to reduce taxes. Miller says advisors need to help their clients determine from which accounts (taxable, tax-deferred, tax-free) withdrawals should be made to meet cash flow needs in retirement. Advisors also need to plan and assist clients with required minimum distributions from IRA accounts, and help them regarding when to start Social Security benefits.
10. Trust services to provide continuity in investment planning. Bank trust departments are often impersonal and expensive. Consider naming a lower cost custodian (e.g., Charles Schwab) as trustee to allow continuity of your advisor’s involvement and investment philosophy with your family.

John McGill provides tax and business planning exclusively for the dental profession and also publishes "The McGill Advisory" newsletter through John K. McGill & Company, Inc., member of The McGill & Hill Group, LLC. Brett Miller provides investment advice through Select Consulting, Inc., a registered investment advisor and affiliate of The McGill & Hill Group, a one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit www.bmhgroup.com for more information.