Getting To Know Your Clients Through a 1040

Getting To Know Your Clients Through a 1040

January 20, 2022

Whether a move is forced or self-initiated, more financial professionals are opening their own doors than ever before. Typically, between legal, operational and client concerns, financial professionals do not always consider the marketing implications. But these professionals often ask me about creating web sites or collateral with information about themselves and their businesses. In many cases, what they need just as much is more information about their prospects and clients. After all, what usually seals the deal—whether it’s a new client or more money from an existing one—isn’t what they know about you but what you know about them.

Wouldn’t it be great if prospects and clients came with information about themselves?

In fact, they can, if you ask them to bring in their tax returns. Not only will a review of their 1040 uncover tax challenges, it may also reveal additional accounts, portfolio holdings, opportunities for charitable giving and other financial planning needs.

While there will be the occasional person who will not want to disclose his tax returns, it is actually a lot easier for a client to reach into his files, pull out his tax return and bring it in than to gather together all his statements and fill in a booklet on his assets and liabilities. Here are some key things to look for once you have a return in hand:

Dependent Needs

Look at the filing status and exemptions to find out about the client’s family and dependents. It is an ideal opportunity to ask about insurance---life, disability or estate protection. At the same time you should inquire about non-dependent children, grandchildren and parents. A client may have goals for these non-dependents such as a wedding for an adult child, college for grandchildren, or being able to supplement her parents’ care. It is an excellent chance to start a conversation about gifting.

Asset Allocation & Investments Held Away

Reviewing taxable and tax-exempt interest as well as dividends or capital gains and losses can give you a snapshot of the person’s current holdings, open the door to a comprehensive discussion of asset allocation, and give you a good idea of what you’re missing.

Taxable interest typically indicates liquid assets, or a possible skittishness about the stock market. On the tax-exempt side a client’s investments may not be providing enough inflation protection, or make sense given current tax bracket.

Examining her other holdings will disclose her current investment philosophy, or that of her present investment advisor. Does it actually reflect her investment goals and risk tolerance? Today many investors are rethinking these questions.

Which brings us to the biggest opportunity, assets not under your management. Since 2008 investors have become more likely to be working with multiple financial professionals. While this reduces risk, in their minds, it can also make it more difficult for an investor to maintain her desired asset allocation.

Additionally, there may be monies the investor is managing on their own. At a minimum, offer to review all of the client’s statements so you can determine if the client’s overall allocation is in place. Whatever the situation, you have created an opportunity for him to talk about it, and that is a significant first step in moving more assets to you.

Charitable Giving

Check the itemized deductions to learn about charitable giving patterns. You’ll want to make sure clients are taking advantage of gifting appreciated assets to avoid capital gains taxes and minimize income tax deductions. This may also provide an opportunity to talk about donor advised funds, with which they may not be familiar.

Referral and Networking Opportunities

A 1040 can even provide referral and networking opportunities if you know where to look. Under the Wages, Salaries, Tips line will be the name of the person’s employer. Since you will now be familiar with their company and its benefits it is a natural lead-in to requesting referrals. (For example, “Do you have colleagues that might benefit from a similar review of their investments?“). If you see more than one W-2 that should also prompt a question about their IRA Rollover.

For a networking opportunity check the bottom when the paid preparer signs. Ask if they are happy with their accountant. If so, ask if you might contact him to coordinate the client’s investment planning
and to add him to your network. If the person is not very happy with their accountant, you have just created a referral opportunity for your network and can ask if they would like a referral to someone you recommend. A 1040 can be a window into a client or prospects finances, if you know where to look.


Author: Libby Dubick

Important Disclosures

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

This article was prepared by Dubick & Associates, Ltd.

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