As RIAs look to expand wallet share and attract clients, holistic services like tax planning and preparation have emerged as crucial ventures. Still, not all firms — whether by choice or due to limitations — are taking that path.
Research suggests that roughly 1 in 6 firms now include tax preparation among the suite of services they offer to clients. Adoption, however, is far from even across the industry. In an Arizent survey of 250 financial advisors, firms with larger AUM figures ($500 million to $1 billion) reported using tax preparation software more than twice as often as firms with less than $100 million in AUM.
Among those larger firms, tax preparation software is used 56% of the time. At sub-$100 million AUM firms, that figure drops to just 24%.
Advisors say the divide between smaller practices and larger RIAs reflects differences in scale, resources and client demand.
“It’s a very hard business to execute for a smaller RIA. … It takes a pretty substantial investment that I think the average smaller to mid-size firm probably doesn’t want to think about making,” said Dave Alison, president and founding partner at Prosperity Capital Advisors in Charleston, South Carolina. “But I think the bigger firms have started to see that this is where the puck is going. Smarter, wealthier, more sophisticated clients want a one-stop shop.”
Can RIAs become a one-stop shop for their clients?
The idea of a holistic financial professional has grown increasingly popular in recent years. The share of clients who prefer a one-stop shop for their financial needs has increased by 60% since 2019, according to a 2023 McKinsey survey. Tax preparation, specifically, stands as one of the biggest points of interest for clients.
Alison, who started his career working at a business that helped advisors integrate tax preparation into their planning practice, said that offering tax planning and preparation services has been a cornerstone of his RIA from the start.
“It’s a huge part of what we do in-house, and really kind of one of our major uniques as an organization,” he said.
Still, even for Alison’s $3.7 billion-AUM firm, it isn’t always feasible to handle every instance of tax preparation in-house.
“Our core is, especially on the tax preparation side, really the individual, you know, kind of 1040, preretiree, retiree, high-income earning executive, maybe small business owner,” Alison said. “But when we start to get into clients that have much more complex business entity structures — partnerships, C corporations, you know, I think there’s still a lot of valuable collaboration with CPA firms that specialize in dealing with those types of clients.”
Developing the scale to manage complex, often one-of-a-kind cases is no small feat. For The Planning Center, a national RIA, the goal of offering such services led the firm to merge with a tax preparation business in 2012.
Even at that time, client demand for a more comprehensive financial services experience was clear, said Matt Knoll, a senior financial advisor at The Planning Center in Moline, Illinois. Before the merger, the firm surveyed clients about potential service improvements, and the most common response was a desire to have tax preparation available alongside financial planning, Knoll said.
With a dedicated tax team, the firm now prepares taxes in-house for a majority of its clients. But, even with the comprehensive offerings, a portion of clients continue to work with an external tax preparer.
Sometimes clients just want a financial advisor
For all the industry talk of holistic planning, advisors say many clients are still comfortable relying on a mix of different professionals to meet their financial needs.
While the share of clients who prefer a one-stop shop has increased dramatically in recent years, just over half of those surveyed by McKinsey had no preference for holistic financial planning.
Patrick Huey, founder of Victory Independent Planning in Camas, Washington, said he considered integrating tax preparation into his firm’s offerings but didn’t see much interest from his current clients.
“Our clientele, either they’ve already got somebody they’re working with to do the preparation side of things, or they do it themselves,” he said.
Still, Huey said he’s prepared for that to change.
“It could be transitory, right? This could be something that a year from now they’re begging us to do,” he said.
“I think that people are going to keep pushing the boundaries of what financial planning practices do,” Huey added. “So, when I say it’s transitory, is it something that is on our radar to do immediately? No. But I fully understand that the entire industry is changing in front of our eyes.”
