As tax day approaches, the reality of the most dramatic tax reform package in nearly 30 years has apparently begun to sink in among advisors, with fewer believing that their clients will benefit than thought so in 2018.
Advisors reporting that the majority of their clients will benefit from the massive tax reform act has declined by 10 percentage points over the past year—to 69 percent in 2019 from 79 percent in 2018, according to the fifth annual Advisory Authority study commissioned by Nationwide Advisory Solutions, formerly Jefferson National.
"When the 2017 Tax Cuts & Jobs Act was passed, the vast majority of RIAs and fee-based advisors anticipated clients' anxieties and began taking action," said Craig Hawley, Head of Nationwide Advisory Solutions. "But as our latest … study shows, the benefits of tax reform were not as widespread as originally expected, and both advisors and investors continue to say that taxes are a top concern."
While nearly 70 percent of advisors reported client benefits from tax reform, they also agree that taxes will be among the top factors to adversely impact investor portfolios over the next 12 months, according to the survey of nearly 1,600 RIAs, fee-based advisors and individual investors conducted online by the Harris Poll.
Just as advisors are now less likely to believe that their clients will benefit from tax reform, the number of advisors who believe their practice will benefit from tax reform has also declined nearly 10 percentage points—to 68 percent in 2019 from 77 percent in 2018.
Despite the challenges, nearly two-thirds of both RIAs and fee-based advisors (60 percent) say that tax reform will provide them with the opportunity to expand their services and generate more business related to tax planning, the survey found.
"Taxes present a prime opportunity for advisors to use new strategies and tech solutions to mitigate the impact on clients—at the same time that they can expand their services and generate more business,” Hawley said. “By remaining focused on holistic planning and proactive solutions, RIAs and fee-based advisors can serve their clients' best interests as well as their own."
The most likely ways that Trump's tax reform will impact RIAs and fee-based advisors' business over the next 12 months include the way they generate retirement income for clients (28 eprcent) and the products or solutions advisors use with clients (22 eprcent), the survey said.
Advisors said that the products they are most likely to use to generate retirement income over the next 12 months, post tax reform, include fixed income ladders/bond ladders (22 percent), variable annuities with living benefits (20 percent), qualified longevity annuity contracts (QLACs) (20 percent), yield- or income-generating ETFs (20 percent), and dividend-yielding stocks (19 percent).
Only 21 percent of advisors said that the tax reform act will not impact their business.
Advisors also said they have been taking action to alleviate clients’ anxiety about the impact of tax reform, with 75 percent in 2019 and 79 percent in 2018 reporting that they have adopted a tax-advantaged investing approach.
Investors remain less confident about the savings benefit of tax reform, with just 53 percent of all investors in 2019 saying they will benefit as compared to 56 percent of all investors in 2018.
One of the biggest investor shifts was in the ultra-high-networth ($5 million or more) category, with those who say they will benefit from tax reform declining nearly 10 percentage points—to 65 percent in 2019 from 74 percent in 2018.
Still, tax reform seems to be less pressing this year for the ultra rich. They rated taxes the third-highest macro factor that will most adversely impact their portfolio in 2019. It was the number one macro issue in 2018, 2017 and 2016.
