How Tax Planning Nets Me My Biggest Clients

Feb 18, 2020 / By Walter Pardo
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What’s Working Now: By educating prospects about taxes in retirement and then helping individuals make savvy tax planning moves, this advisor paves the way to bringing them on for comprehensive investment and financial planning services.

Editor’s note: In this edition of What’s Working Now, an AdvisorRADIO feature in which Horsesmouth members tell us about recent success they have had running and growing their businesses, we hear from advisor Walter Pardo, who presents regularly to the public about tax planning.

The following article includes edited excerpts of this conversation, or you can listen to the full interview below.

Quick Overview

Advisor: Walter Pardo
Basking Ridge, New Jersey

Years in business: 29

Firm: Wealth Financial Partners

What’s working now: Holding tax-planning workshops in libraries for select prospects.

I got my start in 1991, when I was just 21 years old. I started out at Bond Firm as a fixed income bonds specialist. At that age you don’t even have a concept of income. You just know people want two things in their mailbox: they want checks and they want love notes. And if I send them a check, it’s like a love note. That’s the extent of it; the relationship is very transactional.

No one is giving tax advice

Then, in 1999, my father died. By then I had a Series 7 and thought I knew something about something. I went to the accountant and said, “Mr. CPA, can you help out? Did he have a will? Did he have insurance?” And the CPA just told me, “I did his taxes. I have no idea about anything except the past.”

That’s when I realized that the CPA, first all, didn’t even like talking to me. They were historians and just cared about the past and didn’t have a clue, or didn’t want to have a clue, about the future. I had to go on a quest to help my mother and try to figure this stuff out. So I took a couple of classes, got involved with Ed Slott and a whole bunch of other people. Proactive accounting was like an oxymoron, you know?

Another turning point came in 2008 when my father-in-law got sick. He needed to qualify for Medicaid, so I started learning about illness, death, and taxes. I also started looking at cash flow. So I found that there were gaps not being addressed by one person being the quarterback on all these things. The accountant wasn’t talking to the advisor, wasn’t talking to the insurance guy, the will was done back in junior high school. All this stuff just didn’t work.

Then I started realizing that the broker-dealers I was dealing with didn’t want to go on a limb to give tax advice. It’s like you pull a cord and you say, “We don’t give tax advice. All we do is recommend stuff that gives less tax liability” or something like that. And this is the world before “fiduciary” came in.

A need for people to understand taxes

But there was a need. There was a need for people to really start understanding taxes. That’s why I decided to go independent. I went on my own and started doing taxes with an outside CPA, and we started working together.

I found that even if I was referring business to CPAs, they were never reciprocating. They were never giving referrals back. When I asked them why, they said, “Because we don’t want you screwing up and then they fire us.” That was never going to happen, in my opinion. So I said, “I’m just going to do it myself.” So we’ve been doing taxes and we’ve been building and growing.

We get our biggest clients after we’ve done their taxes. They gain trust, they’re already writing us a check, and then the next thing you know they say, “Hey, maybe we should talk to you about our wealth planning.”

We get our biggest clients after we’ve done their taxes. They gain trust, they’re already writing us a check, and then the next thing you know they say, “Hey, maybe we should talk to you about our wealth planning.” And I say, “Maybe.” That’s the segue. They get used to writing checks to us, and they write us a big check if they qualify to be clients.

I run on an AUM model, and clients pay separately for their taxes. They get a preferred rate if they’re platinum clients, etc.

People are confused about changes to the tax law

I’ve also been presenting about tax planning to the general public. If I talk about a product, people are going to think I’m selling them something. But you don’t have accountants lining up to fill audiences and tell people about tax laws.

Changes in tax law have been the most important thing. People have no idea. I think when you’re in the accumulation phase, the only way you handle taxes is what they take from your W-2. But when people start retiring, they have to figure it out. “I’ve got to pay taxes on this stuff? I’ve got to take it out at 70½? Now 72?” They get confused with all this stuff, and they need guidance. But the guys who are supposed to be giving them guidance don’t even like talking to human beings.

It’s a completely open market for me. When I started doing taxes, I would ask other advisors, “Why did you have a $75,000 gain here, when you have this as a stock that you could have sold by the end of the year to wipe out half of it?” After a pause, the advisor says, “We don’t do tax advice.” Well, to be a fiduciary, and to really understand the client, you need to have a holistic approach. That means incorporating taxes and understanding tax harvesting, which I think is an oxymoron too. I go to Costco and see all these tax programs in January, February, March—they should have prepared before the year ended.

There’s qualified, and then there’s a good fit

So a couple of years ago I started working with White Glove, which turned me on to some great software that I use at my practice, such as Tax Clarity. White Glove uses social media to get people to workshops, and they are one of the ways we’re definitely driving business. At the beginning you’re skeptical, thinking, “I’ve got to pay how much?” But it was the best investment we made, and actually committed to them on the platinum level this year.

Their basic premise is that they get butts in the seats, but all they can ask is, “Are these qualified people?” We sat in front of some people last year who were definitely qualified in the sense that they had money and were breathing, but it’s also a question of “Are they a fit for us, or vice versa?”

Our process is to sit with these people and have a “fit meeting” at the beginning and go on from there. Some people we end up doing their taxes and in other cases we move forward to wealth management. Without a doubt, each person comes in to see how the tax software analyzes their own situation. Then the conversation goes beyond that because being the proactive tax person is really important.

As a staple in my practice, we request everybody’s tax returns, the entire one. If they refuse to give it, we can’t take them, because it’s like a doctor asking for blood, you know?

Keeping it casual

I give my presentations in libraries. There’s no licking of plates, which is perfect. And people are attentive. I have a joke that I tell as a litmus test: “My father was a child psychiatrist. When I was growing up, I would say, ‘Dad, let’s go play catch.’ And my father would say, ‘I can’t, I’m reading this book right now.’ The book he was reading was How to Play With Your Children!”

If they laugh, they’re paying attention.

The groups are very attentive, and we get immediate appointment setting right there, and then we only pay White Glove for the households that actually attend. It works great. We usually have 20–30 people at each event, and 40%–50% make appointments.

Higher taxes are coming

In the presentation we get a little bit into the weeds with Social Security, enough so that you see smoke coming out of their ears and they definitely make an appointment, because they’re confused about the provisional income. But then I really scare people when I tell them the tax on Social Security is Medicare. And they go, “What?” All of these things, and now the SECURE Act, that’s a whole ’nother ball game. A lot of these people have inherited IRAs, and when the rules changed they were like, “Wow, this is going to be really bad.”

When I ask the question, “How many think taxes are going to be higher in the future?” Everybody raises their hand. There’s not one person in the room who says, “No, they’re going to go down.” The whole myth that you’re going to be in a lower tax bracket when you’re retired is absolutely out the window. That’s why they’re attending.

I think most people haven’t really started thinking about the SECURE Act, because there is too much confusion. It’s like preparing for taxes. We’re not ready until we get statements, right? Same thing with the SECURE Act. You don’t start paying attention until you hit 70½ or you inherit an IRA. But when you get proactive, for instance, I find people are caring about the kids and grandkids more. And the fact is if you’re a widow and the plan is to leave this IRA to somebody who can stretch is over a lifetime, now that’s 10 years. So you’re going to hit them with a tax bill.

A call to action

At the end of the presentation my call to action is, “Do you feel secure knowing what you don’t know?” We talk very generally about married couples over 65 when we show tax illustrations. When you’re giving a presentation, you’re showing examples to a crowd. You can’t get too specific on a single person, or a head of household.

But if you’re not a joint account over 65, you should come in for your customized tax map. I say, “Come in for your free tax map, and let’s chat and see if there are any gaps that I can identify in what you’re doing.”

I will say that I’m a very picky guy. The point is, are they qualified in the sense that they come in and talk about the money they have? That’s the most important thing when you’re talking about results in marketing, as in buying units.

As for the conversion ratio, I think this year we’re going to do better, because I’ve polished up my stuff a little bit. I think last year we probably had appointments with 35 people. We definitely engaged them, and generated something in the neighborhood of $75,000, I’d say. They were important clients, but our clients are $1 million plus. We had some appointments that did taxes with us, and we’re still romancing some other ones.

It’s great. I don’t want to be everything to everybody, I want to be everything to a few. And we start realizing that some of the attendees are coming back, professional “workshoppers.” Like I said earlier, our appointment rate is about 40%–50% coming in for the one-on-one meeting, and from there about 35% engage with us for the next step.

After the SECURE Act, what has moved to the top of planning across the board is life insurance, because it’s the one thing that will go directly to the kids tax-free.

Life insurance is the new stretch IRA

For us, after the SECURE Act, what has moved to the top of planning across the board is life insurance, because it’s the one thing that will go directly to the kids tax-free. It replaces the SECURE Act, if you can qualify for it. I have a client who’s 70 years old, and he’s starting to realize that as long as he qualifies for it, an insurance company will write him a death benefit. The goal is to pull $10,000 or $20,000 out of an IRA. You can stick it in the bank, you can stick it in a mutual, or what about sticking it in a life insurance policy? There’s leverage, and more if he dies. Just as an example, if he puts in $20,000, he could get a death benefit of $200,000.

I have another client who is 66 and has a very large 401(k). So we’re trying to get him to take $30,000 out of his IRA each year and pay it into a life insurance policy so that his kids get a million dollars if he dies. That’s the scenario: a little money makes a lot of money if you die.

With life insurance you’re taking money and creating tax-free money if you should pass away. It’s designed as a legacy, and nothing but that.

Of course there’s a breakeven point, if you have a million dollars in an IRA, you don’t really have a million dollars in an IRA. It’s like having a house with a mortgage. You have a million dollars minus what it costs to take out for taxes, probably $650,000. With life insurance you’re taking money and creating tax-free money if you should pass away. It’s designed as a legacy, and nothing but that.

You have a lot of people with a lot of 401(k)s or IRAs and when they hit 72 they’ve got to start pulling it out. In some situations, they think it’s nothing, but they end up having more income than they did when they were working. They weren’t prepared. It’s like a tsunami hitting them.

This gentleman, who is 66, has a wife five years younger. They both have over $3 million in IRAs. When she hits 72 and he’s 77, they have to take $568,000 a year from the IRAs if he gets 6% compounded. That’s a lot of money, plus the other stuff. He’s asking “How do I mitigate that?”

There is nothing in the world better than the Roth IRA

That’s what we’re trying to help him do. I do Roth conversions with everybody if I can. There is nothing in the world to get tax-free income better than the Roth. It’s the only thing in the world of finance that doesn’t stand for something. Roth is the same for everybody. It stands for tax-free.

I say, “pay taxes once as your obligation, but pay taxes twice, it’s your fault.” If you have $100,000 today from your IRA and you pay the taxes today, you pay taxes. But if it grows to $200,000 I don’t want to have to pay taxes again, right? I think everybody needs a little bit of Roth in their life.

A lot of people have the misconception that, “I make too much money.” That’s the first thing I hear. So I tell them about the conversion. This is a very important thing in planning. You can fill the bucket up a little to stay in the 22% tax bracket before it goes to 24%. There are things you could do, because people have no idea how much it’s going to cost them to do a Roth conversion.

The important thing to understand is that there are three phases of life. I call it high school and college. In high school, you’re saving money. You become a senior in high school, and then you stress out because you’ve got to go to college. That’s like you ending your career. When you move from high school to college, it’s a transition from accumulation to preservation, to distribution. Everybody thinks that they will always be in accumulation. I think DOL was a big wake up call for everybody, because they said, “Distribution, what does that mean?”

You put these people in annuities back in junior high school, and now they’re starting to withdraw, and no one wants to be on the hook for it, right? I’d rather just kick the cans down the road, but as they’re doing that they’re creating huge, huge tax liabilities. The annuities are often nonqualified, and there’s no step-up in basis. You could try to sugarcoat it and call it a 72(q), do annuities that spell it out over time, but at the end of the day you’re going to end up paying more taxes. There’s no way to reduce it.

Understand how you got your clients and what they like

I once asked a very good friend of mine who is a top producer, “What does it take for a guy to go from a million to two million in production?” He said, “You’ve got to become a marketing company that happens to do financial planning instead of a financial planning company that does some marketing.” Think about it. You’ve got to really understand your clients. Understand how you got them and what they like.

“You’ve got to become a marketing company that happens to do financial planning instead of a financial planning company that does some marketing.”

We have a common thread across the demographics of our clients besides age group. All these people love animals, they love music. They’re people that work in corporate—not so much executives, but they have 401(k)s and all these other things. And they hate taxes because they just finally discovered stuff about that. There’s a common thread among all these different people, and you have to find it.

We try to have fun events. We had one that was so crazy—a psychic night. I watch my wife pinned to the T.V. watching “Long Island Medium.” I started watching it; I can’t stop. I thought, “What if we got one of those in the room during a dinner or something like that?” So last year we invited a psychic to come in and talk about what she does. The woman went individually to each person and reads them, everyone paying attention. I could tell you crazy stories. There are people crying, sometimes you get nothing, but the whole point is that you have everybody in the room bonding. And they all know each other because they come to all our events.

Another event was a tour of the Amazon Distribution Center in Edison, New Jersey. I felt like a genius. It was the best field trip ever. My clients watched people taking things and putting them in boxes, and the robots going from side to side. They said, “This is so soothing.” They kept asking if they could buy some of the stuff. It was the funniest thing you’ve every heard in your life. I told them they couldn’t buy it because they’re over 10% in New Jersey. But it was such fun. Amazon is a rock star.

It’s like a cruise ship. I try to always have something happening. We have some dinners, like our Mafia Monday movie nights. You can show “The Godfather” on Monday at an Italian restaurant. Forget about it, because no one has plans on Monday.

Get a support team

My last piece of advice is sometimes you have to pay money to make more money. Just like subscribing to Horsesmouth, it’s worth the money. If you don’t have an assistant, get an assistant, right? The most effective thing I did last year was to hire an Entrepreneurial Operating System coach, from a guy called Gino Wickman who wrote a book called Traction.

You need to find other people that are successful. If you don’t have a coach, get a coach. If you don’t have a mentor, get a mentor. If you’re not part of a mastermind group, go find it. They’ve already been down the road many times. I’m nothing compared to where my mentors are at in terms of their level of production, their assets under management. I go to them for things that are so easy for them.

Oftentimes the coach has a program that’s black and white. You can’t use it for your system and unite your team. Don’t just get a coach for you, get a coach for your team. That’s what was great about the EOS system. And if you don’t have a team, get yourself a team, because you’re not going to grow if you don’t have a team. You can’t do everything.

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