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Steven Jarvis, CPA (01:03)
Hello everyone, and welcome to the next episode of the Retirement Tax Services Podcast, Financial Professionals Edition. I’m your host, Steven Jarvis, CPA, and I’m very excited for this week’s episode to be able to talk to another financial advisor who has hands-on tax prep experience and has seen what it looks like inside a firm offering both financial planning and tax preparation. So joining me this week is Mark Cecchini. Mark, welcome to the show. Really excited to have you here.

Mark Cecchini, CFP® (01:29)
Thanks, Steven. Yeah, I’m excited for the conversation.

Steven Jarvis, CPA (01:31)
Now, we’re going to cover several different things here, but I get questions so often from advisors who are interested in adding tax prep to their firm or partnering with someone who does tax prep, which I’m all for. I love the emphasis on that kind of collaborative full-service offering. But I think for lot of advisors, the reality of it is different than kind of what’s, what they imagine it might look like. So kind let’s start with where you started with tax prep, which was you, if I understood correctly, you joined a firm early in your career as an associate planner and then had this wonderful surprise where they came and said, oh, and by the way, we’re also going to teach you to do tax prep.

Mark Cecchini, CFP® (02:04)
Yes, exactly. The way I like to explain it is, you know, it’s a 60-person RIA, you know, very, very bespoke, right? Comprehensive planning, investment management, and we did an in-house tax. So our tax team, you know, on the website was three people, right? So we had sort of a tax manager and then, you know, one director and then sort of the tax, you know, managing director, so to speak. But when busy season came around, our tax team grew by 10 people, right? So everybody was pulled in, the associate. My role when I joined the firm was associate financial planner, kind of doing the full service with clients. I wasn’t expected to be out there pounding the pavement for new clients. It really full service. And so every time tax season came around or busy season, we were pulled in to do everything, right? So we did everything from starting with the client, hey, it’s February, 1099s are coming out, let’s start the tax organizer process. So we’d get the tax organizer, we’d do all the tax prep worksheets, the source documents, all the fun stuff around chasing clients down for outstanding items. And then it would be sent, once we did all the input, would be sent up the review chain. So we sent it up to two levels of CPA review and then sent back down for us for edits and changes.

(03:08)
I think looking back, was so invaluable for bringing it all together with the clients planning and investments, because we did it all. There was really nowhere to hide anything from the client side. So it was great. Happy to chat through sort of what it looked like firm dynamic wise and you know the fees that we were charging and sort of how we were bundling and unbundling and things like that but you know I think we did a third of our clients, called a thousand clients in the firm, we probably did 300 returns and so in the first few years of my career I probably personally prepped about 150 returns in three seasons, yeah.

Steven Jarvis, CPA (03:41)
Well, it’s such valuable experience and we’ll get into a few questions for you on that, just from your own personal growth side of being able to have that experience. But I want to pull out for the audience a couple of things you said in there because I think a lot, especially on the financial planning side, people miss what the tax prep process actually looks like. And you described what is very common in a lot of tax prep firms of this multiple layers of review. You kind of casually mentioned in there, hey, just chasing clients down for documents. For people on the of on the outside looking in, it can feel like it should be a really simple process. It’s like, well, H&R Block just has a questionnaire that they walk people through and people get it done in 20 minutes. Like, what’s the big deal? Why does it take tax repairs so long to get this stuff done? And one of those pieces that people miss is that, there’s a lot of different documents. Most of the tax code has zero logic to it. Like, it’s just bureaucracy and clients don’t understand what they’re supposed to be providing or what questions they need to answer. And so there is a lot of this chasing things down. And then once you’ve chased all those things down, most tax prep firms are going to have those multiple levels of review that you talked about where it’s kind of going to go up and down the ladder of making sure this is done correctly because from a financial planning standpoint, we can make the joke all day that as soon as you make a financial plan, it’s wrong because we can’t predict the future. That same logic does not apply to preparing tax returns. When you send a tax return to the IRS, they expect that it is done and it is perfect and that if it’s not, they’re going to come back and life’s going to get a little bit more unpleasant. So it is a very different dynamics. I just wanted to highlight a couple of those things, but Mark, specific for you, okay, I mean, so maybe you weren’t expecting to get into tax preparation, but you went through some tax prep seasons and then you still went ahead and became a financial planner and dedicated to that. Everybody talks about the value of taxes. Why didn’t you switch career paths at that point?

Mark Cecchini, CFP® (05:20)
Yeah, mean, I was always on the sort of the financial planner, financial advisory career track. So it was just part of my, what I’ve said in recent years is I have like a three legged stool. I’m a CFP, I went to school for financial planning. It’s always been my sort of destiny is to be sort of a client facing financial planner or financial advisor, whatever you want to call us these days. But the three-legged stool has to include investment management at a pretty deep level and it has to include in my mind tax, right? Because tax permeates everything that we do with clients on the investment side, with clients on the planning recommendations, whether you have the in-house tax compliance, right, is a different story. And think a lot of firms grapple with whether to bring that in-house or not. But when you’re doing it all in-house, you know, there is nothing that you don’t know about the client, right, unless they’re literally withholding information from you, which is a different conversation. And the tax organizer is a good example, right, we use pro systems, right, so you roll the return forward from the last year and you get the tax organizer. And unless the client, you know, is just super savvy and has been paying attention in all of our meetings, they’re probably gonna miss things. And the organizer like, oh yes, we did do that DAF contribution at end of last year. Yes, we did consolidate some accounts so we’re not going to not have that 1099 that we had last year. Maybe we’ll have a partial year for 1099s and Fidelity versus Schwab or versus our Vanguard account that we consolidated in Fidelity, whatever the case is. There are also, you know, there may be people on their dependence list who have now, you know, graduated from college and they’re truly no longer dependent anymore. There might be a split state, right? Oh, we moved states where we spent more time in Florida than we did in New York this year, right? So all of those things. It’s kind of our job. It was our job to take that load the mental load off the clients plate Of course, they might know things that we don’t but just all of those things where it’s just so critical and you know everything about a client when you’re doing their taxes

(06:57)
And I think to your point about, you know, the process being so much more than meets the eye, I mean, think about downloading a 1099 from a custodian. You know, we are literally going through that PDF page by page and using stamps in Adobe to say that, that’s foreign source income or that’s qualified versus ordinary. Obviously, most 1099s will break it out. Tax-exempt interest versus, you know, OID and amortization and accretion. Like there’s just all these things that don’t necessarily pop out to you on the 1099. That we had to kind of parse through and that goes into tax prep worksheets and then all the different things. And I think when you take a step back from the compliance side throughout the year, like hopefully we’re giving the clients good tax planning recommendations, whether it’s just withholding and quarterly estimated payments, whether it’s charitable contributions, tax loss harvesting, and then you get into the more complex stuff with business owners around depreciation and all the different things around section 179 and section 1231. So these are things that I know and I teach them, been teaching tax for six years through a CFP program. I just think when people realize how much goes into it, they realize how valuable it is and how much of a differentiator it is versus the 10 other advisors that might be across the street.

Steven Jarvis, CPA (08:03)
It makes such a huge difference to have that in-depth knowledge. And Mark, I’d be curious to your opinion. I’m sure you’ve worked with a lot of different financial advisors, but in my experience, the best advisors have all seen real tax returns. And I’d the very best advisors I know when it comes to tax planning, again, not necessarily ongoing doing tax prep, but at some point they have prepared at least a tax return, if not a handful of tax returns, if not a few hundred like you’ve described.

Mark Cecchini, CFP® (08:27)
Right. Maybe they’re on. Maybe they’re on.

Steven Jarvis, CPA (08:29)
Yeah, even if it’s only their own, I know some advisors who really just, that commitment to like, let’s see how this really works, prepare their own, maybe a few family members, maybe not clients, because we get into some other regulatory issues if you don’t want to get full in on tax prep. But there are things you’re going to learn by going through the process that you just never will from a textbook. I mean, you’re currently teaching courses. I’ve taught courses in the past, and it’s not that courses…don’t have value, they absolutely do, but I mean, tell me if you think I’m wrong, but there is just, there’s something you’re gonna learn from getting your hands on the actual process that you will not from a textbook.

Mark Cecchini, CFP® (09:00)
Absolutely. Yeah, there’s the academic bent and then there’s the real world bent, right? There’s the looking at a tax return. And that’s something I always request during discovery from a client is the past two years tax returns, right? And if they have a draft from the current year that they haven’t filed yet, because we’re on extension, love to see that, right? Looking at pay stubs, being able to annualize a pay stub, being able to look at, you know, I work with an equity comp-focused clientele. And so just, you know, talk about something that just permeates tax, right? It’s, it’s RSUs, it’s options, it’s AMT, it’s, you know, selling capital gains and losses and all these different things. So there’s the academic side and I even, know, in my slides, which I get from textbook money education, I always put in my own slides, right, within that sort of, you know, kind of pre-made slide deck because there’s just real world things that I want my students to know.

(09:44)
For no other reason than to be able to look at their own pay stubs and see if they’re on track for withholding or look at a past year from their CPA or EA and say, was there anything that might look iffy on here? Did we file this right? Do we need to make an amendment? And you do get into sort of the line that we have to walk as advisors who are not CPAs, or we don’t have a P10. We’re definitely walking a thin line in terms of, and Michael Kitces just had a great article about this not too long ago, about that regulatory line that we walk, right? But I think it’s just so valuable from the real perspective to be able to talk the talk and you know one of my first bosses who was a former Ernst & Winnie partner said if you if you have a client’s tax return and they’re a high net worth individual with lot of stuff going on you could probably do a high-level financial plan just from that document right like there’s not a lot you don’t know maybe they’re living expenses lifestyle expenses but other than that you have a pretty decent idea of what they’re what they’re what has what they’re have going on

Commercial (10:31)
retirementtaxservices.com/taxguide

Steven Jarvis, CPA (11:05)
Yeah, even as a financial advisor, you’re only just getting started on tax planning and you’re not even to the depth that Mark’s describing yet. If you can genuinely say in a prospect meeting, hey, what did your current advisor say when they looked at your tax return? Or those other advisors you’re interviewing, what did they say when they looked at your tax return? Most of the time, the client, the prospect is gonna say, well, they’ve never even asked for my tax return, which means that even if you are doing basic level tax planning, you’ve already set yourself apart from most of the rest of the industry. And while we are certainly seeing a lot more kind of proliferation of people using tax planning in their marketing, I’m still not seeing that same level of execution. And so it still is a huge opportunity for people who are willing to get their hands on real tax returns, figure out how this stuff works, and then provide that valuable service to clients.

Mark Cecchini, CFP® (11:52)
Completely agree. I will add that with the clientele that I work with is average age 39. And they’re really smart, they’re really savvy, they have a lot of complexity, whether it’s equity compensation, crypto, business owners, multi-state income, high-state income, right? A lot of concentration in California and New York. It’s just that it’s the number one thing that continuously manifests itself in the discovery process is, hey, I think I could probably do this investing thing on my own, right? And again, we can talk about that on its merits. But again, I don’t blame a lot of people for thinking that that’s something they want to either retain or they want to keep it super simple, right? We’ve obviously seen fees be a huge issue, both embedded fees in the investments themselves, but also advisory fees. But the number one thing that always comes up is I need help with tax, right? And it’s not necessarily the tax compliance. Sometimes clients don’t understand the difference between just filing and estimated payments, actual planning and proactiveness and making sure there’s no surprises in April. And so I just can’t help but have that sort of repertoire to be able to answer that call and fill that need.

Steven Jarvis, CPA (12:525)
Yeah, no, I’m 100 % with you. It’s a huge value add. It’s a great way to grow a business as a financial advisor. You do have to put in the work, though, which it sounds like you kind of got started down that path, maybe not by choice, but then have really leaned into it since then. It’s something that if I could wave a magic wand and make every advisor do one thing in their career, it probably would be to prepare 20 tax returns, whatever that number looks like. Mark, as you look at your experience inside those firms that we’re offering tax prep in-house,I mean, let’s talk about the challenges or the downsides because if it was as magical and valuable as we’re kind of making it out to be, then everyone would already be doing it we wouldn’t be having this conversation. So why aren’t more advisors just flipping the switch and doing this?

Mark Cecchini, CFP® (13:32)
Yeah, I’ll throw out a quote from my first firm because they were very open and transparent internally about what the tax prep process was and what the value to the firm and to the clients was. So it was 3 % of our annual revenue. So again, this is a $4.5 billion firm, 1,000 clients. Maybe we did tax prep for a third of our client base, so maybe 300 returns. 3 % of revenue, right? So we’re, know, and we weren’t charging the industry low tax prep fees, right? These are 1500, 2000, 5 grand, 10 grand. These are not industry low by any stretch, as you know. You know, and yes, there was a discount compared to what we might be charging on the portfolio management with AUM or fixed retainer or whatever the case is. But when you talk about the retention, I think our client retention numbers were like 98, 99%, right? So when you have to fire your advisor, you’re also having to fire your accountant. You’re also having to fire your investment manager. So, you know, there is a stickiness to

Steven Jarvis, CPA (14:23)
Yeah, and I’ve yet to meet the advisor who has been through some tax prep and told me that it was a waste of their time or they didn’t learn anything from it. I think you really hit it on the head, that staffing tends to whether within the financial planning world, looking at adding tax prep or really just in the tax prep world itself, that does tend to be a very big challenge. And it’s just because of who my audience is. I’m normally talking to smaller RIAs or smaller teams who are interested in potentially adding tax prep in-house. But then when you look at it of, OK, I’ve got a couple hundred clients that I want to do tax returns for, I need to hire at least one CPA, maybe some support staff, wait, what happens if that CPA gets sick or quits on me, starts their own firm? Then now as the financial advisor who owns the firm, that just came back on you and you are taking on some serious business risk of offering this to your clients and then not having a fallback plan, which we end up working with lot of financial advisors who come to us and partner with us on our team doing tax prep. And almost always part of that conversation. In fact, earlier today, as we’re recording this, had a conversation with a couple of financial advisors who had gone the same route of, we want to offer this in-house. Wait, we can’t find anybody to do it. Wait, what happens if this doesn’t work out the way we want it to? Okay, we’d rather just partner with someone else. So while that makes it sound a little bit like we’re plan B, I’m still okay with that because I know that the intention was there from the advisor of, this is an opportunity to really provide additional value to our clients, but we got to figure out the resources correctly. Because if it was as easy as flipping a switch and adding turbo tax in the background, mean, everybody would have already done it.

Mark Cecchini, CFP® (15:43)
Yeah, I was just going to say that, you know, that I’ve been a part of a couple of firms who tried to employ shortcuts, right? I’m sure you’re well aware of the offshoring that happens with the input process and, you know, it just can be a nightmare, right? You as you share stories about, you know, tax contracts that are being bailed on in March, right? And just the insane, you know, scramble to keep clients happy when they know their taxes are sort of in flight. And I just can’t, you know, and again, I’m preaching the choir with…you and probably most folks on this call is you cannot screw up people’s tax returns, right? Like sure, can be, you know, make a trade error and you know, everyone’s happy, the trade gets reversed and everything’s okay. But you you start messing with people’s tax returns, you start getting the IRS’s naughty list, you start getting notices, you start having to file amendments, like that’s, you can lose an enormously valuable client if you just screw up that one thing, right? And so the execution like cannot be understated how you have to execute and do it well. You know, I was part of a multifamily office out in Los Angeles and we had in-house bill pay and tax. So, you think about having to do the compliance for, you know, the 1040, probably multiple 1041s, maybe even some business returns. We’re actually running payroll for people’s household employees. So schedule H, we’re having to prepare the general ledger for the entire household, which could be a 50 to 100-million-dollar family. So that’s just stuff that you have to execute on, right? And if you don’t…

That is real money that typically is out the door for the client in terms of admin costs and compliance costs and just loss of trust, right? Which permeates everything else you’re doing for the client, whether the investment team is firing all cylinders, the plan is perfect. You go golfing with them, you go out to lunch, everything’s great. You mess up their tax return. It’s just really hard to come back from that in my experience.

Steven Jarvis, CPA (17:13)
No, I’ve seen that as well and we’re in this spot where for the people who are willing to lean into it and find the right resources and be committed to solving for their clients it is such a huge opportunity because That same challenge that advisors are seeing in finding those resources clients are seeing as well I hear more and more often from advisors who are telling me that one of the most frequent questions they’re getting from their clients is hey Who do you know who I can go to for taxes even the advisors who aren’t leading with hey, do tax planning their clients are still coming and say, my CPA is retiring, my CPA just fired me, they’re not taking on new clients, they moved out of state, whatever it might be, it’s who do you know? And so this isn’t going to go away, at some point this really isn’t even gonna be optional for financial advisors. You’re basically gonna get to the point where you’re gonna just have to keep saying, I’m sorry, I don’t do that, and then your client’s gonna go somewhere where someone says, yes, I can help with that. And so even though those risks that you described are very real, they’re all solvable with the right systems, the right resources, but you’ve got to be willing to lean in and get this stuff done. And I’ve definitely seen, kind of like you were describing from your own experience, Mark, for the advisors who figure this out, who have the right resources, who find the right partners so that for the questions they don’t know themselves, they know who they can call.

(18:23)
For advisors that work with us, it’s getting on our monthly office hours and saying, okay, wait, Steven, remind me, how does this work? I have RSUs all the time. I had a call this week with an advisor who came across Phantom stock for the first time. Like, geez, Stephen, help me understand how this Phantom stock thing works. And so, on the advisor side, you don’t have to have every answer yourself. In fact, the client can even know that you don’t have all the answers. It’s amazing how receptive clients are to, hey, you know what, Mark, I don’t know that one off the top of my head, but if it’s all right with you, I’ve got some resources I’ll get back to you. Is it okay if I get an answer back to you next week? I mean, tell me if you’ve had a different experience, Mark, but clients are really receptive to that. yeah, Steven, that makes a lot of sense. Yeah, please just let me know. And it still is a valuable outcome, even though I didn’t know the answer up top of myhead.

Steven Jarvis, CPA (19:07)
But when we talk about building these COI relationships, there’s definitely work that goes into it. And for advisors who willing to put that work in, there’s so much value to your practice, to your clients. I mean, for our members, we’re actually getting ready to roll out a whole
10 week basically program to help them build these relationships. But Mark, I’d love to hear from you on what’s made a difference, what’s stood out to you of how you’ve been able to effectively build these relationships in a way to add value to your clients.

Mark Cecchini, CFP® (19:28)
Absolutely, I think I got lucky in one case with the firm that I most clients with is that we were former colleagues. So we were part of a startup that they rolled out of and sort of took their talents to start their own firm. So already had a very strong working knowledge of who they were as people and the character behind them, the work that they do and the quality. So that was one and I again continue to foster that relationship by sending them clients I thought would be good fits for them. Because it’s a two way street, right? I always ask people what kind of clients do you want? I could send you anybody I think of, but is it the kind of person that you want, and the fee level that you want, and the complexity? So that’s one. Another firm that we work with is local to my area in Pennsylvania. They’ve been around for 30 years. And I just ask around my firm, who do you trust when you think about tax work?

Steven Jarvis, CPA (20:09)
I like that you mentioned fostering those relationships. That’s really important. We’ve got to treat these like the professional relationships they are. That means on an ongoing basis, we’re doing things to build that relationship. And then that simple question of what kind of clients should I send to you, that’s very different than, can you send me referrals? That’s usually not well received. That doesn’t really help build relationships. But if you’re leading with, hey, what types of clients am I sending you? And just like you described there, Mark, that should be a really genuine question. This isn’t a bait and switch that we’re hoping, again, that…We’re just getting to that point where they send us referrals. That’s a nice benefit if it happens, but your clients need these services. So you should be able to genuinely ask, hey, what types of clients should I be sending your way so that you know when you can provide that service, that value to your clients?

Steven Jarvis, CPA (20:51)
Well again, Mark really appreciate you taking the time to be here and sharing some wisdom with us to everyone listening until next time. Until next time, good luck out there and remember to tip your server, not the IRS.