Preparing clients for the looming fiscal cliff is difficult. Most advisors are not tax professionals so what type of guidance should you provide?
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The fiscal cliff will affect tax planning, estate planning, portfolio reviews, and budgeting. In light of all those things, it’s a good time to review your client’s goals and objectives, not just from a financial perspective but also from a personal one.
Taxes affect cash flow and can impact retirement income. Clients may need to shift portfolio strategies toward a more tax-efficient focus, although it’s never a good idea to manage a portfolio completely based on tax considerations.
Exactly what assets your clients purchase will make a difference in their ability to manage taxes, generate sufficient income, and continue growing their portfolio to make sure they don’t run out of funds over their lifetime.
You may want to move some income into 2012 when tax rates will be lower if current laws are allowed to expire. You also may want to restructure your normal end-of-year capital gains strategy. Rather than pushing those gains into 2013, it may make sense to take them this year.
Market sentiment will also be affected by the results of the presidential election. There may be market opportunities that may fit within your client’s overall investment strategy
Cash flow management and spend rate also come into play and may be added services you can provide clients in the challenging atmosphere the fiscal cliff will create.
Being proactive and implementing small changes now will make your client’s portfolio more flexible whatever scenario unfolds.