Three year-end strategies

With the end of the year approaching, don’t miss out on opportunities to demonstrate your worth to your clients by helping them reduce investment-related taxes, maximize charitable giving, and feel confident they’re on the right track by conducting client-friendly year-end reviews. Here are three things to keep in mind.

1. Manage the tax impact of investments

Minimize capital gains: Help your clients keep more of what they earn by minimizing capital gains. Keep the two important types of capital gains in mind: Investor-driven, from selling a mutual fund and fund-driven, when a fund distributes capital gains to shareholders. Here are three strategies to consider before December 31 to help minimize mutual fund-driven capital gains for 2024 taxes:

• Replace underperforming mutual funds with high fees and capital gains distributions with tax-efficient ETFs. For example, capital gains distributions have been less frequent and smaller for US equity ETFs. In some instances, capital gains may be distributed, but these are few and far between, given the ETF creation and redemption process.
• Reduce exposure to mutual funds that consistently distribute capital gains and consider reallocating a portion to tax-efficient ETFs.
• Adjust future investment allocations to ETFs.

Implement tax-loss harvesting strategies: This can be an effective strategy for turning your clients’ investment losses into tax savings. Tax loss harvesting is selling securities at a loss to offset the amount of capital gains tax owed on other investments. Even if you sell an investment to harvest the loss, you can still maintain exposure to the asset class or investment type by swapping it to an ETF. This may allow your clients to stay invested in a similar exposure without violating the IRS wash-sale rule. Here’s how it works:

• Sell your clients’ underperforming investments.
• Harvest their losses to offset capital gains and/or ordinary income.
• Replace their current assets with similar ETFs.

Get ETF product ideas.

2. Maximize charitable giving

Donations to donor-advised funds (DAFs) during the year-end giving season can enhance their charitable impact. A donor-advised fund is a private account created to manage and distribute charitable donations on behalf of an organization, family, or individual. Contributions are immediately tax-deductible, providing significant potential current-year tax benefits while giving clients the flexibility to thoughtfully plan their charitable giving over time. It’s a win-win for both financial and philanthropic goals.

As the end of the year approaches, clients often face financial decisions that require innovative solutions. Ren, a provider of philanthropic giving programs, shares how DAFs can be used in these situations:

• High earnings year: Offset increased income.
• Taxable events: Minimize taxes on windfalls while maximizing charitable impact.
• Roth conversions: Smooth the tax impact of IRA conversions to Roth IRAs.
• Bunching charitable deductions: Optimize deductions by consolidating multiple years of giving into one tax year, then granting the funds to charity over time.
• Portfolio rebalancing: Transform gains from portfolio adjustments into impactful gifts.
• Capital gains relief: Donate appreciated securities to eliminate taxable gains and maximize giving.
• Streamlined tax reporting: Simplify year-end tax preparation with a single statement.

Whether they’re navigating a high income year, a portfolio adjustment, or planning for retirement, a DAF is a powerful, flexible tool that can help ensure their giving is as impactful as possible. For more information on DAFs, visit Ren’s website.

Make the most of year-end client reviews

A client review is a tremendous opportunity to demonstrate your value and worth. To learn how to make the most of them, Invesco Global Consulting (IGC) asked 1,000 investors,¹ “Overall, how satisfied are you with the review meetings you have with your financial professional?^” The result: 79% were dissatisfied with review meetings. IGC then asked what could make them better. The no. 1 response: Mutual preparation and getting the documents in advance of my meeting. The no. 2 response: Have a definite goal and purpose for the meeting.

IGC has straightforward solutions for these client requests. First, a simple pre-meeting checklist that sums up life changes, service satisfaction, investment satisfaction, financial planning, and financial services. It shows that you put some time and effort into the meeting. Also, create and share an agenda before the meeting and make sure to ask in the beginning, “Before we get started, is there anything I’ve missed or you would like to cover? If not, we can get started right away.” And then, one last thing clients suggested: Follow up. A follow-up summary letter of your meeting and the next steps will show that “you actually listened.”

Learn more about how to demonstrate your worth to your clients.