There are five critical issues all advisors should do for their clients and themselves before the bustle of the holiday season sweeps us all into the New Year, said David Adams, a Raymond James advisor and vice president of Southwestern Investment Services in Nashville.

Adams, a $1.3 million producer who manages $140 million in assets, and who holds both the certified public accountant and certified financial planner designations, said certain tax strategies have to be implemented in order to protect client assets, and that advisors should make time for their own businesses too.

1. Fix Clients’ Tax Issues

Segment your clients to identify those who need tax planning and those who have to start taking required minimum distributions (RMDs) from qualified retirement accounts. “These weren’t required last year, but they are this year and the tax penalty is 50%, and that also affects those with beneficiary IRAs,” Adams said. “Any client over age 70½ has to take a distribution from any IRA, and anyone who inherited an IRA also needs to take RMDs. Their advisors have to calculate how much that is.” On the tax-planning side, advisors also need to look at whether certain clients need to generate gains or losses this year while the tax environment is favorable. “With taxes going up next year, the hot topic with clients has to be that they can still sell assets at the capital gains rate,” Adams said.

2. Set an Example

As an advisor, you need to get your own financial house in order if you want to remain credible with your clients, and the slow period around the holidays is the time to do it, Adams says. “How can you have any conviction in what you’re recommending to clients if you don’t practice what you preach?” he asked. “Make sure your budget, your balance sheet and your own financial plan are all up to snuff.”

3. Break Clients’ Concentration

If a client has a concentrated stock position, “this year is a great time to sell it and diversify the client’s portfolio,” Adams says. The 15% capital gains rate is likely to rise, to at least 20%, he said, “so help clients save on taxes while they diversify.” Helping clients sell out of concentrated positions presents a great opportunity to have a three-way meeting with a client’s CPA, he added.

4. Time for Giving

The highest tax bracket, currently 35%, will likely hit 39.6% next year and the capital deduction may be set at 28%, even though the client is paying full tax. This year, however, clients can claim the full 35% back. “If a client is planning on making a large donation next year, it’s a good idea to speed it up and do it this year,” Adams said. “Clients can also donate highly appreciated stock and get the full deduction while at the same time avoiding capital-gains tax, so there’s a double tax benefit of donating now.”

5. Set Goals for 2011 Now

“I’m a big believer in setting goals,” Adams said. “I always block out two weeks around the holidays to do this.” Advisors should set goals for growth in assets under management, how many clients they want to add or take away, how they want to market their practices going forward, how much money they want to invest in the business and reevaluate staff compensation and responsibilities, “so you’re not going into 2011 blindly along the same path, Adams said. “Setting goals has been a good driver for my practice. If you don’t have set goals to focus on, you’re just flying by the seat of your pants.” 

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