Tax services fuel RIA growth, Fidelity benchmarking survey shows

After registered investment advisory firms' assets under management and growth took a hit last year, tax planning and other expanded services could ramp their business back up to speed.

In the latest case for branching into areas that are traditionally beyond the services offered by financial advisors, Fidelity Investments' 2023 RIA Benchmarking Survey showed that the firms providing tax planning and strategy grow organically at nearly triple the rate of their peers, according to Anand Sekhar, the firm's vice president of practice management and consulting. Stock and bond losses crimped RIAs in 2022, to the tune of their organic asset growth rates falling to less than 4% from 8.2% in the prior year and a 40% drop in AUM from new and existing clients, Fidelity's RIA survey showed. The company released the data last week.

"The role of an advisor today is much different than it was five, 10, or even 30 years ago," Sekhar said in an email. "It's becoming increasingly table stakes for advisors to think beyond investment management and offer broader financial planning services and advice. At the end of the day, investors want a holistic view of their finances based on their unique needs and goals."

READ MORE: Advisory practices aren't meeting clients' tax demands, study finds

Many wealth management firms are already seeking to tap into the potential advantages of boosting their tax capabilities by investing in substantial M&A transactions. For example, Minneapolis-based Nepsis, an RIA and asset management firm, said this week that it has acquired tax, accounting and consulting company Sevenich, Butler, Gerlach & Brazil. Other recent deals include the parent of Cetera Financial Group purchasing tax-focused wealth management firm Avantax for $1.2 billion, and Creative Planning's acquisition folding in RIA and professional services firm BerganKDV to launch Creative Planning for Business.

The rising breadth of capabilities and services display "the evolution of what RIAs do" besides investment management, according to John Furey, the managing partner of consulting and transaction advisory firm Advisor Growth Strategies. 

"Many years ago it was just investments and portfolio allocation, then it was investments and financial planning," Furey said in an interview. "They're doing everything financially related for clients."

Among the group of 3,537 advisors at 245 RIAs that Fidelity polled for its annual benchmarking research, 80% of firms with at least $1 billion in client assets and 83% of those smaller than $1 billion said they do tax planning and strategy. Within those results, though, the survey suggests those tax services may not be comprehensive: Smaller percentages of the firms provide philanthropic planning (65% of AUM <$1B firms, 78% of AUM $1B+ firms); retirement plan servicing (56% and 66%); estate planning (53% and 67%); and direct indexing (11% and 38%).

READ MORE: Study of RIA growth finds correlation with fees, services and compliance

Any advisors who doubt the business case for tax services might consider another poll from earlier this year by Morning Consult, which found that only 20% of Americans know their bills coming due to Uncle Sam in a given year, Sekhar said.

"When you think of tax services as an example, it's important to remember that this is an area ripe for education," he added. "Add even more complexity to that, including areas like tax efficient investing or the right time to consider a Roth conversion, and you have a scenario where advisors can add tremendous value. At the end of the day, investors just want to best understand how to make their money work harder for them and their families — that applies to the most novice investor all the way to more experienced, ultrahigh net worth individuals."