Lessons From Neuroscience For Financial Advisor by Mike Gregory
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Neuroscience teaches us how to make our brains more receptive to new ideas. My recent conflict-resolution experience working with the IRS shows how lessons from neuroscience can improve advisor-client interactions.
Many value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More
As a financial advisor, you have to persuade your clients on the benefits of your service, overcoming negative perceptions and an occasional conflict. Compare this to working with the IRS on valuation issues during an audit. That experience will strengthen what you do as a financial advisor. Read on.
A valuation issue with the IRS is gray in nature and involves financial analysis with a business appraiser. It is important for the taxpayer’s team to develop a relationship with the auditor, listen to his or her concerns, educate them on their thoughts and reasoning and then begin the negotiation. Think about this as a form of financial advice. Aren’t you developing a relationship, listening to concerns, providing education on various financial instruments and working to come up with a solution that is financially viable and meets both of your needs?
Here is the scenario, based on my personal experience.
A business appraiser produced an excellent business appraisal for a law firm for an estate valuation. That estate is now under audit. Any increase in valuation will result in an additional 40% tax against this estate. The IRS estate and gift tax attorney (an IRS agent) has contacted the law firm and indicated a proposed change in the business appraisers’ discount for lack of marketability (DLOM) from 25% to 7%. The lower the DLOM the more valuable the business and the higher the taxes. The result proposed by the IRS results in an increase in value of $6 million or $2.4 million ($6 million X 40%) in additional tax to the estate.
The business appraiser suggested the taxpayer’s law firm contact me to help them. An attorney from the law firm informed me that she planned to take a very aggressive position and attack the IRS agent.
I told her that if she was going to do that, she did not need my help. I suggested she contact the IRS agent and engage in 15 minutes of small talk learning a host of things about her and then bring up the issue. We discussed what to talk about and how to approach this. As a result, she scheduled a meeting to discuss the DLOM issue.
A plan was put in place to address building a good relationship with, listening to and educating the IRS agent and beginning the process of a negotiation in a collaborative manner. Think about this as a financial advisor. Isn’t this what you need to do too?
Read the full article here.