Outsourced vs. In-House Tax Planning: What Advisors Need to Know

Although it may not be right for every advisor, adding tax planning to your roster of services presents several compelling opportunities. You'll foster deeper client relationships, gain an important value-add that will help with client retention and referrals, and you'll expand your own profession skill set.

If you’ve decided to offer your clients tax planning, the next question is: Is it best to outsource, or should you hire and keep your tax planning in-house? Each option has pros and cons that advisors should carefully weigh before making a decision.

Should you take the in-house route?

Clients are increasingly on the lookout for one-stop financial management solutions, and many firms that want to offer tax services will first look to bring on a CPA or part-time tax preparer to meet that need. This option tends to be favored by RIAs who have the time and resources available to train a new team member. 

There are a few advantages of doing this:

• Greater room for personalization: Hiring in-house will allow you to be extremely specific in your employee training around standards and workflows. This can be indispensable for firms with high net worth clients, or clients who have complex tax needs requiring extra care.‍
• Potentially more attractive to prospects: In-house tax prep can be an important value-add for new clients — and for preventing churn. Prospects want to feel taken care of, and having a name and face they can put to different services will go a long way towards that.  

Cons of in-house tax planning: 

There are also some potential drawbacks to consider before you make any hiring calls. These include: 

• Cost issues: Of course, the biggest issue in the decision to in-house tax prep services is the cost — if you haven’t conducted the necessary FP&A, you could end up diverting resources that would be better used elsewhere.  ‍
• Training requirements: Onboarding in-house talent involves higher upfront costs than outsourcing — though there are ways to streamline the onboarding process and make it more cost-effective. 

Should you outsource tax services?

Let’s look at some pros and cons of the other option financial advisors typically consider: outsourcing. First of all, many RIAs outsource their tax services — both larger firms and smaller or newer advisories. 

Some of the most compelling advantages of outsourcing include:

• Increased strategic bandwidth: Advisors who outsource tax prep free up their own time to focus on other activities, like client service. If you’re interested in offering tax services but feel your time would be more profitably spent elsewhere, outsourcing is a great compromise. ‍
• Lower costs: For the most part, outsourced tax planning tends to be the less expensive choice for financial advisors. This makes it an especially prudent option for advisors who might be looking to trim operational costs in uncertain markets. ‍
• Freedom to test the waters: If you’re just toying with the idea of offering tax services to see how it would play out for your business, outsourcing might be a good move.

Cons of outsourced tax planning: 

The rise in outsourcing has paralleled the rise in automation and fintech adoption for RIAs. Many of the themes are similar: flexibility, a lower price tag and, in many cases, heightened convenience. However, as with automation, outsourcing has some potential downsides: 

• Difficulties meeting specialized needs: If you have clients with unique tax considerations that require a full understanding of their financial picture, you might be better off handling those accounts personally, or working closely with someone in-house.  ‍
• Problems around compliance and security: Sending confidential tax documents to a third party always introduces the risk of security and compliance issues, however slim it might be. 

Outsourced and in-house tax services both have distinct advantages as well as potential drawbacks. The main thing is to do your due diligence before arriving at any decision, so you can move forward confidently.