The short answer is, "Of course they can". There is nothing in the regulations that prohibit a financial advisor from giving tax advice - despite what many financial advisors may tell their clients. Many firms, in fact, instruct their advisors to tell their clients they can not give tax advice. This is in spite of the fact that their advisors are giving tax advice all day long to their clients.
Anytime an advisor discusses the following they are giving tax advice:
Whether to do a Roth conversion
How much to contribute to and IRA or 401k
The advantages of a Net Unrealized Appreciation 401k distribution
The advantages of Qualified Charitable Distributions for required minimum distributions
The advantages of a Non-qualified Annuity
And many others . . .
So why do so many firms tell their advisors to inform clients they can't give tax advice? It is really about liability. They are concerned about the liability if the advisor gives incorrect tax advice. I can understand this, but I fail to understand how their liability is reduced if they say they can't give tax advice and then turn around and do it anyway.
I think another reason advisors are happy to tell clients they don't give tax advice is so they can get out of doing the math necessary to give accurate advice. One of the most common examples of this, that I have seen over and over again, is the client asking an advisor how much their federal and state withholding should be on their IRA distributions. The most common answer is "We don't give tax advice. You will have to ask your accountant." This is a copout, especially because at least half of the mass affluent clients do their own taxes so they don't have an accountant to ask. If they do have a professional doing their taxes, and they call them with the question, the tax preparer is, after giving them their answer, probably going to ask them why their financial advisor couldn't figure it out.
See how easy Tax Acuity makes calculating withholding on distributions.
I'm not alone is this line of thinking. Take a look at what other advisors are saying.
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