Tax Facts
Show, Don’t Tell: How to Boost Advisor Confidence Around Complex Topics
by David Blanchett & Ross Riskin
May 30, 2024
When it comes to tax and estate planning, perhaps the only thing that everyone can agree on is that it can get complicated and confusing very quickly. In a recent series of surveys that included over 2,000 financial professionals, only 13% of respondents felt very confident around their knowledge of tax planning strategies; only 5% of respondents felt very confident with respect to estate planning strategies.
One way to potentially bridge the knowledge gap and increase confidence, accessible both to clients and financial professionals, is to incorporate visual elements. We find that including visual aids and examples when explaining complex planning concepts and strategies can improve awareness and provide education. It also can lead to a dramatic increase in confidence, particularly among financial professionals who were not confident on a given topic
This is especially true for those who haven't been exposed to the concepts before or those whose encounters with these strategies may be few and far between depending on their current roles.
For example, 78% of respondents who noted that they were not confident about a series of tax planning topics, including the gain exclusion on the sale of a principal residence, the alternative minimum tax credit and tax planning considerations for different business entity types, indicated that they felt more confident after the concepts were explained in a webinar that highlighted visual examples.
Baseline Planning Confidence
To better understand financial professionals' comfort levels with tax and estate planning, a series of survey questions asked how confident they felt around various concepts.
In a total of five webinars conducted in 2023, we asked the financial professional attendees to rank their confidence levels in several tax and estate planning areas.
What emerged was a wide range of responses in terms of confidence. It is not surprising to see higher levels of confidence on tax planning, given that many of the financial professionals in attendance were CPAs.
Can Pictures Help?
To better illustrate how visual aids can help simplify complex information, let's discuss an estate planning strategy that has risen in popularity given the current high interest rate environment and potential reduction of federal gift and estate tax exemptions subject to tax laws sunsetting in 2026.
For high-net-worth and charitably inclined individuals, the use of a charitable remainder annuity trust has become appealing. The trust can be funded and set up to provide an immediate income benefit for either the donor or beneficiaries of the donor over either a set period of time or the lifetime of the beneficiaries, and the trust will pass through the remainder assets to a qualifying charity at the end of the trust term.
There are moving pieces involved for which a visual example can be used to better connect them to form a complete picture, such as:
How much of a charitable deduction the donor would potentially be entitled to claim for the transfer made to the trust ($192,776 based on a gift of $500,000 made to a 15-year trust using the April 2024 Section 7520 interest rate of 5.2%)
How much the donor or income beneficiaries would expect to receive on an annual basis ($30,000 annuity payments based on a 6% payment rate and a $500,000 gift)
How investing assets prudently within the trust might result in an even greater amount than was originally gifted being transferred to a qualifying charity to help satisfy the client's future philanthropic needs ($771,521 being transferred to a qualifying charity in 2039 assuming an 8% rate of return).
The Impact of Visuals on Confidence
In the original surveys, we provide context on a given tax or estate planning strategy to gauge how the financial professionals' confidence on the respective topic changes after being guided with visual elements.
Even excluding those who indicated they were confident or very confident — because the use of visual aids is unlikely to affect confidence levels as their perceived or actual need for these tools would be low — we can see an improvement in confidence, especially among financial professionals who were not confident, as well those who were only somewhat confident.
Conclusions
The use of practical examples of planning scenarios is nothing new — most textbooks and news articles are filled with them — but they are delivered primarily through the written word. Given that many people have a preference for visual learning, and are able to better recall information that was consumed visually over longer periods of time, it is not surprising that the use of visuals can increase confidence levels among financial professionals as well.
If the use of visual aids can increase confidence in the knowledge of a particular planning concept, advisors might be more likely to bring up said strategy in response to a prospect inquiry. They might even be more proactive in their advice delivery and seek opportunities to create educational moments that will resonate with the clients they serve.
David Blanchett is managing director and head of retirement research for PGIM DC Solutions, the global investment management business of Prudential Financial Inc. Ross Riskin is the chief learning officer at Investments & Wealth Institute.
The original version of this story was published on ThinkAdvisor.
May 30, 2024
When it comes to tax and estate planning, perhaps the only thing that everyone can agree on is that it can get complicated and confusing very quickly. In a recent series of surveys that included over 2,000 financial professionals, only 13% of respondents felt very confident around their knowledge of tax planning strategies; only 5% of respondents felt very confident with respect to estate planning strategies.
One way to potentially bridge the knowledge gap and increase confidence, accessible both to clients and financial professionals, is to incorporate visual elements. We find that including visual aids and examples when explaining complex planning concepts and strategies can improve awareness and provide education. It also can lead to a dramatic increase in confidence, particularly among financial professionals who were not confident on a given topic
This is especially true for those who haven't been exposed to the concepts before or those whose encounters with these strategies may be few and far between depending on their current roles.
For example, 78% of respondents who noted that they were not confident about a series of tax planning topics, including the gain exclusion on the sale of a principal residence, the alternative minimum tax credit and tax planning considerations for different business entity types, indicated that they felt more confident after the concepts were explained in a webinar that highlighted visual examples.
Baseline Planning Confidence
To better understand financial professionals' comfort levels with tax and estate planning, a series of survey questions asked how confident they felt around various concepts.
In a total of five webinars conducted in 2023, we asked the financial professional attendees to rank their confidence levels in several tax and estate planning areas.
What emerged was a wide range of responses in terms of confidence. It is not surprising to see higher levels of confidence on tax planning, given that many of the financial professionals in attendance were CPAs.
Can Pictures Help?
To better illustrate how visual aids can help simplify complex information, let's discuss an estate planning strategy that has risen in popularity given the current high interest rate environment and potential reduction of federal gift and estate tax exemptions subject to tax laws sunsetting in 2026.
For high-net-worth and charitably inclined individuals, the use of a charitable remainder annuity trust has become appealing. The trust can be funded and set up to provide an immediate income benefit for either the donor or beneficiaries of the donor over either a set period of time or the lifetime of the beneficiaries, and the trust will pass through the remainder assets to a qualifying charity at the end of the trust term.
There are moving pieces involved for which a visual example can be used to better connect them to form a complete picture, such as:
How much of a charitable deduction the donor would potentially be entitled to claim for the transfer made to the trust ($192,776 based on a gift of $500,000 made to a 15-year trust using the April 2024 Section 7520 interest rate of 5.2%)
How much the donor or income beneficiaries would expect to receive on an annual basis ($30,000 annuity payments based on a 6% payment rate and a $500,000 gift)
How investing assets prudently within the trust might result in an even greater amount than was originally gifted being transferred to a qualifying charity to help satisfy the client's future philanthropic needs ($771,521 being transferred to a qualifying charity in 2039 assuming an 8% rate of return).
The Impact of Visuals on Confidence
In the original surveys, we provide context on a given tax or estate planning strategy to gauge how the financial professionals' confidence on the respective topic changes after being guided with visual elements.
Even excluding those who indicated they were confident or very confident — because the use of visual aids is unlikely to affect confidence levels as their perceived or actual need for these tools would be low — we can see an improvement in confidence, especially among financial professionals who were not confident, as well those who were only somewhat confident.
Conclusions
The use of practical examples of planning scenarios is nothing new — most textbooks and news articles are filled with them — but they are delivered primarily through the written word. Given that many people have a preference for visual learning, and are able to better recall information that was consumed visually over longer periods of time, it is not surprising that the use of visuals can increase confidence levels among financial professionals as well.
If the use of visual aids can increase confidence in the knowledge of a particular planning concept, advisors might be more likely to bring up said strategy in response to a prospect inquiry. They might even be more proactive in their advice delivery and seek opportunities to create educational moments that will resonate with the clients they serve.
David Blanchett is managing director and head of retirement research for PGIM DC Solutions, the global investment management business of Prudential Financial Inc. Ross Riskin is the chief learning officer at Investments & Wealth Institute.
The original version of this story was published on ThinkAdvisor.
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