5 Questions with Ed Slott, CPA

1. First, can you briefly highlight the knowledge gap you identified over three decades ago? As a CPA, you started meeting clients who were unaware of the major tax issues sitting in their tax-deferred retirement accounts. Where was the financial services industry falling short?

IRAs first began in 1975 after they were created by ERISA in 1974, but after the 1986 Tax Act, the IRS released a slew of regulations on the distribution tax rules that seemed to be written in Sanskrit (or something else, but certainly not English!). IRAs were still relatively new and did not yet include large rollover balances, so most financial advisors only dealt with making contributions and never thought about helping clients plan for when these retirement funds would have to be withdrawn.

As a practicing CPA at the time, I sat down with clients at tax time to prepare their tax returns, and I started seeing the first signs of costly mistakes that often couldn’t be fixed. I was the messenger giving the bad news. When those early IRA tax regulations came out, it hit me that while advisors could help clients accumulate funds in IRAs, they were woefully unprepared for how to help clients plan for taking those funds out. That’s when I first recognized the beginnings of a dangerous knowledge gap between accumulation and distribution planning. Clients need advisors educated in both phases. Over the last three decades, that knowledge gap has grown significantly to worrisome levels given that for many, their IRAs are their largest single asset, so mistakes can be devastating for both the clients and their advisors who have to give them the bad news – that they were unprepared or unaware of the tax ramifications of IRA distributions.

I realized right then that this was a huge opportunity for someone to learn these complex tax rules, digest them, and translate that tax Sanskrit into understandable language with which both advisors and clients could plan correctly.

I also realized this was an opportunity for financial advisors (who back then were mostly brokers) to bring in new planning business. But for the most part, advisors didn’t want to invest their time in learning this area and chose instead to focus on investments. That was when I first recognized that there would be a huge knowledge gap here, and unfortunately, it’s still true today. The difference now is that most financial advisors do offer more planning-related advice, but as a rule, they still shy away from this critical tax advice, leaving clients exposed to the tax landmines that are extensive in this area.

In addition, unlike over 35 years ago, many clients now have accumulated substantial balances in their IRAs and company plans so there is more money at risk of loss through a lack of retirement tax planning. The knowledge gap still exists.

2. You were the pioneer in advanced education on IRA distribution planning. Do you think financial advisors are better prepared to help clients navigate IRA intricacies than they were when you started? If not, where are they still falling short?

No, absolutely not! The gap is still there today, but it’s more serious now since so much more of a client’s retirement savings is at risk. This is due to advisors’ general lack of serious education in IRA distribution tax planning. Many of them like to say (actually, cover themselves) in their company disclaimers that “we do not provide tax planning services,” but any advisor who touches a retirement account is doing tax planning since IRAs are loaded with taxes. Any advisor who takes in an IRA rollover or helps clients make IRA or Roth IRA contributions, or advises on a Roth contribution, or sets up a company retirement plan is doing tax planning whether they want to call it that or not.

So, now we have a situation where the average advisor is taking in millions in IRA dollars without the knowledge of how these funds will be distributed as part of a retirement, tax, or estate plan. That’s a dangerous combination. Then add the latest round of new tax rules and you have a ticking liability. It’s only a matter of time until judgment day. I’ve seen the horror stories for years, and it’s awful when mistakes can’t be fixed.

But this situation has a silver lining. It spells unprecedented opportunity today for advisors who invest in their education to learn how to do this planning. There’s one constant – educated advisors bring in the largest IRAs and don’t have to rely on commoditized transactional business competing on an ever-thinning price margin. Plus, their clients see them as valued advisors and are more likely to recommend them. Clients with serious money seek out educated advisors. They know the difference.

3. There’s a true synergy between your organization and The College, which emphasizes how to apply knowledge and education in the real world. You share that belief and structure your programs in a similar way. Can you talk about your passion for applied knowledge?

I love learning and teaching. As a practitioner myself for years, I constantly attended tax training programs often for days at a time. I wanted to learn all I could to enhance my professional planning skills. But I quickly realized that learning was meaningless unless I used that knowledge. My true practice growth exploded when I began applying the knowledge to my clients and their families. I was amazed at how quickly and easily consumers were drawn to me as an advisor who did real proactive planning, rather than simply tax preparation. I also was able to earn much higher fees as a tax planner rather than simply preparing taxes. I was no longer competing with low-cost tax prep companies. I was charging significantly more than most CPA firms and that seemed to attract even more higher-end clients who wanted that level of planning. It may seem counterintuitive, but I was actually attracting business by charging the highest price. For clients, the value they received eclipsed the fees. In fact, I took business from other CPAs that were charging much less. Based on the tangible results of tax savings, some clients still thought I wasn’t charging enough. I would often receive letters from clients (and even their beneficiaries after they died) saying that the fee they paid me was the best investment they ever made. They looked at my services as an investment, not as a fee for a commoditized service.

That’s the kind of practice every advisor should strive for, and when I began presenting advisor training programs, I made sure to design them with this same formula for success.

The formula is simple but powerful if applied consistently: Providing knowledge + showing how to apply it = applied knowledge = success!  

That’s what The College brings to financial professions with the Retirement Income Certified Professional® (RICP®) program, and what our partnership will provide with Ed Slott and Company’s IRA Success powered by The American College of Financial Services.

The focus within each of our 12 courses will be for the advisor to gain the best retirement tax planning knowledge available and learn how to apply that knowledge to build their business, as well as help more clients achieve their retirement planning goals.

4. A key part of your mission is to democratize IRA education – which you’ve sought to accomplish through corporate and consumer training, holding your own live workshops, speaking for large institutions and organizations, and producing some of the highest fundraising Public TV specials in history. Can you talk about how you believe delivering an innovative e-learning program through The College will help you further that mission?

Education is the common bond we have with the mission of The American College of Financial Services, so it’s a perfect fit.

I’ve seen the horror stories where chunks of retirement savings were lost due to poor planning or costly errors made by financial advisors who didn’t know the tax rules. These people often came to me for help after the damage was done, and most times I could not fix the problem because many of these tax rules and options are irrevocable.

That’s one of the reasons I began to focus on retirement planning for the second half of the game – taking the money out – the critical distribution phase.

Consumers need the help, but they need to work with advisors who have specialized knowledge in retirement distribution and tax planning. I’m sorry to say most don’t.

Advisors generally do a good job helping people invest and accumulate retirement savings. No question, that’s the first major building block. But it’s just not enough. These hard-earned savings need to be protected. That‘s what I call the second half of the game – the distribution phase. It’s where the retirement game is won. With IRAs and other tax-deferred retirement accounts, it’s what you keep after taxes that counts, and that comes down to tax planning. With good planning, the amount of taxes that can be saved is astounding. This is money that will now stay invested and increase the retirement savings available for clients, as well as the amounts they pass on to their loved ones.

This e-learning program we created with The College focuses intently on this educational mission because, like me, they too believe that better educated financial advisors means more people can experience a successful and worry-free retirement. The ripple effect of a successful retirement and estate plan can impact families for decades and even generations. Financial advisors are equal beneficiaries in their clients’ success. When a client succeeds and has financial security, we all do.

5. How would you describe this program to a financial professional? Is there anything else in the market that combines this IRA thought leadership with e-learning delivery expertise?

This e-learning program is the only one in the nation that combines the decades of experience of myself and my team of IRA experts and presents the material in an easy-to-digest, anytime, anywhere format. Learning doesn’t have to be a tortuous experience. This program is unique in the material presented, how it’s presented, and in the tangible results that will follow.

Each of the 12 courses is focused on practical planning solutions that are easily translatable to real client situations, not esoteric tax code that will never be used or understood. We know what concerns clients. We know what keeps them up at night, and we show professionals how to address their anxieties, worries, and goals without spouting tax code or other useless tax jargon.

There’s nothing even closely comparable in the industry, and we’re proud to offer this program with The College. This will change how professionals learn to do retirement tax planning that gets results, both for the clients and themselves. True success is when everyone wins!