In addition to the profound uncertainty we are experiencing today regarding our health, the well-being of our families and civic unrest, the coronavirus pandemic has created unprecedented volatility in many Main Street investors’ financial plans. Even with the ongoing rebound in the equity markets, investors are deeply concerned that the virus and its economic impacts will leave them unprepared for retirement and other goals, despite their years of saving and hard work.
Unfortunately, in recent years, Americans have encountered an unnecessary roadblock standing between them and the professional guidance they need. In the Tax Cuts and Jobs Act of 2017 (TCJA), Congress repealed the limited tax deductibility for investment and financial planning fees that had made these crucial services more affordable for workers and savers across the country.
With job losses and market volatility causing many Main Street Americans to rethink their spending priorities, this repeal has had the unintended consequence of making investment and planning advice more expensive at a time when it is most urgently needed.
In addition, the repeal has created a disparity between business models. While investors who have fee-based advisory accounts can no longer deduct the cost of fees, the tax code retains an equivalent tax benefit for those who receive commission-based advice.
We are working closely with our members to address this challenge, encouraging them to reach out to their representatives in Congress to restore the deductibility of financial advice. We have also joined a broad coalition that includes the Investment Adviser Association, the CFP Board, the National Association of Personal Financial Advisors and the Financial Planning Association to ensure that our leaders are listening to the voice of independent advisors and their clients on this crucial issue.
What Congress Should Do
As elected officials on both sides of the aisle search for ways to put Americans on more solid financial footing, removing the unnecessary tax burden that currently stands as a barrier between clients and professional financial advice would provide an impactful, common-sense solution.
With this in mind, we ask Congress to restore this crucial deduction as part of any additional emergency relief measures it considers in response to the ongoing pandemic.
However, Congress should not stop there.
The deduction that existed prior to 2017 included a threshold that prevented the deduction from taking effect unless advisory fees exceeded 2% of an investor’s adjusted gross income (AGI). This favored upper-income households, who typically pay more fees based on larger portfolios, over middle-income investors. In order to help as many Americans as possible during this difficult time and beyond, Congress should take action to remove this arbitrary AGI threshold.
Restoring deductibility for advisory fees is a timely and important measure that would drive real benefits for Main Street clients during a critical time for our nation. It would also ensure equal treatment of both fee-based advice and commission-based advisory business models.
For the good of the country and the well-being of its workers and investors, we urge Congress to restore the tax deductibility of advisory fees today. To make your voice heard on this issue, contact your member of Congress through our call to action form, and ask your clients to do the same.
We look forward to updating our members on this critical issue in the months ahead.