Advisors want Congress to reinstate tax benefits for Americans seeking financial advice

In response to a request for comment on the impact of expiring provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) on families, workers, businesses and communities, the CFP Board, the Financial Planning and other groups representing the wealth management industry submitted a joint letter to the U.S. House Ways and Means Committee to reinstate tax deduction for financial advice fees.

Prior to the enactment of TCJA, individuals who received financial advice were able to take advantage of tax deductions if the fees for that advice exceeded 2% of their adjusted gross income. However, TCJA’s repeal of this vital deduction effectively raised the cost of financial advice for everyday Americans who were able to benefit from the deduction.

“Too many American households and workers lack access to competent and ethical financial advice as they plan for retirement,” read the letter addressed to Rep. Jason Smith (R-MO), Committee Chairman. The joint letter submitted to the Ways and Means Committee on September 16 requests that Congress restore and expand tax incentives for financial advice, including financial planning. The letter also underscores that the incentives should be widely available to American households to encourage savers to seek advice and guidance from financial professionals.

“The outcome of the upcoming elections, including the Presidential election, will certainly impact the tax policies in the Tax Cuts and Jobs Act set to expire at the end of 2025,” said Erin Koeppel, Managing Director, Government Relations and Public Policy Counsel, CFP Board. “Congress and the new Administration will have the opportunity to not only restore but also expand tax incentives for financial advice, including tax credits for moderate-income Americans.

“The specific framework may vary depending on the composition of Congress, but we believe that a tax incentive for everyday Americans seeking professional investment and financial planning advice would be a common-sense piece of legislation. This is cause for optimism, as the tax incentives are something that members from both sides of the aisle should support for the benefit of their constituents and our economy.”

Prior to the TCJA, “Congress recognized the value of professional investment and financial planning advice by providing a tax deduction for those services…,” read the letter. “Congress repealed that limited deduction in 2017 when it passed the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump. An unintended consequence of this repeal has been that it raised the cost of financial advice that is critical to Main Street investors and workers saving for retirement.”

During the COVID-19 pandemic, “throughout the market fluctuations, millions of Americans, including many near retirement, watched the money they worked so hard to earn and to save for a secure retirement evaporate virtually overnight,” read the letter.

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The joint letter was also signed by the National Association of Personal Financial Advisors (NAPFA), the Financial Services Institute (FSI) and the Investment Adviser Association (IAA).

“All taxpayers need help to obtain the critical financial advice they need now, and any tax incentives should be widely-available to American households,” concludes the letter.

“Access to affordable financial advice, including financial planning, is always important, and it is particularly critical as inflation affects consumers’ abilities to meet their financial goals,” said Koeppel. “Tax incentives provide a means to effectively lower the cost of financial advice for everyday Americans.”

At press time, CFP has not yet gotten a response from Congress.