Survey: Most Affluent Investors Expect Tax Increases but Don’t Plan to Meet with an Advisor

Despite expectations that changes will impact portfolios negatively, six in ten don’t believe there are any adjustments that can be made

COLUMBUS, Ohio--()--According to a new Nationwide Financial poll, most high net worth investors (63 percent) are concerned that their investment portfolios will be negatively affected by tax code changes now that President Obama has been re-elected, and three in five (64 percent) don’t believe it’s possible to make adjustments to help offset pending tax increases.

The recent Harris Interactive survey of 751 investors with $250,000 or more in annual household income or investable assets released today found six in ten (60 percent) survey respondents say they either won’t or are unsure if they will meet with a financial advisor to discuss how these changes may affect their portfolio.

More than half (56 percent) of survey respondents believe their individual federal taxes will increase. Nearly half (48 percent) expect tax rates to increase, particularly for the wealthy, and a third (30 percent) believe tax rates will increase across the board. Nearly seven in ten think Bush-era tax cuts will be completely eliminated (35 percent) or at least reduced (33 percent) for the wealthiest Americans.

Despite these concerns, six in ten (61 percent) will take no action, saying they either don’t plan to make adjustments to their portfolio or don’t know what adjustments to make. Of those who do plan to meet with a financial advisor, a quarter (26 percent) will wait until 2013 or after tax code changes take affect.

“There is a huge opportunity for advisors to proactively engage clients in a discussion about how tax code changes may impact their portfolio,” said Eric Henderson, senior vice president of Life Insurance and Annuities for Nationwide Financial. “Investors may miss an opportunity by waiting, and according to our survey, many of them are not planning to initiate this discussion.

“It’s unclear exactly what decisions lawmakers will make, but when you consider the changes scheduled to take affect and the budget deficit challenge our leaders must address, additional tax obligations for many Americans are likely.”

At the end of 2012, Bush era tax cuts expire, impacting the top four marginal brackets and eliminating the 10 percent bracket. The phase-out of itemized deductions for high income earners is set to return. Tax on dividend income is set to increase from 15 percent to ordinary income rates as high as 39.6 percent. Long-term capital gains rates are scheduled to rise from 15 to 20 percent for most taxpayers. Those with high overall income and investment earnings will face an additional 3.8 percent Medicare investment earnings surtax. The gift and estate tax exemption is scheduled to shrink from $5.12 million to $1 million.1

The Good News
While only one in ten (10 percent) survey respondents have already met with their advisor, nearly all of those who did found it to be helpful in understanding tax code changes and planning changes to their portfolio that will minimize potential impact.

Just over half (55 percent) of respondents currently have a financial advisor and most (82 percent) are at least somewhat comfortable talking to them about tax code changes and have confidence in their advisor’s ability to help them prepare for changes in the tax code (88 percent).

“It’s clear that clients who are having these conversations with advisors are glad they did,” Henderson said. “This type of proactive council can prevent clients from missing out on significant opportunities, while building trust, cementing long-term relationships and opening up sales opportunities. While most financial advisors do not provide tax advice, our survey shows an opportunity for advisors to provide portfolio advice based on the implications of new taxes.”

Opportunity To Educate
Four in ten (41 percent) survey respondents want more education on the tax advantages of annuities and about a quarter want more education on the tax advantages of life insurance (21 percent) and 401(k) plans (25 percent).

Six in ten (59 percent) are not aware of changes to estate and gift tax limitations and say they do not understand very much or at all how a life insurance policy can help them take advantage of the current gift tax exemption limits (60 percent). Forty-three percent would like more education on that topic.

Nationwide Financial has created a discussion guide to help advisors plan their conversation with clients.

Methodology
The tax study was conducted online by Harris Interactive between September 28 and October 5, 2012. The respondents comprised of 751 adults ages 18+ having $250,000 or more in annual household income or investable assets. Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online. Since this data was collected before the Presidential election, respondents were asked to respond to questions assuming both potential election outcomes. The data represented here focuses on responses where respondents assumed the President would be re-elected.

About Nationwide
Nationwide Mutual Insurance Company, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s. The company provides customers a full range of insurance and financial services, including auto insurance, motorcycle, boat, homeowners, pet, life insurance, farm, commercial insurance, annuities, mortgages, mutual funds, pensions, long-term savings plans and specialty health services. For more information, visit www.nationwide.com.

Life insurance is issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio.

Nationwide, Nationwide Financial, the Nationwide framemark, Nationwide YourLife and On Your Side are service marks of Nationwide Mutual Insurance Company.

Nationwide does not give tax advice

1 Journal of Accountancy, November 2012

Contacts

Nationwide
Mike Switzer, 614-249-4092
switzem1@nationwide.com

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Release Summary

According to a Nationwide Financial survey, most wealthy investors will not be seeking the guidance of financial advisors on their investment portfolios

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Contacts

Nationwide
Mike Switzer, 614-249-4092
switzem1@nationwide.com