S2 EP09 Tax strategy planning for clients with Dominique Molina

11.11.19 | 0 Market Transform

My guest today is Dominique Molina. Dominique is the co-founder and President of the American Institute of Certified Tax Coaches. As the driving force and visionary behind the San Diego-based company, she set out to change the way tax professionals approach tax planning. She created an elite network of tax professionals including CPAs, EAs, attorneys and financial service providers who are trained to help their clients proactively plan and implement tax strategies that can rescue thousands of dollars in wasted tax. Dominique is also a published author of two books on taxation.

In this conversation, we discuss advanced tax reduction. Dominique shares some of the best ways financial advisors can provide proactive planning to help solve the challenges of America’s taxpayers. Advisors bring a world of opportunity and awareness of the danger in the world for their clients, and when it comes to tax planning there is a need for renewed professionalism that is client focused. Dominique shares about the major difference in automated tax planning vs. advisor led is the client needs and the judgement of the professional advisor. The advisor’s judgement is the added value to the expertise that is brought to the table and it truly is the competitive advantage to make you the trusted advisor.

Don’t miss one of our favorite moments, when Dominique talks about advisors putting their own house in order. She mentions that when you put to practice the elements of tax planning in your own company it will allow you to better demonstrate the action steps for your clients.  

As you think about this conversation, what are the elements of tax planning that set you apart from other advisors? How are you going to take steps to get your own house in order to take advantage of every available tax break?

Looking for more ideas about creating value for your financial advice practice? Join the Model FA advisor community, where you will find expert advice on how to launch, grow, scale, and transform your firm.

Resource Links
American Institute of Certified Tax Planners
Writeoffs to the Rescue
Get Paid What You are Worth
Connect with Dominique

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Dominique M.: 00:07 We've got two opposing personality styles. First of all, we've got on the one hand, advisors tend to see the world full of possibility and opportunities and on the other hand, we've got a profession that is out there to protect their client from the dangers of the world, it's a dangerous place, right?

Patrick Brewer: 00:33 Yeah. Hey Dominique, welcome to the podcast. So excited to have you on The Model FA Show.

Dominique M.: 00:38 Thanks for having me.

Patrick Brewer: 00:40 Absolutely. You are one of the foremost experts in advanced tax reduction. What are your focuses? What are you doing with CPAs, financial advisors, other professionals to help them with advanced tax reduction and maybe just start off with just an explanation of what that is and what it means for our listeners?

Dominique M.: 01:02 Yeah, I mean, I think most people are aware that there are people in this country that pay taxes very differently. You take the Warren Buffett to the world and he's notorious for coming out during tax season every year and setting a challenge and his challenge is is that if anybody who's leading a Fortune 500 company can prove that they pay more tax than anybody else in their company, he will donate a million dollars to their charity.

Dominique M.: 01:33 Of course, nobody has ever taken him up on the offer. That's just common knowledge, but I think where the common knowledge gets skewed a little bit is understanding why and how that works.

Dominique M.: 01:46 I think a lot of people believe that maybe you have to be rich and famous to pay taxes that way and that's actually not the case. It's just because Amazon's and Facebook's and Apple's of the world, they just happen to have really, really top advisors helping them use the tax laws, the way they're meant to be used and they pay very, very little in tax if any at all.

Dominique M.: 02:12 That's what I do. My expertise is in using the same types of tactics that the big guys use, but making it available to every day business owners and we help professionals and advisors be able to bring those same strategies so that they can attract affluent business owners as clients and better serve them.

Patrick Brewer: 02:37 That's great. Are you, so what I'm noticing in the marketplace right now between advisors, CPAs, attorneys, really anyone that focuses on financial matters is there's a shift going on where everybody wants to be the trusted advisor, they want to be the first call from the client whenever they have questions about their finances, and it could be business, it could be personal, whatever it is, they just want to be on speed dial.

Patrick Brewer: 02:58 What strategies or what are you recommending for CPAs and financial advisors that is allowing them to set themselves apart? What about this program and things that you're doing is giving your folks an advantage over, let's say an advisor who doesn't have access to these types of things?

Dominique M.: 03:20 Well, a couple of things. I think you mentioned being on speed dial and getting that call, I call that a reactive approach. What's nice about this, using this as a business model is that you don't have to wait and be reactive.

Dominique M.: 03:37 You could actually be proactive. See, here's the thing. When I am studying the tax laws regularly, I can contact my clients in a proactive way to say, "Hey, here's an idea that's going to save you money." The nice thing about it is it puts immediate and tangible cash in your client's pocket immediately.

Dominique M.: 03:59 As soon as their next paycheck or they can skip their estimated tax payments all together when you do this, because what you're doing is you're using the business and harnessing the power of those tax strategies.

Dominique M.: 04:14 There's so many, I mean, there's really over 400 different strategies and they're constantly evolving and changing. That just gives you this ability to constantly be helpful, to be a welcome call when you're contacting people and that's what builds up that trust so that you are the person that they want to call when they have a need to reach out.

Patrick Brewer: 04:37 How does this work for financial advisors? Because financial advisors have historically outsourced the tax piece, right? They're not experts in tax preparation, they understand tax planning, but if you're talking about 400 strategies, I would wager that maybe some advisors can name 10 to 20, but definitely not 400.

Patrick Brewer: 04:54 How do you recommend advisors interact with tax preparation and planning? I mean, we have a wealth management firm, we've done taxes, we do tax planning, we're starting to make that shift into more of the advanced tax reduction strategies for business owners, but it's definitely a skill set that is not taught to the degree that it probably should be in the CFP or the CFA or even the CPA honestly.

Patrick Brewer: 05:17 What are you seeing for financial advisors? How are they supposed to interact with these tax strategies and how can they position themselves to be successful?

Dominique M.: 05:26 Yeah, it's the team approach. It really is and you're absolutely right, they really aren't teaching this. This isn't a minimum requirement to get your CPA license for example. Tax code is 77,000 pages and really only 30 focus on what's taxable.

Dominique M.: 05:46 The rest is all about how to not pay tax. You're really talking about law here and so, if you're interested in that and you want to pursue that, great, but most people aren't. To be able to tackle that with a team approach is really helpful and to have somebody on your team that's back office that can develop those sound strategies, it's not just about knowing what they are, but it's about being able to implement them legally.

Dominique M.: 06:15 You don't want to be looking over your shoulder constantly to see if you're going to jail anytime soon. It's about doing it the right way and being aware of all the nuances that are there in the code. You can still use this to your advantage as an advisor and knowing that you have someone on your team that can perform that service for your clients.

Dominique M.: 06:40 You can use this to differentiate yourself, to go out and attract affluent business owners. Listen, every business, I don't care what your challenge is, you're struggling to get to the next level, you want to make a new hire in your business, you want to fulfill purchase orders, cash helps with all of that. When we can cut somebody's taxes by six figures or more next month, that makes a really big difference.

Patrick Brewer: 07:10 I know a lot of the advisors that are listening right now with some of the apprehension that they could have around this topic could be finding a CPA that's actually going to do the work and do the fulfillment side because, as you probably know, most CPAs aren't going to be very forward-looking when it comes to tax reduction and tax planning.

Patrick Brewer: 07:26 Most of them are some of your statements. I'm going to do my best not to die from a thousand paper cuts over tax season. I've got two monitors going and I'm charging hourly for my time or I'm charging on a per return basis. They've got probably 20 advisors, business cards sitting on their table, there's papers everywhere, that's the image that comes to mind for me when I think about the usual accountant and I'm sure that same image pops up for most financial advisors as well.

Patrick Brewer: 07:51 How does the financial advisor who goes out, gets the ... Piques the curiosity of a successful business owner, promises all these things and then comes back to their office and they're like, "Oh crap, who's going to actually do all this work? Who's going to be sitting in the meetings with me to make sure that everything gets done and I'm not having to call the IRS and do things that are outside of my expertise?"

Dominique M.: 08:11 Sure. Sure. Yeah. I mean, that's like the perfect visual too, thank you. That's who I work with every day. I can poke fun because I'm a CPA, but that is the truth and I would say that more than 80% of CPAs are not an ideal fit for this.

Dominique M.: 08:32 That's really what you're up against. Here's a couple of things I would say. Number one, probably get rid of the idea that somebody in your local hometown is going to fill this need that you have. That's just the bottom line.

Dominique M.: 08:48 We're really talking about a rare breed, we're talking about somebody that can see things proactively and that's unusual to find. The second thing is is you definitely need somebody that has the training and the skills to do it and then the third thing is you want somebody that isn't going to compete with you.

Dominique M.: 09:12 Here's the deal, there's a lot of tension sometimes between a financial advisor and a CPA because you're competing for that attention of the client and in reality, you don't have to compete at all. You can really have a very successful relationship as long as you have the right players put together.

Dominique M.: 09:31 That's not always easy to come by. What I would say is, definitely look for somebody that's proactive. You can certainly get in touch with us at our organization. What we're doing is we're putting together not necessarily the ideal partner for you, but what we're doing is being able to service that as your back office.

Dominique M.: 09:55 That means because schedules change all of the time as well and you may have CPAs that are bogged down and not available today, but they're available tomorrow. That's what makes having an ideal partner really tough to find.

Dominique M.: 10:11 What we found works it well is being able to have a team of people available to you. Some that are trained specifically in how to partner with financial advisors, and that usually gets the job done pretty well.

Patrick Brewer: 10:26 Wow, so you have a centralized or decentralized office where let's say a financial advisor brings in a prospect, they pique their interest, which I want to talk about in a little bit here on how an advisor and like, what are they saying to get business owners interested, but they sell this tax plan or this tax reduction strategy, they come back and they're like, "Oh, crap, I've got a lot of work to do."

Patrick Brewer: 10:48 They can turn to you and say, "Dominique, help." And you have a team of CPAs and accountants that can fulfill, do the tax returns and do a lot of the work for the advisors so that they can just focus on the client relationship? How does that dynamic shakeout?

Dominique M.: 11:01 Yeah, we've got close to 800 around the country, and they're connected through an electronic platform and that means that you have somebody constantly available for your needs, but exactly as you've described, available, depending on what you're wanting, sometimes people are perfectly capable of directing the meetings on their own.

Dominique M.: 11:26 Sometimes they want that additional credibility of having the CPA there present at the meeting over a video conference, because that just shows that you are more valuable, because you're putting together this A team of professionals that every business owner needs in their corner.

Patrick Brewer: 11:46 Love it. What strategies are CPAs and advisors using right now to pique the curiosity of a successful business owner? Have you've seen anything that's working well? Any tips that you would have for someone who wants to work in that vertical and start to bring on more affluent business owners?

Dominique M.: 12:01 Yeah, absolutely. I think it starts with clearing up some confusion because there's a lot of confusion out there about what exactly tax planning is. Tax planning in one respect can mean future tax advantaged growth down the line and you pay less taxes in retirement. That's certainly one description of tax planning, but the tax planning that I'm using in this context with business owners is immediate.

Dominique M.: 12:29 We're looking at their current situation and identifying small shifts that can be made whether it's their entity choice, whether it's taking advantage of tax loopholes or income shifting, to move money around where they need it to be so that they're positioned in a tax advantage way and what that does is it allows them to either skip a series of tax payments or dramatically cut them and that puts cash in the bank immediately.

Dominique M.: 13:00 When you're able to have those types of discussions with clients, it helps identify A, who's a super good candidate for that because somebody who's not interested in tax reduction, they're probably not that affluent.

Patrick Brewer: 13:16 Mm-hmm (affirmative).

Dominique M.: 13:16 And sometimes it's hard to tell, I'm here in California, it's like, you don't really know what's real when you're looking at people. They could be heavily mortgaged and on the verge of bankruptcy, but they look super successful, but it just sort of helps make things more transparent and expose who's really in need of that.

Dominique M.: 13:40 It allows you to really get in with different groups too because this tends to be a heavily referral-based group of people. It allows you to get into associations and professional organizations where these folks hang out.

Dominique M.: 13:59 If you're using the traditional seminar model, for example, doing a seminar on advanced tax reduction for business owners can be a really great way to get a group of people together and get them interested in something that's ancillary to what you're doing, yet nevertheless get to a carrot into a different field that somebody may be interested in.

Patrick Brewer: 14:25 Great. I mean, you and I should probably talk post podcast because I actually have a presentation coming up to 40 entrepreneurs in Utah next week via my business partner, Tim Power, so it would be good to have some ammo to come into that meeting locked and loaded.

Dominique M.: 14:37 There you go. Yeah, ideal.

Patrick Brewer: 14:40 Yeah, that's a great approach. What I'm hearing if I'm to summarize is you've got painkillers and you've got vitamins. Most advisors, they're going to sell vitamins. It's put your money in ETFs or low cost mutual funds, you're going to increase the tax efficiency over 15 to 20 years.

Patrick Brewer: 14:53 The client is not really going to see that, they're not going to like do a comparison in 15 to 20 years and say, "Oh man, this guy really increased the tax efficiency of my portfolio and rebalanced it in an opportune time."

Patrick Brewer: 15:04 You're selling a painkiller, which is right now, you're giving the IRS too much money, you should give them less. Here's how you can give them less.

Dominique M.: 15:10 Yes, absolutely.

Patrick Brewer: 15:12 Okay. Got it. What strategies are, I mean, maybe some of these are proprietary, obviously, some of them are going to be more common and others are going to be more rare and I guess it depends on the business owner and their specific vertical and their operating position in their company on which ones are appropriate, but are there two or three strategies that might jump out at you to say like, "Hey, these are really good strategies that a lot of financial advisors either A, don't know about or B, aren't using, that you think would be interesting to share them on the show today?"

Dominique M.: 15:43 Yeah, absolutely. And by the way, none of these are proprietary. The Congress invented them. I think it's hysterical sometimes because I get called as an expert witness in court from time to time just to testify on that issue, because really, who's the author of this? Our politicians, right?

Patrick Brewer: 16:01 Yup.

Dominique M.: 16:01 They designed these things. It's either the lobbyists or the politicians. I don't know at what point they get credit for that, but yeah, absolutely. A big, huge opportunity right now that I see just go missed so many times has to do with capital gains.

Dominique M.: 16:18 That's a great target audience for reaching affluent people, right? I mean, it could be as simple as looking at listed properties for sale when somebody has a commercial building that's up for sale. That's public database, right?

Dominique M.: 16:35 Most people will go to the tactic of the 1031 Exchange, knowing that, "Oh, I can defer my gains into the future." And really, there's six different ways that you can completely eliminate capital gains permanently without going through the 1031 hassle, but most people just aren't aware of what those tactics are.

Dominique M.: 16:59 Again, to be able to come in and target an audience that you're looking to connect with and say, "Gosh, this is what I bring to the table. I'm sure you've probably checked this out, but do you have any idea what you're looking at as the tax consequences on this?"

Dominique M.: 17:14 Let's sit down and explore this because one of these other ways is probably going to work for you and I'd rather see you number one, have the freedom to invest those proceeds whatever way is going to benefit you more and number two, set yourself up so that you're paying less tax going forward as well.

Dominique M.: 17:35 Part of the problem with 1031 Exchanges is that your depreciation is generally less when you get into your new property. While you're deferring that gain, you're kind of shooting yourself in the foot a little bit with your future tax reduction by giving up that that increased depreciation over time and a lot of people aren't aware of that.

Dominique M.: 17:59 Another super hot thing right now has to do with entity choice. A lot of people talk to the attorney when they're first getting started and the focus often is asset protection, and rightly so, but there's a huge amount of tax benefits that go into choosing the proper entity, or entities if you have more than one, and you probably should have more than one.

Dominique M.: 18:26 Tax Reform just came about, we've got a flat 21% tax rate for C corporations. If you've got somebody that's paying 37%, but you have an opportunity to choose to pay 21%, wow. I mean, that's an instant 16% haircut right away just because you've chosen a different entity.

Dominique M.: 18:48 Now, you've got to have a tax plan on how to get dividends out of that C corporation tax free. That's not a problem, but there's so many things that are just all around us every day that people just miss and here's the thing, if you're focused on what happened last year, there's not really a lot you can do.

Dominique M.: 19:08 You can't rewrite history. You can't say, "Oh, gosh, I wish I had a C corp." So make it so. No, you've got to make that change going forward, but there's [crosstalk 00:19:19] a lot of exciting things going on.

Patrick Brewer: 19:21 That's awesome. Yeah, those are two pretty amazing strategies. I don't know the six ... You've got me, you've opened a loop in my mind that I feel like I need to close on the six strategies for eliminating capital gains that are associated with the 1031 Exchange. Nice work there.

Patrick Brewer: 19:35 Talk me through how advisors can get this type of knowledge. Is it like do you ... How do you train folks? Is this a course that you've put together and you say, "Follow these strategies." And you update it based on changes to the tax code? Is it they consult with a CPA who's been trained by you and the advisor just has enough to do the marketing side and they're not trained to the degree that they need to in order to actually implement because they don't want to implement?

Patrick Brewer: 19:59 What's the, how do you how do you structure it so that you can get this information into other people's brains?

Dominique M.: 20:05 Yeah. Well, it's a program and it's, I wish it was as simple as taking a course and downloading all the information, but the good news is it's not a course where you download all the information. I mean, that's really why you get paid the big bucks.

Dominique M.: 20:22 There's prerequisites for it. We have to have a license already, attorney, CPA enrolled agent. What I would say is as a financial advisor, get the training so that you can do the marketing angle of this and use this to your advantage without the burden of having to go to school for five years to know all of the details behind it.

Dominique M.: 20:44 You can come in, be the hero, be able to reap the rewards of that. I mean, there's nothing better than uncovering multiple six figures that you now have ready to play with and invest for somebody because the CPAs come in and identify that money that's now freed up.

Dominique M.: 21:05 That that's what I would suggest is get teamed up with somebody and start being able to use this to your advantage marketing wise immediately.

Patrick Brewer: 21:14 What does the marketing process look like? The advisor sits down with a successful business owner and were they equipped with some type of tool or the data collection and they send it over to you and then you run everything through and you say, "Hey, based on the, prior your tax return, the P&L and everything that this person said, during the discovery meeting, we recommend these things." What does the process look like on the advisor side of things?

Dominique M.: 21:38 Yeah, you are exactly right. We make it as simple as possible and it can be as simple as just taking a look at the most recent tax return business and personal and sometimes, people are squirrely about that, uncomfortable. It certainly is like opening the kimono, so to speak.

Dominique M.: 21:56 They don't have to even provide any of their private information. They can totally cross that off the tax return, we just look at the numbers and what boxes they show up in and just by submitting that in, you can get an immediate response on what the potential is there for that taxpayer and that allows you to go back and just say, "Hey, do you want to have further conversations about this? It's looking like you could be saving six figures today. Do you want to continue to explore this?" That allows that really juicy piece of bribe if you will that let somebody continue in the conversation.

Patrick Brewer: 22:39 Got it. Hey Model FAs, I know that you're enjoying this episode. I wanted to talk to you about a program that we're releasing. It's called the Model FA Accelerator. It is an intensive experience where we're going to bring you to Austin, we're going to help you solve the biggest problems in your practice.

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Patrick Brewer: 23:12 Entrepreneurs are ... So we work with a bunch of business owners and entrepreneurs in our wealth management firm and that's a market that we're looking to expand into, what I've noticed is you've got a couple different types, but to primarily, you've got the entrepreneur who wants to focus on what they're good at, they're passionate about it, and they're just going to lean into their strengths, and they're going to outsource everything and they're amazing clients.

Patrick Brewer: 23:31 Then you have some entrepreneurs that like to know the strategies and they want to strip your IP, your intellectual property. You've got to be careful about how much you reveal on the front-end because they're smart people, they've built multi-million dollar businesses, and if they can avoid paying you hundreds of thousands of dollars, they're going to try and do it I've seen.

Patrick Brewer: 23:51 What process do you have in place to keep some of the stuff because obviously like you said, nothing's proprietary. If you say, here's the five strategies, you hand it over to an entrepreneur who's trying to strip IP.

Patrick Brewer: 24:02 They can just go implement that with their own accountant or their own team or their own multi-family office, what are you recommending in order to get them from? "Hey yeah, I'm interested to ... I'm going to become a client of yours and not somebody else's." How does that process generally work?

Dominique M.: 24:18 Mm-hmm (affirmative). Well, if you think about it in context of law and practicing law, it would be a little bit like going and visiting your attorney and you're prepping for trial coming up, and you say, what's our closing argument going to be?

Dominique M.: 24:32 Well, they don't know, right? They haven't done the work yet and the same is true with tax planning. It's detailed work, we've got to run calculations, projections, do a little bit of research.

Dominique M.: 24:44 When we do that analysis upfront, what we're doing is just doing an estimate, and we don't necessarily know what the exact steps are going to be to follow. We can honestly sit in that meeting with the client and say, "We have a general idea. There's three or four different ways to approach this with each opportunity that we see, but we won't know the exact blueprint until we get through doing the work."

Dominique M.: 25:12 What we're doing at that stage is we're just trying to communicate enough information so that they can make an educated decision on whether or not they want to engage to move forward.

Dominique M.: 25:23 They have to actually pay upfront before that work is done, it's a substantial amount of work. That really eliminates the the whole IP stripping as you've referred to it as because we really can't give that information if we don't know what it is.

Patrick Brewer: 25:39 Yup. What are you recommending that people charge for these plans? Is it something where you meet with the business owner and you say, "Hey, there could be some things that we can do for you." Let's say you charge them $10,000, I'm just coming up with a number off the top my head here and you can correct me.

Dominique M.: 25:55 Sure.

Patrick Brewer: 25:55 But what happens if it comes back and there's really not a whole lot that can be done from a tax savings perspective? How are you structuring this so that everybody wins?

Dominique M.: 26:04 Yeah, I mean, first of all, everything comes with a guarantee. We actually can't guarantee by law. The IRS prohibits us from guaranteeing a certain savings amount, but we can do something even better and we guarantee complete satisfaction.

Dominique M.: 26:19 If that were the case, and somebody paid 10 grand, let's say, and it turned out, you couldn't really do anything or let's say I said I could save you $90,000 a year in tax, and it turned out, I could only save you 89, you're probably not going to be satisfied.

Dominique M.: 26:34 In that case, the guarantee would kick in, and refunds are available, but I have to say, it just doesn't doesn't happen and I've been at this almost 20 years and I've given one refund in my whole career.

Dominique M.: 26:49 When you get good at looking at it, the trick is is that knowing that there's multiple ways to accomplish the same goal and then the work part of it comes in and being able to, through process of elimination come down to the single best way of doing it that's going to work the best for a specific set of circumstances.

Dominique M.: 27:12 I mean, really anything is possible, it's just to what extent do you want to go to to pull that off. I can save somebody a million dollars if they write a check for $500,000, but maybe they don't want to write a check for 500,000.

Dominique M.: 27:29 I have to have another way to save them a million bucks that doesn't involve the check. You know what I mean? It's about getting familiar with the client's lifestyle, what they're doing, what their financial goals are, a little bit about the business, how the business makes money, what they want to do with it in the future and then taking all that information and boiling it down to get something that works within their current lifestyle.

Patrick Brewer: 27:54 How much traction are you seeing in the financial advisor community? I mean, it sounds like you've got a lot of accountants spread out all across the country. I mean, are you ... Same number of advisors? Is it is kind of a burgeoning market? What have you seen in the advice space right now?

Dominique M.: 28:07 Well, you probably know this too. Just like I said, this is an ideal for more than 80% of CPAs. This is an ideal also for the majority of financial advisors. A lot of financial advisors tend to target the low hanging fruit.

Dominique M.: 28:25 You're going after the retiree market and working with firefighters and school teachers and just trying to build up your assets under management, but for the advisors that are really aspiring to bring more value to affluent business owners, this works really, really well and that just doesn't fit most advisors.

Dominique M.: 28:47 Connecting with the right types of advisors, tends to be the challenge there in growing out the financial advisory side of the practice, but for those who are doing that already, and who get that as their goal and their vision for their business, this is just a huge shortcut.

Patrick Brewer: 29:07 Are there other folks that are doing this? I mean, I've come across a couple that seem to be doing something similar. Most of it to this to this point seems to be focused on the accounting CPA space, are you bullish on the advisor vertical as far as having a sufficient number that you feel are capable and interested in doing planning for successful business owners?

Patrick Brewer: 29:28 Where do you feel the market's at based on the conversations that you've been having with advisors? Do you think a bunch more are going to adopt it? Do you think it's going to be just a select handful that can kind of really wrap their arms around it and work in that collaborative model? What are you seeing based on conversations that you've had?

Dominique M.: 29:44 Yeah, I see a pretty big gap. What I'm seeing is that the larger firms, wealth management firms will usually employ a CPA or an attorney in-house and they're able to incorporate this really well into their business model.

Dominique M.: 30:00 The independence on the other hand, there's this big gap and that's just I think just the way the cookie crumbles, so to speak, because people get out there and just want to get warm bodies in the door, they want to start building up their practice and they're working with whoever comes along.

Dominique M.: 30:22 There tends to be a big variety between people who really get this model and are running with it full bore and those that are struggling really to get their business to the next level, but I'll tell you, this is an excellent way to do that because you don't need the expense of bringing somebody in in-house and you also don't have the risk of bringing somebody in in-house.

Dominique M.: 30:47 There's always that inherent risk that somebody could walk off with your client base and sometimes we see that because the tax work is recurring and they tend to have this more frequent connection with the CPA and that's a risk that you run when you run your model that way.

Patrick Brewer: 31:09 Yeah, it's a good point. How does it work for the CPAs that are part of your network? Let's say there's a financial advisor, they sign up, they're sourcing business owners, they're doing tax plans with your company and the associated CPAs, how does the CPA that's affiliated win?

Patrick Brewer: 31:23 Do they split fees? Do they just get the fees from doing tax and accounting work? How does is it a win-win for everybody?

Dominique M.: 31:30 Yeah, typically it's just what's yours is yours and what's mine is mine. The one thing about this model is that it's very lucrative on the tax planning side. A few moments ago, we just discussed $10,000 planning fees.

Dominique M.: 31:45 May we have planning fees up into the multiple six figures and so some of it just depends on what the financial advisor's goals are depending on what, how you monetize this as well. We have some financial advisors that say, "Hey, I'd kind of like a piece of that upfront planning fee depending on what you're licensed to do."

Dominique M.: 32:06 We have them work that out between the two of them, but I'd say the most common arrangement is the tax pro sticks to the tax fees and the financial advisor sticks with advisory fees and commissions.

Patrick Brewer: 32:23 Got it. Okay. Everybody's staying in their lane, the mutually beneficial partnership, there's not a lot of crossover it seems like between the two expertise areas.

Dominique M.: 32:29 No. We just see them, the waters get kind of muddy when that happens either at some point, somebody goes, "Hey, I'm not getting enough for this or that." And then there's this tension in the relationship which again is why I think there's less of a focus on the relationship piece between the CPA and advisor because that's really hard to get right.

Patrick Brewer: 32:52 Yeah, why is that? I've noticed that too. I mean, we've we've tried to build relationships with CPAs locally in Austin, we finally I think found one that's going to be a really good fit.

Patrick Brewer: 33:00 We're actually shopping for joint office space together next week. Fingers crossed on that, but we've made every mistake in the book like we tried to do tax in-house so we hired somebody in, it worked for a period of time, but then she got at capacity with 20 returns and wanted at a much higher salary to manage 20 returns and I'm like, "I don't think we can really pay you a salary that you're asking for if you're at capacity with 20 returns, it doesn't create a lot of leverage for the business."

Patrick Brewer: 33:30 We definitely tried the insourcing model for a time and then I just got rid of it and went back to searching for a good outsource partner, but struggled with that for a while fine. Finally, I think track somebody down, but if that doesn't work, I feel like the only option is really to pursue a model similar to yours, where you're like, "Hey, I've got these people, they're in-house. They've got a compensation structure that works for them and it will also work for you." That's one option.

Patrick Brewer: 33:54 I feel like the other option could potentially be to buy a CPA firm so you're buying into the existing infrastructure and staff and then processes, but that's obviously a lot of work and a lot of risk too. I mean, what other options do you think advisors have outside of this?

Patrick Brewer: 34:06 I mean, it seems really difficult to build those collaborative relationships. I guess it's a two part question. Why do you feel that it is difficult for CPAs and advisors to coexist? What options do you think they have outside of your model if there really are any?

Dominique M.: 34:21 Sure. Well, welcome to the world of running a CPA practice first of all.

Patrick Brewer: 34:26 It's terrible.

Dominique M.: 34:27 [crosstalk 00:34:27] you're really talking about, right? If you're bringing somebody in-house, it is how do you make that business model work with your model, and there's not a lot of leverage there. There really isn't.

Dominique M.: 34:37 When you look at the typical compensation model in an accounting practice, it is trading time for dollars, and it's not that great. There's not a lot of profit margin left in that style of business.

Dominique M.: 34:54 For that reason, you have a lot of really unhappy practitioners that are out there and so unhappy practitioners kind of leads to a really big problem in connecting with somebody that sees the world through a very different lens.

Dominique M.: 35:11 We've got two opposing personality styles. First of all, we've got on the one hand advisors tend to see the world full of possibility and opportunities and on the other hand, we've got a profession that is out there to protect their client from the dangers of the world.

Dominique M.: 35:32 It's a dangerous place, right? Totally juxtapositioned frames of mind and outlooks on things and I think the other thing is compensation models. There is sort of this bitterness in the CPA community and again, I'm poking fun there because I am a CPA so I can, but there's a little bit of bitterness there towards other companies that can make it work better in terms of the business model itself.

Dominique M.: 36:03 If I'm getting paid a couple hundred dollars an hour, and when I'm at work, I'm not getting paid and I'm unhappy about that and yet I see somebody who tends to be able to materialize money, lots and lots of money on a single deal. I'm not looking at all the other deals that didn't go through, but I'm seeing the one deal that does go through, there's some tension there, right?

Dominique M.: 36:29 At the same time, you also have professions that on the one hand is there to protect their clients from the danger and remain completely impartial and independent that's required for the license. They're viewing this other profession as, "Hey, you're just recommending whatever is going to get you the biggest commission."

Dominique M.: 36:50 I think for that reason, those are really big obstacles to overcome. Now, I'm generalizing and not every CPA is like that, not every financial advisor is like that, but the reality of trying to make those dynamics work is extremely challenging.

Dominique M.: 37:09 We don't see it that often and if that's what your goal is to find your best friend out there in a personality type that's just completely different from yours, I think it's going to be a difficult endeavor at best.

Patrick Brewer: 37:22 Yeah.

Dominique M.: 37:23 Impossible at worst. Then the second part of your question is what other way is there to make this work? You certainly have mentioned a couple of things and there are successful advisory firms out there that have gone out and acquired a CPA practice.

Dominique M.: 37:42 I think what you have to realize though is what you're, what the undertaking is and you really are going to have to run this business that probably is counter to everything you embody in your entrepreneurial spirit, right?

Patrick Brewer: 37:58 Yeah.

Dominique M.: 38:00 There's just not a whole lot of fun in that at the end of the day.

Patrick Brewer: 38:04 What are your thoughts on automation and how it's going to impact tax preparation and planning and those types of things? I mean, it seems like everything's trending towards better, faster, cheaper and accountants are following right along with it, most of them.

Patrick Brewer: 38:18 I can do it for 300, I can do it for 250 and they're not really differentiating themselves. Obviously, your model allows them to differentiate, but like at what point do the numbers in boxes eventually become numbers in boxes that translate into tax savings automatically?

Patrick Brewer: 38:35 Do you think that we're risk of tax planning becoming more automated at some point or do you think based on the complexity of the tax code and just where we're at and from a technology standpoint, that that's not really a risk? What are your thoughts on that?

Dominique M.: 38:49 Yeah, that's a great question and I think it's reality first of all. The robots are coming for sure. We've got blockchain technology, that's there, that's going to eliminate auditors for one thing.

Dominique M.: 39:03 The other thing is is that when we look at the history and the evolution of the tax profession as a whole, you know it started out during the war that the IRS ... The local IRS office prepared the tax returns.

Dominique M.: 39:19 That's actually who the tax return prepares were and it got to a point where the demand was too much and they had to shift it and say, "We're no longer preparing returns." Well, we're seeing this popularity now of a resurgence of that. They've got the capabilities to actually send you a draft of your return and you can say yes or no.

Dominique M.: 39:40 That is not that far off and there's other countries are ... Our neighbors to the north Canada already do a version of that. California rolled that out in 2005, for example. We're definitely not that far out from that. However, again, going back to this major difference between compliance and the planning piece requires judgment.

Dominique M.: 40:05 If you look at what is the potential for example to replace an attorney with artificial intelligence, we're nowhere near that at all. Could we get there? I don't know, I'm not a computer programmer.

Patrick Brewer: 40:19 I'd doubt it for a while.

Dominique M.: 40:20 I can tell you I have ... We have a piece of software that we developed that's tax planning software and there's just no way to recreate that judgment piece through artificial intelligence and as long as that's the case, not only does it mean that your job is not in jeopardy, but it also means that your expertise just becomes that much more valuable.

Dominique M.: 40:47 I think what it also does is it just increases the gap between those that can can benefit from a commoditized service that it can be replaced with computers. Think about like your Mint.com customers. That doesn't sound to me like that's your ideal customer.

Dominique M.: 41:09 There's this widening gap between that's helping you better qualified people that are a good fit for your firm, right? Because those that appreciate the judgment and value, the expertise that's being brought to the table are willing to pay for that, and they make excellent clients. I think that's actually a really exciting thing in both of our professions right now.

Patrick Brewer: 41:34 Yeah, I agree. I feel like it's ... You've got to have a sustainable competitive advantage, sustainable being the operative word there and whether that's with business owners or corporate executives or retirees, I think on both sides of the camp, we're going to see it.

Patrick Brewer: 41:49 If you're an accountant, and you're just putting numbers in boxes, and it's better, faster, cheaper, it's death by a thousand paper cuts because that will be automated at some point.

Dominique M.: 41:58 Right.

Patrick Brewer: 41:58 Get on the ball and contact Dominique if you're a CPA or accountant right away and if you're an advisor, you have the same problem, which is you've got robo-advisors, you've got lower dollar planning that's being funded with VC money, monthly retainer type stuff.

Patrick Brewer: 42:15 You've got inertia as we talked about, like painkillers versus vitamins, like most advisors are selling vitamins, you can go through your entire life and not do financial planning. Yeah, it will hurt you, but it will hurt you slowly and [crosstalk 00:42:28] going to call you out and say, "You didn't do your financial planning correctly." You just show up and you have no money. [crosstalk 00:42:34]

Dominique M.: 42:36 Right.

Patrick Brewer: 42:36 Then you feel pain and then somebody sells you an annuity, right? And they take the pain away. It's like this interesting dichotomy, but I think the big thing here is sustainable competitive advantage and it sounds like your focus is helping professionals, could be financial advisors, could be accountants, attorneys, whoever it is, create that competitive advantage with business owners, and actually be able to demonstrate that value on the front-end so the business owner is like, "Wow, I can see it. It feels tangible to me. I'm comfortable moving forward."

Dominique M.: 43:03 Absolutely. One last thing on that is just thinking about with complexity brings opportunity. We tend to be lazy, I'm lazy and but ...

Patrick Brewer: 43:16 You're efficient.

Dominique M.: 43:17 We're looking for the easy way out, but and so a lot of people will shy away from complex situations, but that's actually what helps give you that competitive advantage because the more complex the situation and you can't really get more complex than an affluent business, right?

Dominique M.: 43:36 There's constantly needs that are growing and changing with the business every day and the more you can tap into that, the more valuable you become to them as an advisor, and it's that value proposition that is really going to help distinguish you from being a commodity to being that trusted advisor that's irreplaceable.

Patrick Brewer: 43:58 Love it. Well Dominique, I've really enjoyed our conversation. Do you have maybe one last tip for financial advisors if they're considering this successful business owner niche? What should they be thinking about? How should they position themselves for success? Any parting wisdom for our listeners?

Dominique M.: 44:15 Yeah, absolutely. Get your own financial house in order.

Patrick Brewer: 44:21 Nice.

Dominique M.: 44:21 [crosstalk 00:44:21] most financial advisors are independent and business owners, right? Guess what? This works for you too so make sure that you are taking advantage of every available break. I've got some great best-selling books out there. You can find them on amazon.com, our most recent book is called Writeoffs to the Rescue and it's written for small business owners and entrepreneurs to be able to apply these principles in your own business and that will help you really understand this notion of advanced tax reduction and help you understand how this could be a great way to position your advisory practice.

Patrick Brewer: 45:03 Great. Thank you so much for that. I'm going to go ahead and list your websites, books and things below the podcast for any of the listeners that want to access that. You can just go to www.modelfa.com and click on the podcast tab and we'll have all of Dominique's resources right below the episode.

Patrick Brewer: 45:18 Dominique, thank you so much for coming on. I've really enjoyed our conversation. Hopefully we can continue it and talk some other time on the podcast, but I really appreciate your time and thanks for sharing so much wisdom with our listeners.

Dominique M.: 45:28 You are welcome. It was my pleasure.

Patrick Brewer: 45:30 All right, have a great day.