2025 Challenges for Wealth Managers to Raise with Clients

It’s imperative that wealth managers discuss these topics to plan for clients’ resilience and growth.

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Editor’s note: Mallon FitzPatrick is a longtime columnist with Rethinking65. Read more of his articles here.

Mallon FitzPatrick

As the new year unfolds, it is more crucial than ever for wealth managers and their clients to engage in strategic planning. Political changes will bring some shifts and many people are confused how and if this may impact them. This article explores three key areas in which wealth managers can provide strategies to optimize clients’ financial wellbeing in 2025 and beyond.

Buy Tax Futures and Lock in Rates

Clients are likely to benefit from extending the historically low tax rates under the Tax Cuts and Jobs Act (TCJA). While these rates remain in place, it’s imperative to take action to lock in these benefits before any potential changes. Many economists believe that reducing the looming national deficit may require raising taxes, cutting costs and higher GDP growth. Thus, planning becomes critical to mitigate future burdens. In many cases, there’s a cost to locking in rates, and typically, it means paying taxes now to avoid higher taxes later.

Here are strategies to consider:

  1. Maximize Roth Contributions: Encourage clients to maximize contributions to Roth IRAs and 401(k)s. Utilize backdoor and mega-backdoor Roth strategies to take advantage of low tax rates now and ensure tax-free growth and distributions in the future.
  2. Conduct Roth Conversions: Transitioning traditional retirement savings into Roth IRAs can be an effective long-term strategy to shield growth from higher taxes.
  3. Realize Gains Strategically: Evaluate and gradually realize gains on appreciated assets to manage tax liabilities strategically.
  4. Plan for Business Sales: Early planning for business sales can help minimize tax burdens and optimize profits.
  5. Utilize Estate Exemptions: Leverage current federal estate tax exemptions for wealth transfer to enhance legacy planning.

Why should you consider these strategies? Ask clients not only if they are concerned about the implications for their own taxes, but whether they have considered what tax rates might look like for their children or grandchildren. The cost of living is significantly higher for millennials and Gen Z than for their parents at those ages, and it’s unlikely to improve. Buying a home, raising children, and paying for higher education are becoming more expensive for the average American.

Direct and Indirect Gifts

With inflation and potentially higher taxes, heirs may benefit from controlled streams of inheritance, which are gifted directly to them at the parents’ discretion during the parents’ lifetime. A controlled inheritance stream can help heirs maintain a comfortable lifestyle.

Another option, indirect gifts, are typically facilitated through an irrevocable trust and allow for controls during the grantor’s life and from beyond the grave. Common controls include when and how much income is distributed, the ability to access a portion of the principal, and access based on the beneficiary’s age or other criteria. The trust also offers asset protection from creditors and spouses. 

Navigating Property and Casualty Insurance Challenges

Property insurance costs are going up because of the increasing frequency of natural disasters, regulation changes and fraudulent claims. Auto coverage is also rising because of the ripple effects caused by uninsured drivers. These changes will likely keep increasing premiums over the long term; it’s the new normal. Here’s how to manage these challenges:

  1. Understand Regional Impacts: Clients should know the regional factors driving premium hikes and work with insurers to optimize policy terms where possible.  However, sometimes, it’s beyond their control; disasters in one area impact premiums nationally.
  2. Consider Alternative Insurance Options: For those finding it difficult to obtain traditional coverage, surplus lines or state-sponsored last-resort policies might offer viable solutions.
  3. Evaluate Relocation and Self-Insurance: Assess the benefits and risks of relocating from high-risk areas and explore self-insurance cautiously where it makes sense financially.  Typically, self-insurance is only a good strategy when the dwelling is worth far less than the land it’s built on.  The client also risks losing umbrella coverage.
  4. Optimize Umbrella Coverage: Ensure your clients maintain adequate umbrella insurance that aligns with their net worth despite rising costs. This provides essential protection against lawsuits.

The Role of Cryptocurrency in Wealth Portfolios

The new administration has labeled itself crypto-friendly and may integrate cryptocurrency more into traditional financial systems. Wealth managers should prepare clients for an evolving crypto landscape by considering:

  1. Adapting to New Payment Systems: Prepare for the broader acceptance of cryptocurrencies in payment processes, which could impact everyday transactions and grant the ability to leverage cryptocurrency holdings.
  2. Tax Planning:  In most cases, cryptocurrency is treated like marketable securities for income tax purposes. However, the lack of wash sale rules enable an investor to take losses on crypto and repurchase it at any time, avoiding the 30-day waiting period to secure the loss.
  3. Estate Planning and Access: Advisors should guide clients in securing their digital assets and ensuring estate plans provide executors with access. Many grantors are including instructions with their trust documents, and more are adopting applications that provide “dead man’s switches.”  This feature sends links to important information to a predetermined list of contacts if the user does not log in after a set period of time.

Conclusion: Strategic Planning for the New Year

As we navigate 2025, advisors must discuss with clients how to maximize existing opportunities and prepare for potential shifts, as well as accepting the new “normal” of P&C coverage. The strategies discussed — locking in favorable tax rates, optimizing insurance coverage and embracing digital currency — can help safeguard present wealth and empower future generations to thrive amidst economic uncertainties.

Mallon FitzPatrick, CFP, is a principal and managing director at Robertson Stephens and heads the firm’s financial planning center. For more information about Mallon or Robertson Stephens, please visit www.rscapital.com or email info@rscapital.com. Advisory services are offered through Robertson Stephens Wealth Management LLC. Opinions presented are those of the author and not necessarily Robertson Stephens. Please read important disclosures.

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