Over two-thirds of advisors (69 per cent) have noticed that their clients are asking more tax-related questions, in a sign that the issue of taxes have been pushed to the fore of clients’ minds in the aftermath of the fiscal cliff deal, new research shows.

An overwhelming 81 per cent of some 170 advisors surveyed by SEI at its latest tax management webinar said they take tax management into consideration when advising clients on investment decisions. 

However, beyond that, 52 per cent only look to harvest losses for tax purposes at the end of the year. According to the firm, this points to opportunities for advisors to add value by providing regular tax insights and implementing tax-managed investing strategies.

“Taxes have become a major focus in the aftermath of the fiscal cliff and while most advisors take tax management into consideration when advising clients, there are more opportunities to demonstrate expertise and add value in light of recent tax changes,” said Dean Mioli, director of investment planning for the SEI Advisor Network.

He added: “With clients asking more tax-related questions than ever before, advisors should proactively offer tax-related advice and implement tax-driven strategies throughout the year. By making taxes top-of-mind advisors can differentiate themselves and gain mindshare in a competitive environment.”

SEI has highlighted five points it believes advisors should take on board to help their clients increase tax savings.

1. Make use of the multiple “tax buckets”: taxable, tax-deferred and tax-free. 

2. Focus on asset location: the key phrase for advisors may have changed from “asset allocation” to “asset location,” as the location of assets in a portfolio can create tax advantages, SEI said. “Advisors need to consider where assets are located within a portfolio to optimize the different tax treatments that different types of investments receive when placed in certain accounts.”   

3.Income shifting: SEI believes that gifting strategies are more important than ever in light of recent tax changes.

“Don’t overlook shifting income to a family member in a lower tax bracket or deferring income to the next year to gain tax benefits,” it said. “Opt for gifting appreciated securities, such as low basis stocks, instead of cash. Look to defer investment from one year to the next to lower the amount of taxable investment income for the current year.”   

4. Roth conversions: while a full Roth conversion may not make sense for every client, Roth IRAs can offer “considerable tax advantages,” SEI said. They can be implemented in numerous ways including a partial conversion, generational arbitrage, and by converting a non-deductible IRA to a Roth IRA.

“Look to tactically pair the Roth conversion with other tax strategies, such as increasing charitable contributions or released suspended passive losses, to potentially increase the tax savings even further,” the firm added.

5. Loss harvesting – an “underused” technique to reduce client tax liabilities. SEI advises that advisors harvest losses regularly throughout the year so as to find opportunities to offset future gains.