Strategy
Tax Planning An Increasing Differentiator For Advisors – Cerulli
The white paper outlines a roadmap that wealth managers should consider as they expand their tax management capabilities.
Financial advisors are increasingly relying on tax planning as a way of standing apart from peers as investor demand for customization and tax management services rises, a report by Cerulli Associates finds.
About 80 per cent of affluent investors think it is important that their accounts are customized to meet their specific situations; nearly 70 per cent agree that it is important that their provider helps them reduce their tax bill.
Cerulli’s white paper, Customized at Scale: A Framework for Next-Generation Advisory, compiled in partnership with Parametric, suggests that a holistic approach to optimal portfolio management, including tax management, will be a critical component to the future of advice delivery.
Today, nearly half (47 per cent) of financial advisors offer tax planning services to their clients, the Boston-based firm and Parametric said. (The latter is part of Morgan Stanley Investment Management.)
“This process is incredibly complex with thousands of competing variables to consider, and few advisors have access to a full suite of platform tools to assist them in designing and implementing an investment strategy that provides optimal household portfolio outcomes,” Scott Smith, senior director, said.
To address this gap, Cerulli finds that 82 per cent of managed account sponsors consider improving tax management capabilities (such as tax loss harvesting) to be a top-three priority for their firm.
The white paper outlines a roadmap, including a taxonomy of process and product solutions that wealth managers should consider as they expand their tax management capabilities.
Product solutions include capabilities such as direct indexing, custom bond separately managed accounts, tax-managed equity long/short SMAs, and option overlay strategies.
“Implemented together, these process and product solutions combine to create portfolio strategies optimized at the household level and designed to provide the greatest possible net benefits to clients and their successors,” Smith said.