How Financial Advisors Expand Their Service Offering with Tax Management

In today's financial landscape, clients are seeking more personalized and higher-touch experiences that incorporate the full scope of their financial well-being. In particular, services oriented around tax planning and managing capital gains taxes are gaining traction with advisory clients. A recent study¹ revealed some telling statistics: 

• 80% of investors believe that their financial advisors should prioritize minimizing taxes for them
• 90% of respondents believe taxes can erode growth in their investment accounts over time

While financial professionals may recognize the significance of tax management, with 86% of financial advisors considering quantifying and reporting tax management's ongoing impact essential for their businesses, a Cerulli study² found that only one in five offer ongoing, automated tax management.

¹ Orion Tax Pulse Survey, 2021

² The Cerulli Report—U.S. Managed Accounts October 2021

Why Do So Many Advisors Exclude Tax Optimization from Their Service Offering?

Many advisors lack the time or expertise to effectively offer this service, are concerned about regulatory compliance, or lack the necessary support staff to do the heavy lifting. However, financial advisors who incorporate tax optimization into their services may see immediate and long-term benefits.

Tax management services help advisors:

• Attract new clients who are hesitant to change advisors because of tax considerations
• Demonstrate improved outcomes for existing clients
• Capture more wallet share and taxable client assets from new sources
• Better serve clients transitioning to a fee-based model or requiring asset reallocation due to personal circumstances
• Earn more referrals

These compelling reasons underscore the importance of expanding your services to include tax management. Nevertheless, there remains a disconnect between the “why” and the “how.” Financial advisors can bridge that gap by leveraging a wealthtech platform that provides advanced functionality for executing tax-related trades and related tasks.

In recent years, wealth management has seen a variety of new and more personalized features and technological capabilities. Platforms are becoming more comprehensive, expanding their reach to include risk management and delivering institutional-level tax capabilities to the mass market.

When It Comes to Tax Management Platforms, Capabilities Matter

With so many options, what should a financial advisor look for when selecting a particular service platform?

To address client expectations and differentiate yourself from the competition, an effective tax management platform should:

• Offer daily optimization to maximize tax savings
• Be integrated to build scale and efficiencies
• Generate proposals and reports to help clients visualize the impact of tax savings
• Be seamless, offering account opening and a suite of tools for optimizing tax savings
• Incorporate functionality like tax transition, tax loss harvesting, tax-efficient rebalancing, and client-directed activity options

Why It’s Important to Act Now to Retain and Attract Tax-Sensitive Clients

The great wealth transfer expands the universe of potential clients in need of tax-optimized asset management. Market volatility also creates opportunities for tax loss harvesting and other tax-efficient activities. Financial advisors who don’t capitalize on the growing appetite for customized tax management support are compromising the long-term success of their business and also negatively impacting its valuation.

Tax Management IS Wealth Management

Tax management has many variables, from individual tax rates to tax-optimized holdings, daily monitoring of holdings, staying up to date with tax code changes, cost-basis considerations, charitable giving, tax loss harvesting, and more. If you aim to expand your client base and provide comprehensive support during every stage of your clients' financial journies, you need a platform that offers ease of use for you and effective functionality for your clients.

The team at AssetMark is here to help you incorporate tax management services into your business and support you with any area of your business.

We’d love to chat. Contact our team to schedule a brief consultation and learn more about what we can do for you.