Ways to Minimize Your Client’s Tax Burden By Highlighting Their Tax Savings

Recent market volatility has investors paying more attention to their portfolios, with many seeking new ways to mitigate the negative impact of market downturns and salvage returns. A key aspect of these efforts involves utilizing tax mitigation services within their portfolios to improve their investing outcomes. Use of these services helps moderate the impact of capital gains taxes to reduce tax liabilities.

The Current Tax Environment

The Tax Cuts and Jobs Act (TCJA) provisions currently in place–which reduced the marginal tax rates for many Americans–are set to expire at the end of 2025. With income tax brackets scheduled to revert back to higher pre-TCJA levels, wealthier taxpayers may be negatively impacted unless they take action. Now is the time to consider opportunities to put new tax management services to work. Actively managing your investment portfolio with an eye toward tax mitigation is a proven strategy that, when deployed effectively, will reap rewards for years to come.

Putting the Right Tax Management Tools to Work Can Increase Tax Savings and Returns

There are tools available to financial advisors that can help them minimize their client’s taxes:

• Tax-Efficient Trading: In cases where higher-cost-basis assets are held in an account, adopting a “best tax outcome” methodology, rather than the traditional “first in, first out” (FIFO) methodology (which has no regard to the cost basis of holdings being sold), can result in better after-tax outcomes.
• Tax Aware Rebalancing: Should market drift prompt the need to rebalance the portfolio, actions can be taken to trade into more tax-efficient securities, including exchange-traded funds, passive investments, or other low-turnover options.
• Tax-Loss Harvesting: Selling depreciated holdings to offset realized capital gains can help offset taxes. The key to maximizing the benefit of tax loss harvesting is to conduct it throughout the year. This allows clients to take advantage of market movements throughout the year while avoiding wash sale violations.
• Tax-Efficient Transitioning of Assets: For investors who want to shift into a new asset strategy or who are considering a change in advisors, concerns about the tax exposure associated with a switch is a legitimate concern. Working with an advisor who is equipped to address these issues is key.

These tactics are useful for financial advisors looking to minimize the tax impact on their clients' and prospects’ portfolios. However, implementing these strategies across a diverse clientele, each with different goals, tax rates, time horizons, and risk tolerances, can be an overwhelming task for most financial professionals. Additionally, demonstrating how tax savings positively affect a client’s bottom line is central to both an advisor’s value proposition and ongoing satisfaction for tax-conscious investors.

Tax management technology frees up time and delivers a better client experience

Thankfully, help is available. A growing number of tech-enabled solutions are available to support financial advisors in optimizing portfolio efficiencies and reducing taxes. By leveraging technology to automate these functions, opportunities are captured on an ongoing basis to maximize tax efficiencies and avoid negative tax-related outcomes.

At AssetMark, Tax Management Services (TMS) enables financial advisors to deliver effective, timely and impactful tax optimization support that many clients have come to expect. TMS provides customized investment solutions, including options at lower investment minimums than are traditionally available. TMS helps manage the tax impact of transitioning assets and provides ongoing tax-loss harvesting, rebalancing and tax-efficient trading. Furthermore, it fosters deeper client conversations around tax situations, unique needs, and investment strategies.

Demonstrate tax savings to clients

TMS automatically generates personalized tax savings reports that give investors a comprehensive overview of their account’s tax savings. And, importantly, advisors can control which reports their clients see. TMS Tax Savings Reports are broad and specific, giving clients historical insights into their tax savings in both percentages and dollars, account statistics including short- and long-term losses, cost basis for holdings, and more.

Advisors can serve clients across their book of business, attract and transition new assets, and add value to their business. Plus, by providing proposal capabilities to help close the deal and personalized tax-saving reports, TMS supports advisors in delivering a custom, high-touch experience to clients.

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.