Is the tax management juice really worth the squeeze?

If only all of your work could be completed with the single click of a button. Life would be so easy!

Unfortunately, reality is different. Financial advisors know all too well that “easy buttons” are few and far between. There is so much that goes into running a successful financial advisory practice. Here’s just a few activities that take up a lot of time and energy for advisors:

Client transactions. Stock trades. Market volatility. Dividend and interest reinvestment. Suitable investment selection. Contract expirations. Staff meetings. Compliance requirements. Rebalancing. Client meetings. Tax management.

Whew! And this is just the tip of the iceberg!

Take “tax management” as an example. Of course, it’s a critical part of helping tax-sensitive clients maximize their after-tax wealth. But it’s complex! How much time and effort does it require – and, at the end of the day (or tax year, or client’s working life), is the toiling worth it for your client and for you?

For instance, tax-loss harvesting is a key strategy to help sustain long-term capital gain deferrals. How are you currently going about accomplishing that strategy? Are you finding the time to evaluate opportunities on a regular (monthly or more frequently) basis in your clients’ accounts? Are you able to capitalize on market declines to create value for your clients? Where are you reinvesting the proceeds of the harvesting activity? How are you managing the “wash sale rule?”

Another example is tax lot management. Whenever a client transaction occurs, chances are that new tax lots are created as well. Every tax lot has a different tax liability (or asset) attached to it. How – and by whom – is that liability (asset) being monitored at your practice? Are you managing the tax lots at the time of trade, or are the tax lots being managed at a later date? If the lots are managed after the time of trade, is a CPA dealing with it at tax time? How are the tax liability and tax costs of the trade being assessed?

For taxable (non-qualified) accounts, tax management is arguably as important as asset selection and asset allocation. Without it, a tax-sensitive investor could lose a meaningful amount of portfolio value to taxes post-trade.

To dig deeper into tax management strategies and see an estimate of the time and effort required to implement these strategies successfully, click here. You may be surprised! At the very least, the data is likely to confirm that portfolio, account and tax management are not easy. If it was as simple as pressing a button, then anybody and everybody would do it themselves.