Lack of Communication on Minimizing Taxes on Clients’ Investments

Advisors overlook a conversation every client wants to have but won’t start, SEI poll finds

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Minimize taxes? Sure, everyone wants to. But in a new “quick poll” of financial advisors from SEI Advisor Network finds that 90% of advisors said “clients rarely or occasionally ask about ways to minimize taxes on their investments.” Most advisors, 79%, said “proactively managing for taxes is a consideration when making investment decisions for clients,” according to the SEI announcement on Monday.

This leaves a surprising percentage of clients in the dark about what advisors are doing for them regarding taxes, and potentially room for more to be done after a conversation about taxes. It is, it seems, up to the advisor to bring this up with clients.

“It’s clear that clients aren’t frequently asking their advisors about tax management as it impacts their investments,” said Kevin Crowe, solutions unit leader at SEI Advisor Network. “On the other hand, the majority of advisors have said they can preserve significant amounts of tax savings for their clients.

As a result, advisors should proactively communicate with their clients and discuss the advantages of deploying tax-management techniques. It’s not enough to only provide tax-efficient strategies, advisors need to communicate these strategies to clients and demonstrate the positive impact it has on the investors’ total wealth and meeting their goals. Ultimately, this will provide additional value in building the client-advisor relationship.”

Almost every advisor polled, 98%, said they were “using tax-management strategies in some capacity for their clients.” SEI also reported that nearly one-third of the advisors indicated they can save at least “6% of their clients’ wealth annually,” and “two thirds” indicated they could save at least “3% of their clients’ wealth annually,” by using “tax-management strategies,” the release notes.

Advisors used several tactics to help clients mange taxes on investments, according to the announcement: 40% “used tax-managed mutual funds,” 27% utilized “tax-efficient separate accounts,” 13% favored tax-exempt investments and 10% harvested tax losses at year-end.

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