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Clients Want Tax-Smart Advice, and Most Aren't Getting It: Orion

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What You Need to Know

  • Eighty percent of investors surveyed said advisors should focus on minimizing their tax obligations.
  • Advisors who approach tax management via tax-loss harvesting portfolios once at year-end miss out on major opportunities.
  • While 66% of advisors believe outsourcing diminishes their value in clients’ eyes, 90% of investors prefer an advisor who leverages other experts' knowledge.

Eighty percent of investors in a recent survey commissioned by Orion Advisor Solutions said advisors should focus on minimizing their tax obligations, and 90% said taxes can erode their portfolio over time.

But Orion cited research from Cerulli Associates showing that only 20% of advisors employ ongoing, automated tax management. 

It said other advisors are more likely to adopt an ad hoc approach to tax management by tax-loss harvesting portfolios once at year-end. Thus, they miss out on major opportunities, such as those in the most volatile days of 2020, Orion said.

“Advisors used to warn investors, ‘Don’t let the tax tail wag the dog,’” Andy Rosenberger, head of Orion’s tax managed solution, said in a statement. “Those days are long past us. 

“Investors need help transitioning out of concentrated stock positions into more tax-efficient portfolios, and they want to be ready for any tax changes that may impact their long-term financial goals.”

For its study, Orion commissioned online surveys involving some 2,000 investors and advisors, and conducted in-depth interviews with dozens of them.

Advisors’ Perspective

Advisors surveyed recognize the importance of year-round tax management for investors and understand this can help grow their business. 

Seventy-eight percent of respondents agreed that strong asset allocation and tax management are two important ways to add alpha to a client’s portfolio. 

Seventy-six percent said it is easier to explain the benefits of effective tax management or tax alpha to clients than the benefits of outperforming the market. 

And 86% said the ability to quantify and report the ongoing effect of tax management to their clients is critically important to growing their businesses.

The survey found that advisors are most interested in managing the impact of capital gains on the transition of assets, providing a proposal to analyze tax transition plans for prospects and being able to quantify the ongoing effect of tax management for clients through reporting.

At the same time, advisors said manual processes and lack of time prevent them from employing more active tax management strategies. Forty-six percent reported using manual methods, such as spreadsheets and email, to manage models. 

One-third of respondents acknowledged that they do not have time to meet the expectations of high-net-worth clients, and close to half worried that they may lose clients because they cannot provide the more sophisticated services their clients need as their portfolios grow. 

The survey also found that advisors are concerned about their clients’ perceptions of them, and tend to act on these perceptions. For example, 66% believe that outsourcing efforts diminishes their value in their clients’ eyes.

In fact, 90% of investors in the survey said they prefer a financial advisor who leverages the resources, knowledge and support of other experts to help with investment research, strategy, planning and portfolio management.

A Resource From Orion

In its statement, Orion said it has rolled out an enhanced version of its Tax Managed Solution offering, designed to help advisors build customized portfolios focused on increased tax efficiency and ongoing tax oversight.

Orion said it designed the tax-managed reporting capabilities to show the tangible results of an advisor taking a tax-sensitive approach to portfolio management to allay their concerns over tax exposure and demonstrate that their portfolio was built to keep them on track to meet their financial goals.